For 100 years, the auto sector has been a hardware based industry; however, that is changing quickly in regard to electrification, advanced driver assistance systems (ADAS) and autonomy. We believe the winners in this transportation transformation will be determined by who gets software right. In this report, 19 Cowen analysts explore implications of technology changes in the auto sector
Deep Dive Into 3 Major Disruptions Underpinning the Transportation Sector
In this report, 19 analysts have collaborated on a deep dive into trends in vehicle electrification and autonomous driving. We believe this report should appeal to both portfolio managers and analysts alike. We explore in depth the three major disruptions that are underway simultaneously – Electrification, Autonomous and Transportation as a Service (TaaS). Furthermore, we assess how these mega-trends are affecting the automotive, energy, and technology industries. We see secondary impacts in areas like trucking, payments, package delivery, electricity demand, reduced oil usage, copper consumption and other impacts to society that have investment implicationss.
EVs Soon to Be Cheaper than ICE; EVs 3% of Auto Sales in ’20 and 7.5% in ’25
We see an inflection of electric vehicle (EV) adoption in the 2025 to 2030 time frame as vehicles become economical on an unsubsidized basis. We see the start of the “hockey stick” in demand starting in 2018 though due to electric cars being more widely available, having a “cool” factor more broadly than just the Tesla does today, as well as economic ownership as EVs becoming cheaper than internal combustion engines (ICEs). We see global EV penetration hitting 1% in 2017 and rising to 3.1% in ’20 and 7.5% in ’25. Most other forecasts call for about 2.5% penetration in’ 20 and 5% in ’25; however, estimates have been creeping up. While we expect a sharp acceleration of growth in EVs in the coming years, we note that our ’20 forecast still has 98% of vehicles sold using some form of an internal combustion engine, which includes hybrid solutions as well as plug-in hybrid electric vehicles (PHEVs). This increased electrification of the legacy ICE engine is driving increased content per vehicle for component suppliers such as Delphi, Lear and Autoliv and sensor companies such as TE Connectivity and Amphenol.
AV Impact Limited Until 2030; Greater Adoption of ADAS and Level 3/4
We expect the impact of autonomous vehicles (AV) to be limited through the late 2020s for light duty vehicles. We expect initial autonomous vehicles to be commercial vehicles in controlled applications in the early 2020s, with a migration to consumer-focused solutions in the mid-2020s in geofenced areas. Later in the 2020s as regulatory approvals are obtained, costs are driven down and consumer acceptance picks up, we expect luxury vehicle offerings to offer Level 5 capability, but we see most mass market cars utilizing Level 3 and 4 solutions for enhanced safety rather than migrating to Level 5. While it is not required, we expect all Level 4 and 5 autonomous vehicles to be developed on an electrified platform. We see long-haul trucking as early adopters of Level 3 and 4 solutions, adding to safety and cost reductions for fleets. For an explanation of automation levels see pages 83/84 of this report.
Customer Service Model Preference Playing Out Over the Next 10+ Years
While we see limited autonomous vehicle impact in the early 2020s when the technology should be available, we do see a greater impact on the transportation ecosystem from ride hailing and car sharing services sooner as the Transportation as a Service (TaaS) model evolves. A modal shift, in which a network of self-driving vehicles replace individually owned cars, will affect auto markets over the coming decades. ‘Intelligent mobility’, which includes ride hailing, car sharing and potentially networks of connected autonomous vehicles, are all facets of the transportation system that are poised for increased adoption. At the heart of this change is a consumer-driven transition from an asset-based personal transportation model (owning cars) to one of access to transportation services.
Top Ideas to Benefit from the Electrification and Autonomous Trends
We see Delphi as best positioned to gain content per vehicle with its sensor fusion platform and electrical controls capability. We also like the positioning of Lear with its E-Systems segment and see continued content per vehicle growth in seating as well given the SUV mix. Our positive view on Lear is less around its E-systems segment and more centered around valuation using a sum-of-the-parts approach. While we see Autoliv favorably exposed to the electrification and autonomous trends as well, we see the equity largely tied to global light duty vehicle production trends and SAAR dynamics, which may cap outperformance in our view given macro concerns around “peak auto.” Outside of the Tier 1 auto suppliers, we see the emergence of EVs and AVs as a positive for Silver Spring Network (Itron) in regards to grid and city modernization, Maxwell Technologies for ultracapacitor content in cars, Visa/Mastercard for payments, FedEx/UPS for cost savings, and more broadly a positive for utilities. We see numerous beneficiaries in tech ranging from Microsoft to the broader semiconductor industry.
Introductory Video of Report
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