Car of the Future v3.0
Throughout the years, the Car of the Future investment process was mostly defined as themes surrounding the addition of new content into the car, and usually because of regulatory elements. Think of turbochargers, stop-start systems or electrified vehicles helping automakers meet emission standards, or ADAS components and associated electronics helping automakers meet safety regulations. This process often meant that auto suppliers gained profitable content while automakers…well not so much.
This investment approach has and remains fairly straightforward. Seek out auto suppliers providing the necessary components that automakers will be forced to add no matter what happens at the macro level — and if those components also happen to improve the value proposition of the car— you could find suppliers with profitable growth profiles in excess of global auto production. Indeed, our Auto Technology Investing Framework has focused mainly on identifying such stories — and to be sure — this theme remains alive and well and addressed in this report. Regulatory driven stories remain powerful and consistent.
Yet the theme is also evolving in a major way. We believe the next Car of the Future chapter expands from a content-into-the-car theme into a new-economics-of-the-car-itself theme. Fully autonomous cars, driverless on-demand ridesharing networks and eventually integrated mobile networks, connectivity, over-the-air and big data aren’t
necessarily verticals that automakers are being forced to pursue. Rather, they’re being pursued because of potentially game-changing business model economics. It’s no coincidence that several prominent technology companies are entering or are reported to be considering entering the mobility space, just as it’s no coincidence that the Consumer Electronics Show (CES) has become something of an auto show.
And it’s not hard to see why this is happening. Even after tremendous technological advances in recent decades, the car as we know it today falls well short of maximizing its potential in terms of efficiency (both operating cost/mile & resource sharing), safety, data collection and monetization, personalization, and updating. Not only does that make the car something of an untapped well of new revenue sources, but each inefficiency also brings with it an added cost — insurance, fuel, economic, societal, recall-related, time spent driving in situations where consumers would rather not drive (like traffic jams). And the degree of stakeholder alignment is perhaps unprecedented — autonomous electric cars promise to be safer and greener, while shared on-demand mobility promises to unclog congestion in major cities.
Peak auto? Hardly, the profit potential of the car is more likely at its earlier stages, in our view. A year or two ago many of these new mobility themes were merely concepts. Now we have a number of industry players promising fully autonomous cars within five years! This means that the investment approach must also expand and evolve. Auto/Tech investing is no longer just about identifying which components go into car (though this is still a very important topic), but rather about who wins the driverless race & how, where and how will autonomous business models unfold, how will shifting industry forces impact various automakers/suppliers, and how will connectivity & data change the equation?
So whereas the prior investing framework essentially entailed one stream, today we think it entails two broad streams: (1) The content-additions that will shape the Car of the Future; and (2) The mobility providers of the future and the resulting industry implications on various players. We note that the scope of our analysis is the next 10-15 years.
Welcome to Car of the Future v 3.0.