George Saffaye, BNY Mellon
Point 1: OEMs are shifting through the gears
Traditional automakers have nearly all woken up to the fact that the future is electric. Fresh from the fallout from a scandal over rigged diesel emissions tests, Volkswagen, the world’s largest carmaker by sales, 1 has committed some €10bn ($11.35bn) to developing a future built around electric vehicles (EVs). It now aims to have 30 new pure EV models by 2025, accounting for some 20-25% of its sales, equivalent to 2-3 million vehicles each year.
Other brands are picking up the pace too. In December, Toyota, the world’s second largest manufacturer by sales after Volkswagen, said it will be offering electric versions of every model of its vehicles by 2025, and hitting a target of selling 5.5 million electrified vehicles by 2030.
Even Ferrari – once considered a last refuge for petrolheads – has embraced an EV future. In January it committed to building a battery-powered supercar to challenge Tesla at the high end of the electric-auto market. Announcing the plan, CEO Sergio Marchionne commented: “If there’s an electric supercar to be built, then Ferrari will be the first.”
This all points to a growing realisation on the part of automakers that they will need to find a way to transition to the new world if they’re not going to be left behind. But just as important will be the emergence of entirely new companies that haven’t had any exposure to the auto sector. This could create a whole new ecosystem of high growth suppliers and original equipment manufacturers ripe for investment.
Automakers’ electric car ambitions
|BMW||0.1 million electric car sales in 2017 and 15-25% of the BMW group’s sales by 2025|
|Chevrolet (GM)||30 thousand annual electric car sales by 2017|
|Chinese OEMs||4.52 million annual electric car sales by 2020|
|Daimler||0.1 million annual electric car sales by 2020|
|Ford||13 new EV models by 2020|
|Honda||Two-thirds of the 2030 sales to be electrified vehicles (including hybrids, PHEVs, BEVs and FCEVs)|
|Renault-Nissan||1.5 million cumulative sales of electric cars by 2020|
|Tesla||0.5 million annual electric car sales by 2018; 1 million annual electric car sales by 2020|
|Volkswagen||2-3 million annual electric car sales by 2025|
|Volvo||1 million cumulative electric car sales by 2025|
Source:International Energy Agency, Global EV Outlook 2017, April 2017. Note: Chinese OEMs include BYD, BJEV-BAIC Changzhou factory, BJEV-BAIC Qingdao factory, JAC Motors, SAIC Motor, Great Wall Motor, GEELY Auto Yiwu factory, GEELY Auto Hangzhou factory, GEELY Auto Nanchong factory, Chery New Energy, Changan Automobile, GAC Group, Jiangling Motors, Lifan Auto, MIN AN Auto, Wanxiang Group, YUDO Auto, Chongqing Sokon Industrial Group, ZTE, National Electric Vehicle, LeSEE, NextEV, Chehejia, SINGULATO Motors, Ai Chi Yi Wei and WM Motor.
Point 2: A supply/demand imbalance
One important facet of the mobility theme is its tendency to unleash new demand for select commodities. Lithium, an essential component of the batteries that will power the EV revolution, is a case in point. Current global production of lithium is highly concentrated, both geographically and in terms of corporate ownership. Just five companies – three in Chile, one from Argentina and one from Australia – account for a full 85% of the world’s current supply of lithium. 2
Given the expected increase in demand for batteries – not just in vehicles but also in smartphones and other electronic devices – this bottleneck in supply could affect pricing, distribution and accessibility of this important commodity.
Power is another important commodity that could be affected. As the uptake of EVs continues, the consequences for how we generate and store electricity could be far-reaching. This is a key component of our ‘electrification’ theme.
As more and more people buy EVs, power management will be critical. One car having its batteries charged is manageable – but 50-60 cars all doing the same — that’s a different story. That’s going to be a challenge for the grid – and so we believe there’s future opportunity for investors in the fields of battery storage to support peak electricity demand, smart metres to regulate energy usage, and renewable energy generation.
