Detroit—The car business is going through unprecedented change. That isn’t hyperbole—that is how industry insiders view the current environment.
The new technology on display this week at the North American International Auto Show in Detroit promises to remake the auto industry by preventing accidents, reducing urban congestion, and eliminating tail pipe pollution.
“I’ve been in the business since the 1980s,” Dan Grieshaber,
(GM) director of global manufacturing engineering integration, told Barron’s. “There has never been a more interesting time.”
While some of this new technology isn’t going to be available to the masses for quite some time, there are still ways for investors to get involved. Barron’s took a look at some of the prominent trends in Detroit, and how investors can rev up their exposure to auto industry technology.
Safety Advances Worth Investing In
Pre-collision assistance with automatic emergency braking is one technology that helps prevent catastrophic accidents (even if drivers won’t get off their phones). That feature is available on the 2020
Explorer unveiled at this year’s auto show. The new Explorer also comes equipped with blind spot alerts, lane keeping assistance, evasive steering assistance, and parking assistance.
“There should never be a head-on or rear-end collision anymore,” Joseph Vitale, Deloitte’s global automotive practice leader, told Barron’s at the auto show.
These advanced safety features make up the foundation of autonomous driving, but fully autonomous vehicles are still a ways off in the future.
Currently, the National Highway Traffic Safety Administration defines five levels of autonomous driving. Level 4 and 5 automation are when the car can literally do it all, even if the driver never intervenes.
The technology exists for Level 3 automation (which requires a driver), but there are no level 3 vehicles yet in production. Samantha Simmerson of engineering firm FEV told Barron’s that “level 3.5 vehicles are out there for demonstration in controlled environments.”
Investors shouldn’t wait for higher levels of autonomous driving to invest in the trend though. Auto suppliers
(ALV) all have growing advanced safety franchises.
And it is a good time to start looking at those stocks. They trade for less than 13 times 2019 estimated earnings and are down more than 26% from their 52-week high, on average. Falling Chinese light vehicle sales and peaking U.S. markets have weighed on investor sentiment and made most auto supplier stocks unpopular.
Two other companies on the radar are Japanese supplier
(6902. Japan), which demonstrated some of its new safety technology in Detroit, including heads-up displays. That technology that can put vehicle speed as well as traffic warnings directly in the driver’s field of vision.
(VC) is another U.S.-based supplier with heads-up displays and other products that trades for less than 12 times 2019 estimated earnings, but may require caution. Chinese exposure makes up 21% of sales and Ford exposure is 28% of sales. Ford’s commitment to material costs savings could have a large impact on the company.
Goldman Sachs analyst David Tamberrino rates Visteon shares “sell” and he worries that 2019 earnings estimates are too high.
Cutting Down Congestion
When it comes to eliminating urban gridlock, investors usually think of ride-sharing services Uber Technologies and Lyft, as well as General Motors’ (GM) Cruise division.
But there are more potential solutions on the way. Denso also demonstrated vehicle-to-infrastructure (V2X) technology in Detroit. V2X refers to systems where cars communicate with stop lights, pedestrian smartphones, and other cars to help traffic move more smoothly and make roads safer. It isn’t quite ready for prime time, however.
For now, investors can participate in a no-congestion future when Uber and Lyft offer shares to the public in 2019, and through GM stock, which is on sale every day.
The Rise of the Electric Vehicle
Electric vehicles have been in the marketplace since GM’s original EV1 was released to drivers in 1996. Even though electric vehicles aren’t profitable yet, they aren’t going away, according to Deloitte’s Vitale,
“The trend to electrification is real though, you have governments mandating zero-emissions cars,” he said.
New hybrids and EVs can be found all over the auto show.
and Mercedes-Benz). And the 2020 Explorer is available in a 400-horsepower hybrid model. It looks like battery power is here to stay, even if battery costs remain higher than auto makers would like.
One tertiary way to play the battery trend is by investing in lithium supplier
(ALB). However, Albemarle stock trades like a commodity producer. To invest successfully in ALB, investors need to watch lithium contract prices and global lithium supplies, in addition to the pace of EV introductions by global auto car makers.
Another tangential way to play this theme is by investing in increasing power consumption. As cars go electric, the internal power requirements rise, and that means more complicated wiring and electrical connections.
That is a positive for both
Lear is the world’s second-largest seating provider and a provider of electrical systems. Its stock is down 29% from its 52-week high.
Dana, which makes electrical products, has dropped 54% from its 52-week high because of concerns about the global light vehicle market, even with electrification tailwinds. It also makes parts for traditional gas-powered powertrains as well as commercial vehicles.
Lear trades for only 7.9 times next year’s estimated earnings, and Dana trades for 5 times 2019 estimates.
Both stocks still remain popular with Wall Street analysts. Three-quarters of the analysts covering Lear rate it a buy, and 64% rate Dana a buy. The average Buy-rating ratio for U.S. stocks is about 55%.
New technology is everywhere in Detroit, and it can be added to investors’ portfolios with ease. Reducing accidents, traffic jams, and pollution is great for the general public. Hopefully, it will be great for smart investors as well.
Write to Al Root at email@example.com