You might think of your car as pretty high tech. Certainly, it’s got engine management computers, seat belt pre-tensioners and sat nav. But the car itself? It’s much the same as your dad’s – and your granddad’s. The fact that you can own and use a perfectly practical and legal 1960s sports car, or get married with a car from the 1930s, shows just how little cars have really changed…
… until now.
We’re just about to undergo not one, but two revolutions in car transport, which will combine to utterly change the way we use the private transport system. These technologies are driverless cars and electric power. Below, we’ll go through why they combine beautifully.
The story in a nutshell, is this:
- Vehicle ownership is tanking, particularly among young people.
- Taxis and minicab use is growing steadily.
- Electric cars’ battery storage is crashing in price
- Autonomous vehicles will explode taxi economics.
Number one – we’re living through a time when car use generally is declining. In the last 20 years, the number of 17-20 year olds with a licence has dropped by 30%. Add skyrocketing insurance premiums to that and you get a toxic combination. The role of the car in modern life is changing.
This isn’t (yet) a revolution, but it’s a clear downtrend. In the US, we can see the impact of similar trends. It’s not just insurance, but also the digital economy and increasing return to urban areas which are driving a fall in car use. The simple fact is that, particularly among young people, car ownership is starting to fall. Every fire starts with a small spark, before turning into a raging inferno.
This brings us to number two. Of course, people still need to get about. Cars are increasingly turning into a service, as you can see from the growth of Uber. In fact, growth in taxis and private hire vehicles is easily outpacing population growth.
But this small shift is nothing compared to the revolution that’s coming.
I’m talking about driverless cars – a sector that everyone from adolescent giants Google and Tesla to stalwarts like Volvo, are trying to muscle in on. To get an idea of the scale of this revolution, in a recent exchange between Uber and Tesla it was made plain that Uber wants to buy Tesla’s entire production – once driverless technology is available.
If you don’t have to pay the driver, then of course taxis are only going to get cheaper – dramatically accelerating the shift from private car ownership, to convenient service rental. This is going to massively boost the trends we see above – where increasing insurance costs, and lifestyle changes, already put young people off buying cars altogether.
But isn’t this all sci-fi? Surely it will be decades before driverless cars take off? I don’t agree. The safety record of driverless cars speaks for itself. They just don’t crash, at least not in accidents that are the “fault” of the driverless cars.
Legislators will foot-drag for a while, but eventually facts always catch up with traditionalists. You can’t ignore forever the fact that computers don’t get drunk, don’t get distracted by kids, and don’t rush when they’re late.
I recently asked Eric Schmidt, Alphabet’s CEO, about the firm’s progress with electric cars. He replied that they don’t like snow, and don’t understand that policemen sometimes try and flag them down with a hand-wave. But these problems will inevitably tend towards solutions (Ford has already made progress with snow), and the floodgates will then open.
But there’s a kicker, too – and it’s very good news. Do you remember the launch of Tesla’s Powerwall product? That’s the suitcase-sized battery that plugs into your home electricity supply to bridge power cuts and lets you buy cheap electricity at night (mainly wind and nuclear, which can’t be shut off). The product is so successful that Tesla could sell out its entire production of batteries, without making a single car.
You may not be used to thinking about your car as a supplier of energy, but put four wheels and a motor on a Powerwall battery, and you’ve basically got an electric car – a car that you can charge up with off-peak electricity, and then drain when the price is high. The UK is a laggard with variable electricity pricing, but that’s likely to change as renewables become an increasing part of the grid mix. Take Scotland as an example:
This is a one-way trend. We’ll be seeing more renewables in future, for sure – and we’ll have to do more work to balance supply and demand. Owning an electric car will be a part of that, and it will only add to the economic justification for electric car technology. Whether it’s a private individual’s car, one belonging to a taxi firm or company fleet – the economics are the same. The grid doesn’t care where electricity comes from – the price is always the same. So the fact that you probably won’t own your own car in a couple of decades’ time doesn’t actually matter; the economic factors pushing towards the electrification of car transport are still in place.
So the gas guzzler that you drive – and that your father and grandfather drove before you – is on the way out. It won’t be replaced, at least not directly. If you do own a car, it will be autonomous, but if you’ve got any sense, you’ll almost certainly take a taxi instead. Why would a rational person own a car that’s idle for 23 hours per day, when they can just hire one?
So how to profit from this revolution? There are several sectors set to benefit.
Firstly, software firms with autonomous vehicle programmes will be obvious beneficiaries. Google and Tesla are examples, but there are others.
Secondly, car manufacturers are a mixed bag – but generally risky. Leaders, like Volvo and Ford who are pushing into driverless cars, will likely be winners. Electric car pioneers, such as Nissan and Toyota, are also well placed to benefit. Conversely, latecomers to the electric and autonomous party may be a shorting opportunity. However, with better utilisation of vehicles, the overall auto market will likely shrink – as measured by production volume. As usual, the laggards may be the first to go to the wall, but the ability to license software from non-auto firms, like Google, make it hard to predict exactly where the winners and losers will be.
Thirdly, anyone involved in electric vehicles, batteries and the general supply chain will be a good bet. Again, Tesla comes up trumps here, as does Panasonic (Tesla’s partner). But firms involved in raw materials production (eg, lithium – China BAK, Exide, Johnson Controls, Maxwell Technologies, FMC, Sociedad, etc) and in producing components (eg – high-power electric motors: Siemens, Ultra Motor, Mission Motor), are also likely to be making hay under a shining sun.
Fourthly, the outlook is not going to be bright for firms in the aftermarket supply chain for conventional autos. Petrol cars are going to experience tough market conditions, and the oil firms that serve them are going to be hard hit. Particularly exposed are those majors with a vertically-integrated supply chain – such as ExxonMobil, Shell and BP. However, independent petrol retailers such as Harvest Energy and Jet will be even harder hit: they’re not even cushioned by business in heavy fuels markets, like marine diesel. And as for parking firms, these look like a great long-term short (but do consider the effect of urbanisation trends, when evaluating the outlook for each individual firm). Car servicing will take a beating. Electric cars need very little work, and spares from wipers to tyres will be used at far lower rates by autonomous vehicles. Kwik Fit, FastFit Station, and their ilk will take an absolute battering.
Finally, we need to look beyond the electric cars themselves, to see how utilities will be shifted by the rise of electric cars. Renewables suppliers – such as Ecotricity, SunEdison, etc – will be poised to take advantage of a more favourable price regime for renewable power, as electric cars suck up their generating surplus at any time of the day or night. In general, we’ll see an increase in the overall capacity of the electricity grid, and that will be a boom for firms that will build the new energy infrastructure. Contractors, like Quanta, will tend to do well (but note this specific firm is also exposed to fossils). Likewise, transmission firms like National Grid will see an overall increase in demand – but be aware of the increased competition being introduced into this sector.
So look out of your window at your shiny car – your pride and joy. It probably will not be the last one you ever own, but the one after that just might be. It’s time to invest accordingly.