Technological disruption is sweeping across industries, and we see its impact most clearly in the traditional consumer sector. Online shopping has risen at the expense of brick-and-mortar operations, and now the traditional automotive industry is faced with challenges from new technologies such as electrification and automation.
The chart shows that automobile and component companies generally have lower profit margins than the technology companies that could be disrupting the auto industry. This could put the traditional auto players at a disadvantage, as adapting to new technologies would require financial muscle and expertise that many of them currently lack.
Cars and beyond
The technology sector has outperformed global equities this year, whereas consumer discretionary stocks have lagged. Now disruption is accelerating in the auto industry. We see advanced driver assistance systems (ADAS) shaking up the landscape in the near term. Semiconductor and software suppliers will be among the biggest winners, in our view, as many ADAS and electric vehicle (EV) components become the value-added parts of the vehicle. See our Future of the vehicle report for details.
We see implications beyond the auto industry. EV development should boost demand for metals such as cobalt and copper, underpinning an ongoing cyclical upturn. Rapid ADAS adoption could further reduce the value of used vehicles, pressuring leveraged auto lenders and leasing companies. Longer term, we see EVs and shared autonomous vehicles eroding oil demand and even shaking up the real estate landscape by reducing parking demand.
Bottom line: For every winner of disruption there will be many losers. We see most traditional automakers in a long-term structural decline, even though those focused on luxury cars and emerging markets could do better. We are overweight technology, by contrast, and see selected software and semiconductor companies as the long-term winners in the transformation of the auto industry.
Read more market insights in my Weekly Commentary.