YWR: The Secret Bull Case for Car Stocks..and it's not a 'car'.
Something Steve said hooked me.
We were doing our video (What’s so Interesting about Autos) and he was emphasising the high level of innovation in the auto sector. A level of innovation we’ve never seen before.
“When you put this level of innovation and technological change into a sector you get rapid change. You get things you’ve never seen before. I compare this to the cell phone industry.”
He was saying an iPhone moment is coming for the auto sector at some point, and he didn't mean EV’s. Something else. A ‘must have product’ that changes everything. Maybe a hydrogen car. Who knows.
But just as I was getting excited thinking about these cheap stocks and a potential iPhone moment, Klaus’s email hit my inbox and deflated everything.
From: Klaus Schnaub <kschnaub@wef.org >
Date: 22 January 2024 at 11:42:44 BST
To: Erik @ YWR <erik@ywr.world>
Subject: What’s NOT interesting about Autos.
Dear Erik,
I usually don’t bother to write emails to bloggers on Substack, but your car video seems to have generated some attention amongst the mobility sessions at Davos. So while I have many other matters to attend to I felt compelled to address just a few of your many errors. Your concept of a rebound in auto sales driven by depreciation rates and the replacement cycle is flawed.
If you came to Davos some time, and participated in the sessions, you would realised all the policy work we are doing to change your future. And maybe you would make more money for your readers instead of getting them on the losing side of everything we are doing here at the World Economic Forum. Oil and gas, coal mining, autos, tobacco… are all things we are slowly suffocating.
But back to autos. You and your Mr.
are getting excited because auto sales have been in a 6 year bear market and you think it might be over. Your foolishness makes me laugh. Yes, it has been a bear market, but get ready for it to continue. Please reach out to me when it has been 10 years.Why is this?
Because in every city and at every level we are taxing, regulating and nudging people away from cars. For example, I just got off a call with our colleagues in Birmingham where we are planning to reduce the parking spaces in the city center. Yes, you are free to have your car, but we will make sure there is nowhere to park it. We will also reduce the speed limits so it is so slow at getting anywhere using it is pointless and expensive. We are also increasing the number of congestion zones in cities world wide. You will end up hating your car and wanting to get rid of it. We call it our ‘Making Cities Safe and Sustainable’ campaign. I love the wording. ‘Safe and Sustainable’.
You see Mr. YWR, Mr. Squirrel and Mr. Schlegel In the future there are many fewer cars. Cars will be like coal. We are phasing them out. Yes, they will still exist in the outskirts of Ameristan, but in the cities cars will be a luxury item. Scooters will be the new car. You will have a scooter which you ride to your nearest public transportation.
I hope everything is clearer to you now. Please feel free to join us next year.
Regards,
K. Schnaub
Davos, Switzerland
Ooof. That was a tough email. Shooting holes in my thesis everywhere.
‘Scooters are the new car’
Klaus is probably right.
You see the nudges everywhere. Our future is not meant to be a spacious house in the suburbs with a car. No. It’s looking like a multi-unit apartment, with an e-bike parked outside. Inside we stare at our screens, order things online and vacation in the metaverse. If we need to use a car we can to rent one temporarily on an app. It’s the sharing economy. And we’re supposed to like it. It’s ‘sustainable’.
If this is the brutal truth then global car sales continue their downward trend from 90 million to 76 million and then to 60 million. Who wants to own a car company while this is happening?
In this shrinking hippo pool scenario the luxury brands are best positioned. Players like Mercedes or BMW will move everything to high end luxury. They will accept that volumes decline, but profits can still grow. And as an investor the EPS grows 5-10%/year, and each year you take your 8% and buy more shares, etc, It works, but it’s a grind.
Steve’s iPhone analogy doesn’t seem likely either. If you think about it car companies already had their iPhone moment. But it was in the 50’s and 60’s. That was when cars were the new ‘must have’ thing. It was the culture of the car with drive in movies and drive in restaurants. Everyone had to have a car and it changed the landscape of the country with freeways and suburbia.
From here though, in the 2020’s, car sales might grow in EM, but the overall industry growth won’t be exponential. All the EV hype is just a shift from one engine type to another. It’s not very iPhoney.
But maybe Steve is still right. Just not the way he thinks.
What if the car industry’s breakout new iPhone type product isn’t a car? The same way Apple’s breakout product wasn't a computer.
And when you think about it like that, the dots suddenly connect.
And you’re surprised you didn’t see it earlier.
Battery packs, autonomous driving, computer vision, artificial intelligence, mobility, how does all that technology come together in another way?
The iPhone of the future isn’t a car. It’s a robot.
And car companies like Honda have been working on them for years. It’s just nobody cared.
Car stocks are cheap, under-owned, and unloved with a multi-year sales rebound ahead, but they’re also great plays on the growth of the robot economy.
Yes, there are lot of VC backed players building robots, but how do you make a lot of money on mass market robots? How do you really win? You need large scale robot manufacturing, sales distribution with financing and the ability to repair them. For the car companies and their dealership networks this is plug and play.
And what would Klaus say? Klaus would like this theme. He’d probably say the 7 billion humans on the planet are on their way back down to 4 billion, and meanwhile the robot economy is on the rise. One day in the future the robots will outnumber the humans. And who is going to build those 4 billion robots? I bet it’s going to be Tesla, Hyundai, Honda and Toyota.
Here are 6 secret back-door robot plays and how I rank them.