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‘The future of cars may not be quite what you think’

‘The future of cars may not be quite what you think’

Market commentary
03 July 2018

To coincide with ‘Green Transport Week’ Tom Riley, Portfolio Manager of the AXA WF Framlington Robotech Fund, shares his thoughts on the automotive sector and where new investment opportunities lie:

  • Given there has been a shift in the automotive sector towards electric cars as the future of transport, combined with ideas around shared mobility, the emphasis for investment opportunities in the industry is changing.
  • Whilst cars will continue to be bought and sold, industry investments now span from app developers, battery makers, and chip manufacturers to sectors such as insurance

“It has been forecast that the number of cars on the road worldwide is set to double, to roughly two billion by 2040.[i] At the same time, by 2050 it is estimated that around 70% of the global population will live and work in cities.[ii] Which raises the question, where will these billions of cars be stored?

“However, it isn’t just the space required for everyone to have a personal vehicle that will force change through the system; it is also the increase in the range of alternatives. For city dwellers it is already much harder to justify owning a vehicle they hardly ever use when they can get a pretty similar experience by downloading a ride-hailing app onto their smart phone.

“This is where the second major factor i.e. technology, is forcing change through the automotive industry. Rapid strides in computing power, connectivity, vision systems and artificial intelligence mean that a world in which self-driving cars ride alongside (and eventually replace) human driven ones may not be very far away. Goldman Sachs now predicts that the global ride-hailing and ride-sharing business will grow from a current value of around $5bn to around $285bn by 2030, assuming self-driving car technology proceeds at the expected level.3

“The other driver of change is the environment. Greater awareness of climate change is forcing a shift from fossil-fuelled vehicles to electric ones. We have already seen a significant jump in electric vehicle (EV) ownership; from basically a standing start less than 20 years ago, to more than two million EVs were sold in 2016.  According to the International Energy Agency, the stock of EVs by 2030 could number north of 200m.

“As a result of these two forces, as well as the ongoing improvements to battery and other, ancillary technologies, it is likely that mobility as a service will continue to grow in stature. A recent study by McKinsey predicted that by 2030 one out of every 10 cars sold could be a shared vehicle of some sort.4

“That is not to say that cars will no longer be bought and sold but rather that the emphasis is changing.  As cars become more eco-friendly, more connected to the each other and more intelligent, the supply chains supporting them will grow. Additionally, with this shift to convenience, the companies that make these vehicles - and their profit margins - are likely to alter too. With that growth and change, comes a whole new opportunity set for investors.

“In such a world, the choice for an auto investor isn’t just between Ford and Toyota for example. It isn’t even between Tesla and the Nissan LEAF; it is between app developers and battery makers, car builders and chip manufacturers. That is not to mention the other industries that will be fundamentally affected by this shift in focus.

“When mobility is a service, rather than a status symbol, insurance rates too will change. Currently, around 1.3m people die on the world’s roads.5 And, it is generally accepted that the majority of these are the result of human error rather than mechanical failure (most reports into the statistics put the figure at around 90%6) but when roads are ruled by law-abiding, artificially intelligent algorithms plugged directly into the traffic grid, human error and accident rates will likely decline as well – challenges the insurance sector and investors in it will need to grapple with.

“When a sector is as dramatically disrupted as the automotive sector has been, and will continue to be, the full effect of the changes will take a long time to be known. This means that the potential investment universe has and will continue to expand. It also means the incumbent players are increasingly being forced to think differently about what they do. Both of which are potentially exciting for long-term investors.”

(For a more in-depth view on any of the above convictions please contact the media relations team to arrange an interview.)

 

Notes to Editors

[1] https://www.weforum.org/agenda/2016/04/the-number-of-cars-worldwide-is-set-to-double-by-2040

[1] BAML February 2017

3 Bloomberg

4 https://www.mckinsey.com/~/media/mckinsey/industries/high%20tech/our%20insights/disruptive%20trends%20that%20will%20transform%20the%20auto%20industry/auto%202030%20report%20jan%202016.ashx

5 UN April 2018 https://news.un.org/en/story/2018/04/1007151

6 https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/811059

Media Contacts

Jayne Adair

+44 20 7003 2232

Jayne.Adair@axa-im.com

 

Jamie Wynn-Williams

+44 20 7003 2680

jamie.wynn-williams@axa-im.com

 

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Authors
Tom Riley