It’s not just about the car.
The just-concluded Frankfurt Motor Show provided lots of wows and automotive eye candy for wishful drivers, and investors, with concept cars wooing aficionados in all sorts of ways.
The ultra-luxury group was dominated by convertibles and sport utility vehicles that promised drivers the prospect of feeling the wind in one’s face or a day off-roading far from the madding crowd. Gearheads, meanwhile, dug engine and structural improvements that ranged from rear-axle steering in the Porsche Carrera to the body-shape-changing Mercedes S-class IAA, which actually reconfigures its body aerodynamically as the driver hits the accelerator to improve efficiency—and the Mercedes-Benz AG F015, which not only changes shape to improve aerodynamics but has an electric hybrid system and drives itself to boot.
But it’s going to take more than a hot engine and a sleek body style to keep the automotive sector in the money, even at the high end—although by the time some of those additional factors are up and running, the sector may no longer be the one immortalized in everything from “Little Deuce Coupe” to “409.” The auto industry is moving into other sectors, whether it likes it or not, and investors need to be aware of how the lines are blurring—or disappearing altogether.
Here’s a look at five of the changes offering the most potential for change in the sector.
1. Driverless cars:
Also known as autonomous vehicles, these promise some pretty wild market disruptions as they emerge from test tracks to the open road. From insurance to electronics, lots of other sectors will be affected too as cars become increasingly capable of piloting their occupants from place to place.
According to a McKinsey report, it’s not just insurance companies, and the electronics firms that produce the components for such vehicles, which could change; auto servicing companies, taxi and car rental industries and commercial parcel delivery services could also see major changes as they either adopt, resist or adapt to vehicles’ changing natures. Supply chain and logistics operations could change too.
Former drivers will have time on their hands—great for commuters, but not for those who currently drive for a living. Parking needs and infrastructure will change as well. Self-parking vehicles don’t require as much room and shared AVs may not need to park at all—or one AV may take the place of many, for a multitude of riders.
2. Electric cars:
There’s way more to this than plugging in at night. Not only will fossil fuel consumption change as cars move to renewables (and even generate their own energy), but cars could actually help save the environment.
How’s that? Vehicle-to-grid (V2G) technology. The principle is pretty basic: owners of electric vehicles plug into the grid to charge their vehicles, and can also upload energy to the grid at times of high demand—and actually be paid for it.
Think of it: all those future EVs plugging in, averting blackouts. Cooling centers and shelters keep functioning, keeping lives safe in winter and summer. EVs plug the gap between utilities and storm outages. No more losses for homeowners and restaurateurs whose refrigerators and freezers have stopped working. No more halted public transit; instead, fleets of EVs keep the power on.
China is already considering using energy-generating and -storing vehicles as alternative power sources to cut reliance on coal-fueled power plants. EVs can also power homes directly when they’re not actively consuming energy.
Already being tested in cities like Madrid and by companies like Nissan, the V2G system can not only change the automotive sector but the energy sector as well. And with companies from Apple to Mercedes-Benz (the S 500 E) and Porsche (its Mission E, as well as its AG 918 Spyder, which hopes to challenge Tesla)—not to mention Chinese carmakers—planning electric vehicles, the power companies may be the ones in for a big change.
3. Computerization changing the mechanical nature of cars:
So maybe Kit wasn’t so far-fetched after all.
Seriously, the trend toward vehicle computerization is only just beginning; that means the definition of “vehicle” will change as well. As computers take over more automotive functions, the incursion of sophisticated electronics will further expose the sector to discoveries and trends for both hardware and software, all the way up to artificial intelligence (AI).
Already Siri talks to drivers, offering destinations, directions and other smartphone functions. It may not be long before another, smarter AI offers to drive them there. Google is already looking forward to being able to diagnostically evaluate your car, fix what it can via software patches and send you (drive you) to a mechanic when more mechanical aid is required.
At what point is it no longer a car but a computer on wheels? When chipmaker Nvidia is devoting a lot of action to making a supercomputing car a reality, will the manufacturer be an IT company with mobility or an automaker with IT capabilities?
4. Scandals affecting automotive companies:
No question about it, auto companies will have to watch their step if they haven’t considered the possibility of losing control.
In the wake of the GM ignition switch settlement (and of course all the publicity about how many people knew what was going on, the role that money played in the company’s decision not to recall and the number of people who died as a result), the public isn’t all that happy with automakers.
The latest headlines, about Volkswagen cheating in meeting emissions requirements by actually installing an algorithm to detect when a vehicle was undergoing emissions testing so that the car could pass, might escape consumers’ attention—but lawmakers are probably going to be very, very unhappy with the company. That could bring regulatory changes that would weigh on automakers’ bottom lines.
5. Canada and Mexico left out of TPP concessions on auto manufacturing:
In July, the U.S. and Japan agreed to phase out tariffs on Japanese-made cars and parts as part of the Trans-Pacific Partnership Agreement. But reportedly the U.S. did not consult Canada or Mexico about the terms of the arrangement.
And that leaves the automakers in those two countries that are part of the U.S. Big Three to attempt to negotiate changes after the fact. The U.S. has agreed to allow Japan to export cars to North America that have a substantial amount of content from non-TPP countries. Canada and Mexico fear that as a result their own automobiles will come off as too pricey.
Canadian Prime Minister Stephen Harper said in reports that the Canadian auto industry is unlikely to like the terms of concessions he’s prepared to make to seal the TPP.
Harper said in a televised election debate, “What I say to the auto sector in particular—I am not suggesting they will necessarily like everything that is in that—is we simply cannot afford as a country to have our auto sector shut out of global supply chains.” He added, “That would be a disaster. We’re going to make sure we get the best deal for that and all of our sectors.”
Regardless of how the talks go, another TPP meeting was scheduled to be held in Atlanta on Sept. 26, with trade ministers meeting the following week, the auto sector is likely to feel pressure one way or another as a result.