Electric Car Revolution Hits Ironic Roadblock
You may have noticed that carmakers are suddenly rushing to turn their fleets electric.
This week, Prius maker Toyota became the latest brand to jump into the new phase of the electric bandwagon in a big way. Fortune reports ten new electric Toyotas will hit roads by the early 2020s. Its entire fleet should be electrified by 2030. And don’t forget about fancy new self-driving safety technologies. They are coming soon, too.
With so much cool stuff on the horizon, why buy a new car now?
Nobody disputes that the car business is in a state of flux. Ride-hailing, electric propulsion and Mobility-as-a-Service models are all barreling straight ahead. A nasty collision with the staid ownership business model that has served the industry so well for a century, is unavoidable.
In response, all of the leading firms are buckling in. Ford, Toyota and Volvo have deals with Uber, the leading ride-hailing company. Volkswagen has a partnership with Gett, a German Uber competitor. General Motors started its own ride sharing service, Maven. But it also has a relationship with Lyft, Uber’s archrival.
And all of the major car companies have self-driving technologies, and electrification programs fully engaged. Managers want to be ready for the road ahead.
By all accounts, it is going to be a bumpy ride. Long ago, private investors began bidding up the value of new mobility startups, and technologies. They were voting with their wallets. They bet the future of mobility was about utility, not ownership. In April, a Goldman Sachs research report, Rethinking Mobility, put it bluntly. The emergent business models will significantly slow the sale of new vehicles.
Sales are already slowing. The reason may be no more complicated than car companies are selling what is coming, at the expense of what is already here. Put another way, it’s like Apple trying to sell the iPhone 8, then spending every waking moment talking about how great the iPhone 10 will be. It was not surprising customers largely passed on the 8. It’s also not surprising those units are now being heavily discounted.
In August, Bloomberg reported the leading U.S. carmakers saw sharply lower sales in July. GM, Ford and FiatChrysler had declines of 15%, 7.4% and 10% respectively. While overall sales should still be in the 16.8 million vehicle range, an annual decline and deep year-end discounts are now in the offing.
Experts say the real reason vehicle sales are tanking has everything to do with the replacement rate. The concept is simple. Consumers believe their old cars and trucks are good enough, and see no reason to upgrade.
Yes, that is exactly like smartphones.
There is a reason I’m writing about this now. This is a trend, and trends create opportunities for astute investors. Fortunately, there are a bunch of stocks to take advantage.
One of these companies is a major automotive parts supplier. It operates a nationwide network of stores serving professionals and do-it-yourselfers. Revenues have grown by high single digits over the past five years, and management has delivered double digit income growth during the same time period. If people are keeping their cars longer, and this is clearly true, this company will benefit handsomely.
Another company operates a leading chain of warehouse stores. Although it does not sell auto parts directly, many of its warehouse stores do provide auto service. This market is extremely fragmented, with legions of mom-and-pop service stations collecting the lion’s share of national revenues. The opportunity is unique. This household name can leverage its brand to eat into that market share.
A third company is not in the auto parts, or service business. It is a leading provider of the new technologies that will power the vehicles of the future. This means electric propulsion technologies, sensors and software. A recent spinout from its legacy business, coupled with strong managers makes these shares more attractive than ever.
The bottom line is that investors should always be asking questions. They should always be looking for opportunities in mobility, especially when there is a discernable trend.
Best wishes,
Jon Markman
