The Future of Vehicles

In a previous article, we discussed ways of how Artificial Intelligence (AI) is rising in importance in our every day lives and also how we can gain from an investment perspective.

Today I wanted to discuss in more depth one part of AI, which is the growth of Self-driving vehicles and the rise of Electric Cars (EVs).

What are the drivers of growth?

Technological disruption and climate-related regulation are leading to big changes in the automotive industry.

Most of the modern world is tightening fuel economy standards. For example, some European cities have banned diesel vehicles and some governments are already looking for a near future date whereby no more fossil fuel vehicles will be sold in their countries.

Furthermore, carmakers are facing growing regulatory scrutiny after scandals over cheating on diesel engine emission tests (e.g. Volkswagen). Without diesel, it may be difficult for automakers in Europe to hit fuel economy standards, raising incentives for them to speed up development of EVs and charging stations.

According to BlackRock Institute, it is estimated that the sale of Hybrid cars, which uses both fuel and electricity for power, will surpass that of Regular vehicles by 2028. Electric Vehicles will take a bit more time and they are expected to surpass after 2030. (see below chart for details).

Interestingly, according to a Bloomberg Study, it is also expected that by 2022 EVs will cost the same as their internal-combustion counterparts (see chart below).

When it comes to Fully autonomous cars, it is not expected that these are widely adopted any time soon however there is a huge demand for the use of advanced driver assistance systems (ADAS) which is seen as the first step for full automation. ADAS features may include for instance automatic emergency braking and speed control and these will be essential to future drivers like seat belts are today.

Investment Implications

As an investor, we would benefit from examining the supply chains of the industries related to both the production and use of vehicles. For instance, higher demand for EV will mean more profits for semiconductor and software providers as they would be the primary beneficiaries of the rising digital content in vehicles.

The traditional car makers are all under siege and nowadays nearly all major automakers have announced EV plans for the next few years, under the pressure of stricter emission standards and competition from impressive product rollouts by non-traditional carmakers.

With all these changes happening, the bottom line is that investors need to be very selective when it comes to stock picking in this area as the race to the future of vehicles will create a significant dispersion between winners and losers.

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Keep following us on our website. We will soon publish some interesting investment strategies in this sector which we are keeping on our radar!

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