Don’t count on making money out of the coming transport revolution

Don’t count on making money out of the coming transport revolution

New technologies will revolutionise the auto industry in the coming years but will investors make any money from this transformation?

Driving can be a hazardous affair in Portugal. I have witnessed more accidents here in the past year than in five decades of living in the UK. The statistics bear out this personal experience. You are almost twice as likely to be killed on Portugal’s roads than in the UK. Strangely, road deaths in Portugal, at 59 per million inhabitants in 2018, are also much higher than in neighbouring Spain where the equivalent number is 39. It is 28 in the UK, which has the safest roads in the EU.

There are many reasons why road deaths are so high in this country, including drink driving, speeding and poorly designed junctions. I was even told by one Portuguese acquaintance that it is all down to the high consumption of ‘bicas’ – all that caffeine apparently fuelling reckless driving!

Encouragingly, Portugal is making progress. During 2010-2018, the biggest drop in the number of road deaths in the European Union was reported by Greece (45%) and Lithuania (43%), followed by Portugal (35%) and Slovenia (34%). The EU-wide average decrease for the same period was 21%.

The rise of new technologies could help to make Portugal’s roads safer still. For many analysts believe self-driving and electric vehicles (EVs) will transform the auto industry and our lives in the coming years. These cars will be packed with entertainment options. Passengers could work, watch a film or simply sleep during the ride.

Self-driving cars don’t drink and drive
Critically, journeys should theoretically be safer, as new technologies consign most car crashes to the past. Autonomous-driving cars don’t get angry or drink and drive, nor are they distracted by mobile phones. The French insurer MAIF estimates that driverless cars will reduce accidents by around 90%. That will have obvious implications for insurance firms, which could see one of their main sources of income drying up.

Some new cars already feature machine-corrective and machine-assisted technologies like lane correction, potential collision detection and automated parking. This should help improve safety. However, it could be another decade before fully autonomous cars are seen on our roads.

EVs by contrast are already in widespread use in Portugal and across Europe, although the pace of take up varies widely from one country to another. Nearly half of all vehicles in Norway are electric but in most European countries the figure is less than one in 10.

Government regulation is driving the transition to EVs. Norway and the Netherlands plan to phase out all fossil-fuel cars by 2025.

The German government, one of the leaders of the global shift from nuclear to renewable energy, is also adopting an aggressive approach to promoting EVs. The German government and car industry recently agreed to increase joint subsidies for electric car buyers and extend the programme to 2025.

However, governments face a quandary in promoting EVs. They gain significant revenues from fuel taxes, as well as speeding charges, road tax and parking charges, but politicians don’t want to lose the green vote.

Oil-producing countries face the biggest challenge, although the situation varies. An analyst with a major investment manager recently told me: “Norway is already such a rich country that it is not afraid of losing the income from the drive from petrol to electric cars. They are looking to a future alternative economic model and are around 10 years ahead of most other countries.”

EU-wide regulations are also driving change. Carmakers, for example, are accelerating plans to launch EVs as the result of a European Union mandate to deliver a 37.5% cut in carbon dioxide emissions between 2021 and 2030, on top of a 40% cut in emissions between 2007 and 2021.

Japanese carmaker Honda recently brought forward a goal to only sell electric and hybrid cars in Europe by three years to 2022. Meanwhile, Volkswagen has begun mass production of its ID.3 electric car. Starting in 2021, the company plans to build only electric cars at its factory in Zwickau, producing as many as 330,000 electric cars each year.

But the question remains as to how investors make money out of the coming transport revolution. Warren Buffet, the world’s most successful investor, is fond of pointing out that few people have ever made money out of earlier inventions that have transformed society.

‘The sage of Omaha’, as he is known, has pointed out that in the United States, “there were once 2,000 auto companies: the most important invention, probably, of the first half of the 20th century,” adding: “If you had seen at the time of the first cars how this country would develop in connection with autos, you would have said, ‘This is the place I must be’. But of the 2,000 companies, as of a few years ago, only three car companies survived. And, at one time or another, all three were selling for less than book value, which is the amount of money that had been put into the companies and left there. So, autos had an enormous impact on America, but moved in the opposite direction on investors.”

So, it is probably best to adopt a cautious attitude to automakers. Investing in the auto parts suppliers rather than final assemblers could be the best approach, according to one leading analyst that I spoke to. “Automakers already face the burden of new environmental regulations and are investing heavily in EVs, self-driving and shared mobility and that will hit profit margins.”

By Anthony Beachey
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Anthony Beachey is a former BBC World Service journalist now working on a freelance basis in Portugal, where he specialises in economics and finance.