The auto industry is in the middle of a makeover. There are a number of emerging trends that threaten to disrupt the way the industry functions and at the same time, open up opportunities for the more nimble operators to pull ahead.
Regulators across the world, but especially in Europe, which is one of the biggest markets, are determined to see that we have a greener planet. It’s no secret that auto emissions remain one of the most significant air pollutants today.
So on the one hand, the makers of ICBs are required to comply with stringent emission standards. On the other, there is an increasing push toward greener fuels like biodiesel, ethanol, solar, electric, etc.
Solar and electric have the greatest potential for broad adoption because of abundant sunshine in case of solar and extensive R&D in case of both. So while we will continue to debate the cost of owning these cars, some of the new model electric vehicles (EVs) and such as Tesla’s Model 3 and several hybrids are poised to achieve mainstream adoption.
As if this was not enough, companies are also in the process of bringing automated vehicles (AVs) to market. It started with level 1 automation, which felt like more advanced dashboard electronics. But it’s going on up to level 5, to completely replace the driver for smoother operation in all kinds of weather and minimal accidents. It may take another 2-5 years for this technology to go mainstream, but changes are bound to accelerate with increased use of artificial intelligence.
It goes without saying that these huge changes will have a dramatic influence on the way cars are manufactured. Tesla for example uses an automated assembly line, and it’s poised to be the largest seller of EVs as we know them today.
Automotive manufacturers such as Peugeot and Fiat Chrysler, Volkswagen and Toyota, and Renault and Nissan have over the last few years decided to work together on designs and manufacturing, with the goal of maintaining growth in the face of more stringent regulatory standards, rising cost, falling demand and new technological paradigms.
The technological changes will generate demand for new components that are also likely to bring about changes in the supply chain.
Additionally, there’s an ongoing change in the way people shop for cars that has been accelerated by the pandemic. So consumers, who are increasingly doing their research online, are displaying a growing preference for choosing their cars online. So they are engaging with digital showrooms and review videos, and are willing to try virtual reality (VR) test drives. They still like to touch and feel however, so the ideal at the moment seems to be to choose online and test drive at home before buying.
With the pandemic hitting this year, the shared economy has taken a hit, as people prefer owning their cars once again. While the vaccine remains good news for the Ubers and Lyfts, this is one change we should expect to last, at least for a few years. As far as 2021 is concerned, Fitch Ratings estimates that light vehicles will grow 10% to 15.6 million units from its estimated 14.2 million units in 2020, remaining about 8% below 2019 levels, even with broad availability of vaccines by mid-year.
Zacks estimates that the sector will grow earnings 60.1% in the fourth quarter of 2020 on revenue that will grow 1.7%. This compares with earnings growth of 45.8% on revenue that declined 2.2% in the third quarter.
Given the above, it’s clear that there are a number of challenges facing the industry at the moment that may also be viewed as opportunities by the ones able to grab them.
Many auto players look attractive at the moment, but here’s a list of those with a Zacks Rank #1, Zacks Industry Rank >20, VGM Score of A or B and attractive estimate revision trend. They are also undervalued.
Standard Motor Products, Inc. SMP
HarleyDavidson, Inc. HOG
Honda Motor Co., Ltd. HMC
General Motors Company GM
Daimler AG DDAIF
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Honda Motor Co., Ltd. (HMC) : Free Stock Analysis Report
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