Driving is changing before our eyes
24 October 2018
The way we drive is changing forever, due to major
technological advances and a push towards greener forms of
transport (particularly considering the latest dire warnings on
Despite some short-term weakness in the autos sector
(cooling demand in China, combined with speculation we are
nearing the end of the economic cycle), the next wave – mass
electrification and autonomous driving – means future mobility
is one of the most exciting long-term structural growth themes
The future is electric
It is very possible many of us will have already bought our last
We are close to the tipping point between fossil fuels and
alternative power sources.
Volvo, for example, has already committed to stopping
production of diesel engines, aiming for 50% of its global sales
to be electric vehicles (EV) by 2025.
At the tipping point: electric and hybrids are replacing combustion
Source: Statista, PwC, September 2017. Proportion of vehicle sales in China, US and EU.
EV and hybrid sales are forecast to rise sharply over the next
decade. In fact, by 2030, combustion engines could be all but
replaced by electric and hybrids in the largest markets, China, the
US and European Union. Sales are predicted to drop 61 million (in
2017) to just 4 million, while electric vehicles will have leapt from 1
million to 44 million and hybrids from 2 million to 34 million.1
For now and the future
We are also moving closer to autonomous driving being a
reality. Cars classed as Level 1 or 2 (Level 0 is fully driver
controlled, while 5 is complete automation) are already
moving to the mainstream and estimates for the arrival of the
first driverless vehicles on the roads are as early as the start of the next
This is in part driven by something of an ‘arms race’
between some of the best-known auto brands. German
carmaker Audi claims its new A8 is Level-3 ready (allowing
the motorist to safely take their attention away from the
task of driving). The next Mercedes Benz S Class will also
feature Level-3 technology. Meanwhile, BMW believes it
can bring its autonomous iNext model to the market by
2021. Not forgetting the contribution of Tesla’s Autopilot,
and the attempts by tech companies, such as Google,
Uber and even Amazon, to beat each other to market with
genuinely autonomous solutions.
The technological requirements become more complex
for each level of automation. Levels 1&2, including lane-changing
modes and self-park features, require relatively
limited tech – cameras, radar and around 6-8 sensors per
car. By comparison, the next level up requires a 360-degree
view of the vehicle and capability to map precisely where
the car is on the road.
At level 5, full-system integration, essentially the brains of
the car, gives the vehicle full decision-making capabilities.
These higher levels of automation are hugely disruptive to
the current auto makers, as they fundamentally challenge
the concept of what makes a car and what the future
ownership model will be.
How are we approaching this?
What is the best course of action for us as investors? There
is no clear winner to the current arms race, although one
area we are avoiding is the original-equipment manufacturers
(OEMs). Not only are their margins likely to suffer in the
short term, but we believe their competitive moats could be
seriously eroded in the medium term.
There are companies though, where we believe exposure
to these technological developments will see structural
growth, leading to sustainable yield in the long term. One
area worth attention is in the auto suppliers, who benefit from
the increased technological demands from autonomous and
EV. For example, Continental, one of the largest auto-supply
companies, estimates that electrification of the powertrain means up to 360% content-per-car opportunities (technological aspects such as engine management or thermal-management systems) in hybrid
vehicles and 400% for battery EV.2
Similarly, semiconductors are increasingly important to the
performance of these vehicles. Auto power semiconductors
is one of the fastest-growing areas, and companies like Rohm,
which is leading the innovation of silicon carbide chips, will be
at the forefront.
Finally, as we move to a future of networks of autonomous
vehicles, there is a greater need for connected road
infrastructure, such as signs, signals and ramps. This should
be beneficial for companies like Transurban, an Australian
The information provided should not be considered a recommendation to purchase or sell any particular security. It should not
be assumed that any of the security transactions discussed here were or will prove to be profitable.
1 Source: Statista, PwC, September 2017.
2Source: Continental company reports.
This information is issued and approved by Martin Currie
Investment Management Limited (‘MCIM’). It does not
constitute investment advice.
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Market and currency movements may cause the capital value
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The opinions contained in this document are those of the
named manager(s). They may not necessarily represent the
views of other Martin Currie managers, strategies or funds.