The European auto industry has for several years seen significant secular headwinds from a technology change that will also challenge the business models of the auto industry in the next decade. From an investment perspective, this has kept us on the sidelines. We continue to see significant technology threats, but now also a cyclical risk as the business cycle is maturing as well as very tough CO2 regulations taking effect from 2020.
Europe is in a precarious position, as the continent is right in the middle of the crossfire between the US and China. Ordinarily, Europe would go with the US in matters of National Security, but these are not ordinary times, and what happens in the battle for 5G supremacy in Europe could be a precursor to what happens to security alliances going forward.
Some years ago we argued that because of the very high investments required to 1) master the transition from internal combustion engine technology to electric drivetrains combined with 2) the parallel drive towards more autonomous technologies and 3) the eventual development of mobility as an app challenging the existing business models, the auto industry was un-investable for the long-term investor. The reason being that there was no visibility on future margins and the returns from these huge investments. Also, at the time it was becoming clearer that the German premium brands, who used to be technology leaders, were now laggards, and that they simply “didn’t get it”, because they could not see a path to profitability in electric, autonomous mobility, and therefore didn’t allocate sufficient capital to these projects. It resembled a similar situation with Kodak a few decades earlier.Read more Download the White Paper