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Technology giants rather than car makers will be the big beneficiaries of the revolution in the auto industry, according to Legal & General Investment Management.
LGIM strategist Lars Kreckel said the electric car revolution could trigger the next ‘super cycle’ as technology plays an even bigger role in the vehicles of tomorrow.
Kreckel said the changes would bring about a number of investment opportunities for those willing to jump on board.
Technology would help improve motor safety, reducing the 3,500 daily motor fatalities in the world, of which 93% are caused by human error, he said.
Technologically advanced vehicles will also help reduce environmental impact, and driverless technology will allow people to multi-task in their cars. Kreckel said 400 billion hours a year were wasted driving and people could spend that time in a more ‘productive’ way.
‘The auto sector is ripe for change,’ he said. ‘It is an area where a lot of technological trends come together...technology has the ability to make substantial improvements.’
Shaunak Mazumder, fund manager on the LGIM Inflation Plus team, added that car makers, or ‘original equipment manufacturers’ could stand to benefit from the changes, but only provided they make dramatic changes to their businesses.
‘OEMs need to dramatically shift their manufacturing facilities to adapt towards electric or hybrid solutions,’ said Mazumder. ‘They will also need to become more tech-focused, going beyond their traditional roles as manufacturers. If they can successfully transition, a few companies could become bigger and more profitable than before.’
He said a safer bet to benefit from the changes would be the ‘tech bell-weathers’ such as Google, Apple, Facebook and micro-chip maker ARM.
These will not only create the technology to power a new generation of vehicles but also from freed up time that will allow people to ‘scroll Facebook or like on Instagram’.
The cost of electric cars has been a sticking point for the market. Mazumder pointed to batteries making up 35% of the cost of electric cars, which he said ‘needs to come down for [electric cars] to become a viable solution’.
Currently electric vehicles are 40% more expensive than petrol cars and 20% more expensive than diesel cars.
‘By 2020 the battery costs fall dramatically and by 2025 [electric vehicles will have] cost parity with petrol or diesel cars,’ he said.
On top of this, there are environmental pressures to reduce the number of traditional cars with combustion engines on the road, with the UK government to ban the sale of diesel and petrol cars from 2040.
Kreckel said it paid to ‘be humble’ when predicting the number of electric cars that would be sold as ‘the visibility is not great’ and the market has been dogged by production limitation problems, such as those facing Tesla.
‘We have to be careful when making predictions on how many electric cars will be sold,’ he said. ‘But [predicted] adoption rates are getting sooner and bigger.’