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Technology Is Driving a Sea Change Across All Aspects of Economy

Technology Is Driving a Sea Change Across All Aspects of Economy
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Thursday, 18 January 2018 08:17 AM Current | Bio | Archive

Last week, the Consumer Electronics Show (CES) produced lots of news about technology, some of which centered on automobiles.

This week, Detroit is hosting the North American International Auto Show, where there’s tons of news about the latest automobiles, some of which centers on technology.

The auto industry finds itself balancing the need to show new cars and trucks that will grace showrooms this year with its focus on electric and autonomous vehicles that may drive the industry’s future. I asked Jackie to have a closer look.

Here’s what’s in store for the industry both today and tomorrow:

(1) Spiking sales. The auto industry wrapped up 2017 in much better shape than expected. Sales in the fall spiked as consumers replaced cars ruined by the rough hurricane season. December motor vehicle sales totaled 17.9 million units (saar), following November’s 17.5mu pace (Fig. 1). The spike reversed the industry’s sales slump that started in January 2017 and lasted through August, when sales fell to a low of 16.1mu (saar).

Before hurricanes destroyed cars this fall, the sales slump was expected to continue as new auto sales were to face tough competition from cars for sale after coming off three-year leases. The average price gap between new cars and three-year-old leased cars widened to $14,200 last year, up from $10,500 in 2010, the 1/8 WSJ reported. The gap is expected to widen further as 12% more vehicles come off lease in 2018 than did in 2017.

Now the question is whether auto sales will hold onto their post-hurricane gains or whether they will return to their sluggish summer ways. On Tuesday, GM sounded a positive note. The company expects 2017 earnings per share at the high end of its $6.00-$6.50 forecast. That’s up from company guidance in October that EPS would come in in the middle of the range, implying GM had a stronger Q4 than expected. The auto company also forecasted results this year would be “largely in line with expected 2017 results.” The forecast is far more optimistic than analysts’ estimates for 2017 earnings of $6.29 a share and 2018 EPS of $5.19.

Ford’s forecast for this year isn’t as optimistic. The company expects operating earnings to fall to $1.45-$1.70 a share this year, down from the $1.78 it estimates it earned in 2017. Ford blamed the decline on higher commodity costs and adverse exchange rates, and plans to reduce the number of passenger cars it sells while increasing the number of more-profitable SUVs and trucks it offers. The low end of Ford’s 2018 forecast, delivered Tuesday night, is below the $1.59 a share analysts were targeting.

The S&P 500 Automobile Manufacturers stock index (GM and F) fell in the first half of 2017 and rallied in the back half, reflecting the industry’s Q4 sales spike. For the year, the index rose 10.6%, almost half the S&P 500’s 19.4% gain (Fig. 2). Expectations are quite low for the manufacturers, with revenue expected to fall 0.8% y/y over the next 12 months and earnings forecasted to drop 7.4% over the same period (Fig. 3). At 7.6, the industry’s forward P/E multiple is in the middle of the 5.0-10.0 range it has kept within since 2010 (Fig. 4).

(2) Looking ahead. Despite uncertainty about sales over the next 12 months, there are many exciting developments in the auto industry, including the advent of electric and autonomous vehicles. GM, Alphabet’s unit Waymo, and Aptiv (formerly “Delphi Automotive”) appear to be in the lead when it comes to developing driverless cars.

Waymo has had autonomous cars in Phoenix driving volunteers who sit behind the wheel but don’t steer. In October, its autonomous minivans started driving around with employees in the back seat and no one behind the wheel. Up soon: putting volunteers in the back seat of the autonomous minivans, with no one behind the wheel.

“Part of what we’ve been trying to do with our technology is make it completely autonomous and not reliant on any new or incremental infrastructure or infrastructure change,” explained Waymo’s CEO John Krafcik at the LA Auto show in November.

GM, which has been testing autonomous vehicles in San Francisco, has applied to the National Highway Traffic Safety Administration for permission to deploy a car without a steering wheel or pedals by next year. The company argues that its driverless cars have encountered more challenges than others’ driverless cars because GM is testing the cars in San Francisco’s tougher driving environment, reported a 1/12 article in The Verge.

At the CES, Lyft was offering rides to attendees in cars that use Aptiv’s autonomous driving system. There was still someone in the front seat monitoring the car’s progress. But Aptiv’s CEO Kevin Clark said autonomous cars would be available this year, according to a 12/4 Bloomberg article.

Clark predicted the expense of self-driving software and equipment would mean the first autonomous vehicles would be used by delivery vehicles and robot taxis, looking to eliminate the cost of drivers. Clark didn’t see a market for individual users of autonomous cars developing until 2025, when he predicts the cost will have declined to $5,000 from today’s $80,000 to $150,000 price tag.

(3) Smarter cities. Ford’s autonomous offering will be available for commercial operation in 2021. Ford CEO Jim Hackett’s presentation at CES focused on autonomous cars in smart cities. Hackett and his team explained how sensors in cars, buses, trains, signs, bikes, traffic signals, etc. all would communicate to improve life in cities.

In such an environment, traffic signals can be changed to keep traffic flowing and reduce congestion and pollution. Traffic can be routed around sporting events or the way can be cleared so emergency vehicles can arrive at their destination faster. Drivers can see where there are parking spots, eliminating the need to endlessly circle until a spot frees up.

Ford believes smart cities will have fewer parked cars and more trees and benches. It envisions a world where an unmanned vehicle could pick up packages from two different small businesses and deliver those items to two different places, doing so at lower cost and more efficiently than can be done today. In smart cities, ridesharing becomes easier and commuters can switch easily between different forms of transportation and arrive at work more quickly.

(4) A contrarian view. The great thing about this developing world is that no one quite knows how it will all play out. Eran Shir is the founder of Nexar, a company that makes car dashcams that film rides and collect information. His blog posts turn many of the assumptions about the autonomous vehicle’s impact on the city on their head. Most assume cities will continue the recent trend of getting more congested. Shir questions whether cities might empty out as autonomous vehicles make longer commutes more productive and enjoyable, allowing people to live further from city centers.

The number of grocery stores and post offices in cities might decline if companies like Amazon develop what are essentially vending machines on wheels, storing and delivering frequently requested items, Shir speculates. If commuters take their autonomous car into the city, might they opt not to park it but rather let it drive the city streets, earning money by picking up passengers while owners are at work? If many people “rent” out their cars during the work day, will there still be a need for Uber, Lyft, or taxies? If everyone’s cars are circling town, Shir wonders, might city streets get more congested rather than less so, perhaps leading to road usage charges?

Will truck-stop towns and rest stops dwindle in number if autonomous long-haul trucks come into existence? Will people stop taking short commuter flights between cities, Shir questions, opting instead to hop in an autonomous car? Along those lines: If RVs and cars pulling Airstream trailers become autonomous, might communities of roving retirees riding around in their homes replace Florida retirement communities as the norm?

If all this talk of the future makes you a little queasy, have no fear: You’ll have a few more years before these issues come to the fore. None of the hot-shot new autonomous vehicles won the car of the year at the Detroit Auto Show. The winner: Honda’s Accord.

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.

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Technology Is Driving a Sea Change Across All Aspects of Economy
tecnology, change, economy, auto
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2018-17-18
Thursday, 18 January 2018 08:17 AM
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