Projected autonomous vehicles in operation in the US (millions)
Note: United States. Source: Statista. Some information contained herein has been obtained from third party sources that are believed to be reliable, but the information has not been independently verified by BNY Mellon. BNY Mellon makes no representations as to the accuracy or the completeness of such information.
Point 3: It’s all about the data
Meanwhile, the proliferation of both sensors and vehicle connectivity will likely have profound implications for the growth of data infrastructure in the coming years. According to one estimate, connected cars generate roughly 25GB of data per hour. That compares with just 869MB/hour to stream a high definition movie.
Clearly, given the scale of infrastructure upgrades required to support autonomous driving, the opportunities in areas such as data management, semiconductors, cloud computing and next generation 5G low-latency/high-bandwidth communications are significant.
Even if we take current progress into account, we’re at a fraction of where we’re headed in terms of data generation and management.
1: Megabits per second and gigabits per second.
2: Teraflops (TFLOPS) – trillion floating point operations per second
Source: Delphi Automotive PLC. Some information contained herein has been obtained from third-party sources that are believed to be reliable, but the information has not been independently verified by BNY Mellon. BNY Mellon makes no representations as to the accuracy or the completeness of such information.
Point 4: Investing today is investing for tomorrow
It’s not just automakers that have woken up to the potential of smart mobility: governments and regulators have, too. In September 2017, the Chinese government said it would join the UK and France in exploring ways of phasing out the production of internal combustion engines entirely by 2040. 3
With the world’s largest automobile manufacturing base – accounting for some 28 million vehicles in 2016 – this is a milestone. India is looking to do the same: if anything, its target is more ambitious, with a commitment to phase out internal combustion engines by 2030.
Meanwhile, in the real world, pilot schemes are bringing the conceptual benefits of mobility ever closer to reality. Singapore, for example, is trialing an autonomous commuter shuttle bus service that, it’s hoped, will be particularly useful for the elderly, families with young children and the less mobile, who can hail the services via their mobile phones.4 In France schemes in both Paris and Rouen are testing Europe’s first open-road mobility-on-demand (AMoD) system.5
Lorry platooning – the concept of autonomous trucks travelling together with the lead vehicle commanding a snaking train of “drone” vehicles – is also gaining ground. Starting in 2011 it was successfully trialed in Germany, the US, Sweden and Japan. Further trials are expected in the UK under the auspices of the European Commission-funded Safe Road Trains for the Environment (SARTRE) project in 2019.
While it is fair to say the mobility theme has received its fair share of hype, it’s also clearly not a short-term phenomenon. The commitments and innovations made today will influence events for decades to come.
For investors this is a crucial takeaway. Potentially there’s the opportunity to invest in nascent industries while they’re still in their infancy.
Given how young some of the companies in this space are and how quickly they’re growing there’s clearly potential to pick future winners, our view is that if you miss this, you risk owning something relegated to the past.
Mobility: a wave of innovation
Source: The Boston Company
Point 5: A safer world
As vehicles become more connected and as the number of sensors on individual vehicles proliferates, the chances are that roads will become safer as well.
True, the arena of self-driving cars has been a far from trouble-free ride in recent months. Both Tesla and Uber’s self-driving systems, for example, have been under intense scrutiny this year after fatal accidents. But the wider picture is one of increasingly connected, increasingly road-aware vehicles that over the long term should be able to make a game-changing contribution to road safety.
Of the 35,000 US road fatalities in 2015, 90% were attributed to human error. Arguably, many of these accidents could be avoided in the future thanks to advanced driver assistance systems (ADAS), safety features and the benefits of machine learning in autopilot systems.
In vehicles with the highest levels of autonomy, you’re looking at more than 28 separate sensors encompassing Lidar, exterior and interior camera sensors, short- and long-range sensors and autonomous driving domain controllers. It’s one major category that to my mind will be the most significant part of this theme overall. It will have a ripple effect across numerous industry sectors and will affect people’s lives in a very powerful way.
ADAS sensor count increases with each level of autonomy