Mapping out the road to the future
It seems hard to believe, but many of us may already have bought our last petrol car. In fact, in the decades to come getting behind the steering wheel (if there even is one) is likely to be a very different experience.
2 March 2019
We are close to the tipping point between fossil fuels and alternative power sources, with some autos manufacturers already setting out ambitious timelines to phase out the internal combustion engine (ICE).
Electric vehicles (EV) sales are forecast to rise sharply over the next decade and electric and hybrid could have all-but-replaced ICE by 2030 in the largest markets, China, the US and European Union.*
We are close to the tipping point between fossil fuels and alternative power sources
Meanwhile, autonomous driving is looking less and less like science fiction. Estimates for the first driverless vehicles are as early as the start of the next decade, and cars with increasing levels levels of automation (Level 0 is fully driver controlled, while 5 is complete automation in all environments) are becoming the mainstream. Each level of automation brings with it new technological requirements.
For investors, identifying winners from this technological ‘arms race’ is difficult. For sure, many of the original equipment manufacturers (OEMs) are likely to see their margins suffer in the short term, due to requirements to invest in new technologies, and their competitive moats may be seriously eroded in the medium term, as new entrants (like tech companies) jump straight to the higher levels of automation.
However, there are other areas which stand out for their structural growth potential, potentially providing a sustainable yield in the long term. Auto suppliers for example, will benefit from increased demand for both new powertrain solutions and components designed to enable autonomous driving. This too could be a benefit to semiconductor makers. Other less obvious beneficiaries, could be companies involved in the infrastructure for the development of autonomous vehicle networks – such as toll-road operators.
That’s why, for me, the future of motoring, whether that is electric or autonomous vehicles, is probably one of the most exciting long-term structural growth themes.
*Statista, PwC, September 2017
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