Where Auto Experts See The Auto Industry’s Biggest Opportunities

Where Auto Experts See The Auto Industry’s Biggest Opportunities
Carl Hazeley

about 2 years ago3 mins

  • Car execs are expecting half of vehicle sales to be electric by 2030, suggesting there'll be high upfront costs to increase production capacity in the industry.

  • It'll be key to reduce the time it takes to charge vehicles if carmakers want to increase adoption, which could benefit companies like ABB and ChargePoint.

  • Cars will increasingly be sold online, creating another cost challenge for carmakers, and the data EVs will generate will both generate revenue opportunities and cybersecurity risks.

  • Most execs are keen to pursue M&A or partnerships to get access to new technology, which should benefit the stocks acquiring and target companies.

Car execs are expecting half of vehicle sales to be electric by 2030, suggesting there'll be high upfront costs to increase production capacity in the industry.

It'll be key to reduce the time it takes to charge vehicles if carmakers want to increase adoption, which could benefit companies like ABB and ChargePoint.

Cars will increasingly be sold online, creating another cost challenge for carmakers, and the data EVs will generate will both generate revenue opportunities and cybersecurity risks.

Most execs are keen to pursue M&A or partnerships to get access to new technology, which should benefit the stocks acquiring and target companies.

Mentioned in story

Consultancy firm KPMG recently surveyed over 1,100 auto industry executives in 31 countries who shared their views on the sector’s sweeping transformation over the next decade. These major forces will create exciting and compelling investment opportunities – and here are four that stand out.

1. Electric vehicles will comprise half of the market.

The surveyed execs expect EVs to make up on average half of all car sales in major markets by 2030. 73% of them also think EVs will, by 2030, cost the same as their gas-guzzling equivalents, helping make them more affordable and boosting adoption.

By 2030, what % of new vehicle sales do you believe will be battery-powered (ex-hybrids)?
By 2030, what % of new vehicle sales do you believe will be battery-powered (ex-hybrids)?

What’s the opportunity here?

Delivering on these expectations will require a large scale-up of current EV production, as well as an improvement in technology to bring down production costs.

The bad news is that companies that spend big on capital expenditure (capex) and R&D have underperformed their peers in recent years, so you might want to avoid the companies set to spend the most – probably traditional automakers making the switch to electric, like Ford – and back the likes of Tesla that have already laid more groundwork.

Capex and R&D underperformance.
Capex and R&D underperformance.

2. Reducing EV charging times is important.

Reducing EV charging times will be key to reducing the inconvenience of EVs compared to combustible engine vehicles and ultimately maximizing their adoption. 77% of the surveyed executives believe charge times will need to go from three hours today to under 30 minutes if that's going to happen.

Charging times survey chart

What’s the opportunity here?

Clearly significant investment in charging technology and infrastructure is required, and that load could be spread between private companies and governments incentivized to reduce vehicle emissions. So that’s potentially good news for companies that produce charging stations, including US-based ChargePoint and Swiss automation firm ABB.

3. EVs will create digital opportunities and risks.

78% of industry execs are expecting most drivers to buy their vehicles online by 2030. As with most ecommerce, they reckon customers' “seamless and hassle-free experience” will be even more important than the vehicle’s own specs and performance. And given EVs themselves will be connected devices, they’ll generate a vast amount of data about usage, travel patterns, and safety that can help partially self-driving cars become smarter.

Online sales survey chart

What’s the opportunity here?

Carmakers will need to invest in their digital platforms in order to attract and keep customers, which will come with significant costs. Again, that high spend to come will hit traditional carmakers the hardest as they adapt their businesses, while Tesla – which, has been set up for online sales for a long time – will likely only have to make adjustments rather than wholesale changes.

The data EVs produce comes with pluses and minuses: it could unlock a new revenue stream for carmakers in selling access to or data analytics to insurance companies, but it’ll require a big boost in cybersecurity measures to keep all that data safe. You could play that theme via the ETFMG Prime Cyber Security ETF or the First Trust Nasdaq Cybersecurity ETF, or check out this Insight on some of the most exciting individual stocks in the space.

4. There’ll be more M&A in the industry.

In the age-old debate of buy versus build, 85% of auto industry execs favor the former – as well as making new investments and building new partnerships – to get access to the tech they need to succeed.

M&A survey chart

Companies that are spending big on cash mergers and acquisitions are outperforming their peers, so backing stocks of firms adopting that strategy – as opposed to heavy capex spending – could be a winning play. As could buying into smaller companies that operate along the EV value chain, or that have a technology a large carmaker could find useful: more on those here.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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