The world’s capital markets are undergoing a massive transformation.
The rapid progress of new technology and the transition to a low carbon economy are disrupting traditional industries. But they also present investors with opportunities.
In our latest report, ‘Driving Disruption’, we’ve examined 16 of the world’s largest publicly-listed auto companies, including the likes of Toyota, Ford and General Motors to see just how fast this transformation is happening.
Here’s four of the major trends to look out for:
1. The future is green
A third of new car sales are expected to be zero emissions and plug-in hybrid by 2030. That represents a $1 trillion market.
Electric vehicles (EVs) could be as affordable as petrol and diesel cars as soon as 2022, making it easier for carmakers to profit from the low carbon transition.
This is creating enormous business opportunities, especially in China, which is now the largest vehicle market in the world and is setting aggressive targets for EVs.
2. Low carbon innovation is the road to future sales
The car makers have invested more than $11 billion in companies specializing in autonomous and shared vehicles such as Lyft since 2015. They also spend more on research and development than most other sectors in this time.
Companies such as General Motors are working towards an “all-electric future”. They've set ambitious automation targets and have invested heavily in self-driving cars and ride-sharing services.
In the chart below, we show which companies are most advanced in their automation targets, where grade 2 indicates partial automation and grade 5 indicates full automation.
Autonomous vehicle company targets(iii)
(i) Daimler also have plans to develop the Mercedes-Benz Future Truck 2025 that will operate at Level 3.
(ii) Mazda Co-Pilot concept would require technologies equivalent to Level 4, which the company is looking to standardize by 2025.
(iii) We note that Jaguar Land Rover are researching fully autonomous but driveable technology (Level 4) with the FUTURE-TYPE concept, no target dates have been communicated but the company is looking out to 2040.
Sources: CDP, company reports, Marketwatch, SAE International
3. The transition is also creating financial risks
Half of carmakers still risk penalties by missing their emissions targets. The fines could be high, with up to €940 million at risk for some companies.
The EU requires carmakers to have reduced their emissions by a fifth by 2021, from a 2016 baseline.
To meet these targets, many will have to dramatically increase the number of EVs in their fleet.
4. Profits are going off road
Technology and software firms, such as Uber and Google are already taking market share away from the traditional car market players.
Over 20% of automotive company profits are expected to shift to tech suppliers and ride-sharing services by 2030, according to forecasts by PwC.
Driving global change
The automotive sector is enormously important to the global economy.
Its transformation is vital if we are to meet the Paris Agreement's aim of keeping global warming well below 2ºC.
Our report shows the sector has become a poster child for changes in other industries. Its transformation is set to have a dramatic impact on demand for oil and electricity.
How quickly car manufacturers adopt new business models and adapt to the low carbon transition will tell us a lot about disruption in other parts of the global economy.