Perspectives

Explore our thought leaders’ latest insights and ideas.

Passenger Economy

Passenger Economy

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/

Information contained herein has been obtained by sources we consider reliable, but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of the data available to us at the time of the original publication of the report. These opinions are subject to change at any time without notice. Investors must bear in mind that inherent in investments are the risks of fluctuating prices and the uncertainties of dividends, rates of return, and yield. Investors should also remember that past performance is not necessarily an indicator of future performance and D.A. Davidson & Co. makes no guarantee, expressed or implied to future performance. Investors should consult their financial and/or tax advisor before implementing any investment plan.

Categories

Investment Management

Share