Edward P. Crotty, CFA, Chief Investment Officer and Portfolio Manager, Davidson Investment Advisors
Is your portfolio prepared for paradigm-shifting changes not seen since the birth of the automobile?
As autonomous driving and electric vehicles gain relevance, the business model for the auto industry is transforming, and technology companies are taking a fresh approach with the idea of shared mobility.
Today the number of cars sold worldwide is approximately 80 million units per year, according to Statista. If we assume an average price of approximately $20-30 thousand, that creates a market opportunity of $1.6-2.4 trillion.
The future auto market will be measured in miles not cars—approximately 10 trillion miles globally driven annually at a cost of approximately $1 per mile for a total addressable market of $10 trillion, according to Morgan Stanley Research. A study by Fujitsu forecasts that the utilization rates of shared cars will exceed 50% by 2030, a jump from the estimated 5% utilization rate for cars today. The theory goes that by increasing the utilization rate of the car through shared mobility, the cost per mile goes down significantly. With the addition of autonomous driving, the cost per mile goes down even further. According to Frost & Sullivan, more than 20 million vehicles could be removed from the road annually as a result of growth in new mobility services. However, as the cost per mile goes down, many believe that miles driven may increase exponentially.
Autonomous vehicles will create a massive economic opportunity that will scale from $800 billion in 2035 to $7 trillion by 2050, according to a study prepared by Strategy Analytics. Even as reclaimed parking spaces may fuel a downtown building boom, autonomous vehicles will encourage builders to push deeper into the suburban fringe, confident that home buyers will tolerate longer commutes now that they don’t have to drive, according to the report, sponsored by a unit of Capital One Financial Corp. The potential impacts are profound for the auto, insurance, technology, media, airline, retail, real estate and energy industries.
Finding investable opportunities around trends such as this one can be difficult, and is important to consider a company’s valuation, competitive positioning and ability to execute a business in response to a new and changing environment, among other factors. We believe the ability to both seek exposure and manage the risks around themes like this in your portfolio can be efficiently and thoughtfully handled through professional active portfolio management. A financial advisor can help you evaluate such opportunities and seek solutions for your unique interests and financial goals.
Sources:
https://www.statista.com/statistics/200002/international-car-sales-since-1990/
https://etfdailynews.com/2016/11/01/the-global-auto-revolution-will-become-a-10-trillion-business/
http://www.fujitsu.com/us/about/resources/news/press-releases/2017/fai-20171115.html
https://ww2.frost.com/news/press-releases/bt-drives-sustainable-innovation-automotive-manufacturing-and-urban-mobility/
Davidson Investment Advisors is a SEC registered investment advisor. The opinions expressed herein are those of Davidson Investment Advisors and are subject to change. The information contained in this presentation has been taken from trade and statistical services and other sources, which we believe to be reliable. We do not guarantee that this information is accurate or complete and it should not be relied upon as such.
This presentation is for informational and illustrative purposes only, and is not intended to meet the objectives or requirements of any specific individual or account. Past performance is not an indicator of future results. Indices provide a general source of information on how various market segments and types of investments have performed in the past. An investor should assess his/her own investment needs based on his/her own financial circumstances and investment objectives.