If you read my earlier entries on electric vehicles (EVs) you may have noticed that I'm quite skeptical of rapid success and high market penetration - the "EV revolution" propagated by many EV enthusiasts could turn into a slower EV evolution requiring about two decades (see here for more details).
Nevertheless, I'm convinced that EVs and PHEVs* will play an important role longer-term in private transport. Private transport may be the wrong term, however. I'm convinced that we should call it "Automated Personal Transport" in about 10-15 years from now.
I'm also convinced that these two trends will enable new entrants and make life very hard for existing auto companies, namely:
- EVs will enable new car makers (namely Asian companies with skills in electronics and battery technology) to enter the sector. Former auto suppliers (example: Wanxiang who just bought the remains of Fisker Automotive for PHEVs or NEVS in Sweden/China with Saab for future EVs) who forward integrate or large consumer electronic companies and Asian conglomerates with battery IP (example: Samsung or Panasonic cars in a few years?) could be among those entering the transportation sector.
- EVs coupled with automated/driverless transport could also see IT companies entering the car market. GOOG's research with automated, robot cars is well-known. A technology analyst penned a letter in late 2013 suggesting Apple should buy TSLA (I don't believe in this rumor, especially since TSLA shares have almost increased 900% since the talks appeared to have taken place in early 2013 **). The skill set needed for car manufacturing in this future, say 2025, is very different: Steering and parking software, navigation and entertainment systems, remote diagnosis, OTA updates etc.
- Driverless transport and car pooling networks could result in a significant drop in car ownership in 10-20 years. Apart from car enthusiasts, many people would just rent a car on demand (using their smartphone) aka "robot taxi" as needed. These cars would automatically return to a recharging stations and wait on the next caller requesting a car. Needless to say that this will have big implications for taxis, car/truck fleets, home delivery services and similar transportation and service industries.
This favors new IT entrants over existing car companies who will also have to deal with shrinking dealer networks (EVs require less repeating service and maintenance than traditional ICE cars, taking away recurring revenue and profit margins from traditional auto dealers).
Speaking of current auto makers, I see Nissan-Renault best suited to take advantage of these two long-term trends (EVs and automated cars).
In contrast to TSLA, Nissan and Renault shares are also very modestly valued in my opinion. See my earlier Instablogs for more details.
* Namely PHEVs and electric cars with "range extenders" achieving about 50-60 miles in pure-electric mode. Looking at typical commuter routes and daily usage, such cars can achieve 80-90% of daily chores in pure electric mode without the need for a heavy and expensive battery. Without getting into too many technical details, a light (80-100 kg total) rotary engine (aka Wankel engine) could be ideal for such cars. Both Audi and Mazda are again experimenting with rotary engines as range extenders for electric vehicles.
** AAPL could be one of the investors in the TSLA battery factory or another collaboration (iOS in the car), these more modest scenarios makes more sense in my opinion.
Disclosure: I am long AAPL.
Additional disclosure: I'm also short TSLA