Automobiles are uniquely positioned across several technology megatrends that will transform the driving experience. For example, advances in sensors, cameras, computing power, artificial intelligence, and batteries will make cars smarter, safer and more efficient (Exhibit 1). These advances in technology will revolutionize driving and the auto industry over the coming decades.
Exhibit 1: Future areas of in-vehicle technology
There are some major implications to consider. First, the amount of semiconductor content and technology components that go into every car will rise dramatically (Exhibit 2). This will provide a new growth market for the technology industry. Second, this trend puts the traditional auto manufacturers and their supply chains on a collision course with tech companies. It is not clear who will come out ahead but there is no shortage of “secretive” auto-focused projects at tech companies and technology-focused projects at car manufacturers. We have also already seen several M&A deals as companies jockey for position and look for synergies.
Exhibit 2: Average semiconductor content per car by level of automation
Source: Infineon Technologies AG
These changes also bring up several challenging questions. For example, if the human contribution to driving is reduced and eventually eliminated, who will buy the cars? Will the difference between driving a sports car and a budget sedan eventually be reduced just to brand? What does this mean for the trucking and ride-sharing industries and the people that they employ? How will critical areas like insurance and security be addressed?
However these questions are answered, it is clear that several established players will be upended and new leaders and markets will emerge. We believe these changes will provide numerous opportunities for forward-thinking investors. However, we also think that it is necessary to be equally focused on avoiding the risks to the status quo that will undoubtedly emerge.
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