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Whats Got us Talking

A Futuristic Look into the Automotive Industry

Good investors are usually ahead of the curve. They work diligently to seek out good businesses that will generate strong returns in the future and a big part of this is having an idea of what the future will look like. Some industries that exist, and may even be thriving, today will become obsolete in the not too distant future. The technology curve will be one of the most powerful and impactful forces our society has experienced in a long time. This can create a lot of fear and uncertainty in the financial markets, but it can also generate tremendous potential to reap massive awards. That being so if you have a general idea of what the future will hold.

Change

One of the most significant shifts in our society will come from a change in how people get from point A to point B. Futurist Peter Diamandis spoke at a conference earlier this year about the changes we can expect to see within the transportation, or more specifically automotive, industry.

Rise of the autonomous and electric

There is a current trend evolving within the automotive companies as they are allocating massive amounts of human, financial and capital resources into developing self-driving and electric vehicles. There will be a massive global influx of electric and autonomous vehicles driven by the significant potential for companies to scale operations. This can be demonstrated by Tesla’s ability to hit and beat their own production records in the 2018 Q4 period, improving operational and capital efficiencies, and expanding into Europe and Asia (Lambert, 2019).

China has made massive progressions in creating affordable electric cars so they can be mass distributed to the middle-class consumer. Many car companies are striving towards the same goals, namely GM and Volvo investing large amounts of capital into developing electric and autonomous vehicles. As a country, China is accelerating rapidly within transportation and is bound to overtake the USA and take the lead in the next couple years, as their growth is boosted due to the government in China creating and enforcing policy to support innovation.

Servicizing

From a business model perspective, transportation as a service, in consumers being able to order their personal vehicles, is a much more lucrative and attractive option, compared to our current system of having to own and maintain an individual vehicle. People would not have to be concerned about their own vehicle and could travel to the same places with less hassle and a similar cost. Furthermore, there would be significant environmental benefits, as there are fewer vehicles on the road, especially with the carpooling feature on these ridesharing apps. Multiple trends within the marketplace and economy have shown that consumers care, and will pay for, convenience over any other factor when making a consumption decision. Many companies that have experienced a surge of recent success, including the likes of Amazon, Alibaba, and Uber, are motivated by maximizing convenience for customers (Rajgopal,2018).

Autonomous vehicles have made massive progress, and are not far away from being implemented in a more serious manner. Tests have shown having a driver behind the wheel when a car is driving autonomously does virtually nothing from a safety perspective. Mr. Diamandis paints a picture where individuals have autonomous Uber vehicles available at the press of the button and can take them anywhere they want to go. And he claims this change is not too far away – as our society could begin to see a major change in 10 to 15 years.  

From road to sky

When looking further into the future, Uber is currently purchasing parking lots in major cities around North America to convert into sky ports for autonomous drones. They envision customers being able to order an autonomous Uber vehicle to take them to their nearest sky port, where they can get in their individual autonomous drone, and fly into the city to go to work. Excitingly, the price for this drone would be similar to that of a current Uber X ride for the same distance. This upcoming change is also reflected in new additions to new buildings as the wealthy upper class are looking ahead to predict the future. Many recently built luxury apartments now have flying car landing pads. Paramount Ventures Worldcenter in Miami is on schedule to be finished this year, will have a dock in which personal transport drones from Uber and Airbus can land and pick up residents. The Ritz-Carlton Residences, also to be finished in 2019, in Miami Beach features a floating helipad for private jets and personal drones (Bondarekno, 2018).

Effect on the Auto Markets

If the world is to change in a manner close to the way Mr. Diamandis predicts, the automotive industry will undergo massive changes. There are currently 40-50 large automotive manufacturers globally. This figure is likely to be whittled down to less than 10. As a consumer, you largely don’t care what brand your Uber is, besides the differentiation between high end and consumer class (as almost every Uber vehicle performs the same job for the consumer).

Many automotive companies are not looking far enough into the future and too certain in their assumptions that people will always own their individual vehicles. And, if this change were to begin to occur, most are ill-positioned to pivot their companies to adapt. As an investor, there could potentially be major payout in shorting car companies, as they begin to rapidly die off. The best an investor can do is gauge the probability of events through understanding the current cycles in the economy, as the worst thing to do is assume the occurrence of events, especially in the short run. Through tracking current cycles, including the innovation cycle and long and short-run economic cycles, there is a stronger probability than not for a strong recession to approach and the current automotive industry to be displaced. Historically, futuristic predictions are almost always wrong, but there is strong evidence to support change within transportation driven by environmental initiatives and a change in trends in how people get around. If we told people 20 years ago you could order a driver to come to pick you up in 3 minutes through an app on your smartphone to pick you up and drive you, it would seem pretty impossible.

Critics have argued that this change is implausible, and electric or autonomous vehicles are destined to remain a niche market. Yet, they agree that there is no middle ground with this innovation curve. These new vehicles will either remain scarce or catch on and grow rapidly in abundance. The average commuter is experiencing significant pains and is likely to quickly adopt and pay for a more convenient and faster method.

Effect on Real Estate

In a world in which autonomous flying drones exist, cities will begin to spread out. Most people are attracted to living in a downtown core because of the high level of accessibility and convenience. They are willing to pay ridiculously high rent because they can go to work, see friends or get food with little wait time. Autonomous drones would dull a lot of the reasons to live in a busy downtown centre, as they drastically impact the accessibility factor. Many places have insanely cheap real estate because while they are serene places to live with massive potential for beautiful homes, they are difficult to access and too far from a job hub. If I can fly into work every morning, I don’t care if it is a longer trip because, in the autonomous drone, I can sleep and do work. Moreover, many commuters spend an hour or two in traffic every morning, and that time is wasted, as they cannot perform any other task. Real estate in more rural or less accessible areas will start to gain value and real estate in cities will begin to lose value.

Effect on Entrepreneurship

A major underlying theme in new technological innovations is time. New transportation methods are designed to save time, healthcare advances are aimed at extending time (aimed at increasing life expectancy rates) and many other industries are focused on making the most of your time. In our changing world, with a millennial generation more focused on accumulating experiences over financial capital, time will prevalently emerge as our most precious and valued resource. Businesses are investing massive amounts of capital into services that are centred around the idea of preserving time. Consumers will spend a ton of money to save time, and as a byproduct, products and services that save time will be extremely successful and will rise to the forefront of successful businesses within the economy. This trend is not brand new, but it has undergone recent growth in prevalence in our society, as more individuals believe in technology’s ability to stave off their fear of death or illness.

With new environmental initiatives and worsening traffic conditions as cities continue to condense and populations grow, I would strongly bet that the transportation industry is bound to see some massive change in the upcoming years.

And, after all, its best to be ahead of the curve.

References:

Bondarenko, Veronika. “Miami’s Luxury Condos Building Landing Pads for Flying Cars.” Inman, 10 Jan. 2019, www.inman.com/2018/12/05/miamis-latest-luxury-condos-have-landing-pads-for-flying-cars/.

Rajgopal, Raj, and Raj Rajgopal. “Deliver What Millennial Customers Really Want: Convenience.” CMSWire.com, CMSWire.com, 22 June 2018, www.cmswire.com/customer-experience/deliver-what-millennial-customers-really-want-convenience/.