The changing landscape of the auto industry

The automobile industry has been going through a flux in recent years. Though realizing an elevated occurrence of 17,270,000 domestic vehicle sales in 2018, the horizon appears challenging to duplicate this phenomena going forward (Source: Statista.com). The affordability of a new car for young people has become prohibitive because of the inherent debt load they are managing and the elevated prices for an average vehicle. The average new car price of $36,270, has increased four percent from January 2017 to January 2018 (Source: KBB. com). Headwinds exist from the competitiveness of disruptors like ride hailing (LYFT and UBER) and car sharing programs offering an alternative to vehicle ownership, which challenges manufacturers for future sales. Auto manufacturers are spending billions of dollars in the development of autonomous driving and electric propulsion to meet stringent government environmental standards and options expected by consumers. This evolution in product requirements and design will cause the landscape to transform auto companies into partnerships, mergers and attrition. Tesla under Elon Musk has given the full electric car a technological boost that other builders only considered as a half serious option. Society has embraced his innovation and it has gone from a side note to a serious contender. Government tax breaks, environmental awareness, lack of dependence on gasoline, and autonomous driving ability has motivated the consumer to participate in his vision of future transportation. Elon Musk has a flair for showmanship, hawking his product to the media whenever possible. His vehicles accounted for 78% percent of all electric cars sold in the U.S. in 2018 (Source: InsideEV.com). Competition was initially limited to a few models from a handful of manufactures; however, it is beginning appear that formidable vehicles are on the horizon that will challenge Tesla's early lead and provide choices to consumers with a widening selection. Recently Fiat and Renault have been in talks about a merger. This combination would open the door for Renault to get a foothold in the U.S. market and the sharing of platforms for future vehicles, addressing electric and autonomous technology. Singularly each company would have to invest billions in technological research; however, by scaling the operations as a merged entity the cost savings have been estimated to be five billion dollars a year (Source: Car and Driver.com). Recent rivals are also deciding that going it alone is prohibitive so partnerships have occurred that were once considered a taboo in the industry. One example is the union of Ford and General Motors to develop a transmission that enhances miles per gallon for both manufacturers and is currently being implemented. BMW and Toyota developed sports cars using shared technology now available as a Toyota Supra and BMW Z44. Ford, Volkswagen and BMW are working on a network for supercharging electric cars and building an infrastructure to support their product (Source: WSJ). For the investor, it's predicted that the nucleus of technology will be focused on software, batteries, cameras and satellites. Several companies like Google, Amazon, Microsoft and Apple are already experimenting in these fields (Source: WSJ). Their depth of knowledge and financing has given them an advantage. We are on the precipice of a dramatic transformation in transportation. The future is now and the youth of today are going to have options for transportation we only encountered in the genre of science fiction. Enjoy the ride. ----- Mitchell Thomas is an international equity analyst/portfolio mgr./head trader for Karpus Investment Management, an independent, registered investment advisor that manages assets for individuals, corporations and trustees. Offices are located at 183 Sully's Trail, Pittsford, NY 14534 (585) 586-4680. Published: Tue, Jun 18, 2019