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Automobile & Auto Parts

The automotive industry is a broad industry that includes all companies that are involved in designing, developing, manufacturing, marketing, and selling motor vehicles and auto parts. The industry is a significant contributor to the GDP of many countries. In 2020, the automotive industry in the US contributed to 3% of the country’s GDP. It is one of the largest employment industries in the US–in Q1 of 2021 alone, the automotive industry employed 4.1 million people.

The industry is highly capital intensive ranking 3rd in global Research & Development (R&D) across industries. The automotive industry is also an important exporter of the US and, over the last decade, has exported over $1.1 trillion in vehicles and auto parts. Ford and General Motors are US-based global leaders that have dominated the space for decades. In the initial stages of the pandemic outbreak, the automobile & auto parts industry was hit hard. By April 2020, auto sales had dropped by 47% in the US. But by the 3rd quarter of the year itself, things started to pick up, and automakers saw rapidly increasing production levels across the globe. 

QUICK TAKEAWAYS

  • Primarily, three types of companies exist in the automotive industry – automakers, auto part suppliers, and auto dealer groups. 
  • The industry is cyclical, capital intensive, and invests significantly in R&D. 
  • The health of the economy, government regulations, interest rate changes, and innovation highly influence the performance of the automotive industry.
  • Shared mobility and connectivity services are going to be the major themes in the industry moving forward. 
  • Electric vehicles and self-driving cars are the cars of the future. 

STATS CORNER

GLOBAL PASSENGER VEHICLE MARKET SIZE IN 2021

1,445 billion USD

(Source)

ESTIMATED GLOBAL PASSENGER VEHICLE MARKET SIZE IN 2029

2,641.10 billion USD

(Source)

KEY PLAYERS

[WORLDWIDE, BY MARKET VALUE]

(source: Value Today | As of January 2022) 

[THE UNITED STATES, BY REVENUE]

Company NameRevenue GeneratedRevenue GeneratedRevenue GeneratedRevenue GeneratedRevenue Generated
 20222021202020192018
Ford Motor
(Oct-Sep)
$151.736B$134.61B$130.909B$157.978B$159.871B
General Motors
(Oct-Sep)
$147.211B$130.938B$115.793B$144.810B$146.365B
Tesla
(Oct-Sep)
$74.863B$46.848B$28.176B$24.420B$17.523B
Deere & Company
(Nov-Oct)
$52.577B$44.024B$35.540B$39.258B$37.359B
Honeywell International
(Oct-Sep)
$34.937B$34.635B$33.233B$36.942B$42.916B

(source: Macro Trends)

  • Ford Motor (NYSE: F): Ford sells a variety of cars under two brands – Ford and Lincoln. it has gone from being an auto company to also focusing on software, services, and experiences.
  • General Motors (NYSE: GM): General Motors sells a variety of cars under the Chevrolet, Cadillac, Baojun, and a couple of other brands. It also provides automotive financing services.
  • Tesla (NASDAQ: TSLA): Tesla is an electric vehicle and clean energy company and is the most valuable brand in the industry worldwide. At a growth rate of over 157% in 2021, Tesla is also the fastest-growing brand globally.
  • Deere & Company (NYSE: DE): Deere & Company has an extensive portfolio of over 25 brands through which it offers tractors, heavy equipment, and specialized machinery.
  • Honeywell International (NASDAQ: HON): Honeywell International is a diversified technology and manufacturing company that offers automotive products, turbochargers, aerospace products, and specialty materials.

KEY DRIVERS

  • Economic cycle: The automotive industry is highly cyclical, meaning when the economy is doing well (employment rates are high, stable inflation, High retail sales, etc) the automotive industry will also do well. However, the companies see a decline in their sales and stock prices when the economy suffers. The industry is also seasonal and tends to see peak demand in spring and fall and low sales in winter months.
  • Electric vehicles: Estimates predict that more than 50% of all new cars sold by 2030 will be EVs. Over the last couple of years, the EV market has been growing rapidly as improvements in battery life, efficiency, and affordability make EVs a desirable option. Companies focusing on this segment will see the benefits in increased revenue, market share, and stock value in the long term.
  • Government regulations: The automotive industry is heavily regulated, the government has regulations in place for a range of things that ultimately impact the auto company’s costs and hence profits. Everything from design and safety features to how the car is marketed and sold is regulated.
  • Interest rate changes: The automotive sector relies heavily on debt. When Interest rates rise, it becomes expensive for consumers to opt for financing, which leads to a decline in consumer demand. On the other hand, low interest rates make cars more affordable for consumers, leading to an increase in consumer demand.

WHAT DOES THE FUTURE HOLD?

While there will be a shift toward shared mobility(car-sharing, rides on demand), global vehicle unit sales will continue to grow. This growth is likely to happen because, even though private vehicle sales will drop, they are likely to be offset by an increase in the sale of shared vehicles. Another reason for the global growth in sales of vehicles is emerging markets and stronger economies, where disposable income is steadily increasing.

The future of car buying is omnichannel (online business models). This will allow the customer experience to be more personalised and engaging while reducing costs for car dealerships.

Another exciting shift in the industry is going to be the adoption of self-driving or autonomous vehicles. Waymo, a subsidiary of Alphabet Inc., has already begun testing its autonomous cars in the major metropolitan area of San Francisco and is only a few permits away from opening the service to the public.

With the penetration of EVs set to rapidly increase throughout the globe, self-driving cars to open to the public, and newer business models to significantly increase the industry’s revenue, stocks of automobile & auto parts companies remain bankable bets. To access all the high-performing US stocks in the industry, download the Appreciate app

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