Legacy car manufacturers are in spending mode for the electric and autonomous vehicle revolution, but directly investing in them may not be the best way to play the mobility trend, says Sean Fitzgibbon manager of the BNY Mellon Mobility Innovation fund.
While Fitzgibbon believes the market in general is under-appreciating the pace of growth in terms of the shift to electric and autonomous vehicles, it may well be a case of finding the right sub-trend to play.
“A lot of this is driven by regulation – the stick being concerns about emissions – in Europe in particular. The auto manufacturers say we have no choice but to go electric so that we can meet the new emissions standards, the fines are going to be too much,” he says.
Of course, consumers have not been as enthusiastic in demanding electric vehicles, but one important factor will change eventually. “Price has been a piece of that story. Yet with battery technology getting better and cheaper, we think eventually you won’t even need incentives.”
Fitzgibbon argues that it is important to take a holistic view of mobility.
“If you look at connectivity, everyone is talking about 5G. The manufacturers are starting to incorporate 5G communication chips into vehicles. It is going to be very important for AV involving edge computing with vehicles being able to talk with each other with no latency in terms of the signal being transmitted.”
He suggests this may be one aspect of the most important theme within mobility.
“Even with concerns with global growth last year, you had these telecom companies which have tones of cash and are spending. It may not be about investing in the telecoms companies themselves, but in where they are spending. That may mean companies helping to deploy 5G networks or equipment testing companies.”
The car manufacturers are also in “spend mode” dividing loosely into reactive and proactive stances towards the threat of the new players.
“It is not a particularly attractive place right now. They are having to build out new manufacturing, so margins are likely to be hit though we are keeping an eye out for the few legacy manufacturers that are going to be winners. We are looking at those that have a vision and seem to have a lead in terms of autonomous vehicles”.
Another area of focus is component companies.
He says: “We pay a lot of attention looking at component companies. It is interesting that with some of the big manufacturers being reactive, we could see a space for a component company to deliver an all-in-one or close to all-in-one solution.”
Fitzgibbon is looking at what is ‘specced’ into the 2022 and 2023 models.
He says it will still be some time before AV is sold to the general public, but that, for now, it is helpful to look for which firm or firms are leading in “advanced driver assistance”.
Indeed, a lot of the fundamentals may be shifting.
“If you are legacy manufacturer and in the lead with AV, you might shift to earning high margin on ride sharing that is cheaper than public transportation.”
It could bring a lot unpredictable change with potentially a generational shift in car sharing, car numbers and the use of parking spaces. While the move to electric and AV is viewed as likely to bring social benefits, there could be more congestion if car sharing became so cheap it draws people away from public transport. “Advertising and entertainment are likely to become a bigger deal in the car,” he adds.
When asked about the potential for Intel-inside style winners, he says that with so much investment going on, the market can change significantly and that is a risk; for example, non-chip manufacturers are talking about developing their own chips.
“Companies can create an amazing thing, but still face a risk it could be commoditised, perhaps with component parts such as sensors, but the tech that brings it all together including software could allow a firm to be a high margin profitable business.”
Fitzgibbon emphasises government policy – something that is crucial with both electric and autonomous.
“Norway shows that. Nearly 50% – to be exact 49.1% of car sales last year were electric. It shows you, with the right support, it can push the needle really fast.”
China has ambitions to win most of the main technology races while the US at federal, state and city level has been open to AV testing.
“It is definitely important for government to be supportive. The only way you capture the real data is to do it in the real world,” he says.
The final area, Fitzgibbon is thinking about is the build out of the power grid.
“[In the US], there are few electric vehicles but one per cent goes to two then four quickly – an electric vehicle can use as much power as a small house. The utilities don’t roll the track out until a neighbourhood uses more power. We have to think how do we make the grid smarter and source it with clean energy. That needs more battery capicity. We are at that inflection point.”