The Center for Automotive Research (CAR) reconvened its popular Management Briefing Seminars in Traverse City last week, with its usual mix of technical, financial and market topics delivered in person this year. It was good to see many colleagues and friends, and to attend the “Financial & Capital Markets” (aka “Who Will Make Money in this New Auto Tech World?”) panel.  The panel was moderated by Edgar Faler, Senior Industry Analyst from CAR, and featured Trevor Upton, Mobility Sector Head from Mosaic, a unit of Key Bank; Justin Mirro, CEO of Kensington Capital; and John Murphy, Managing Director and lead automotive analyst at Bank of America. 

Murphy began with an overview of the current automotive market, noting that we are currently “bumping off the trough” from last year and forecasts 15.6 million units of sales in the North American light vehicle market this year.  Murphy believes the “supply shock” that we experienced will continue to drive a multi-year recovery in automotive. For consumers, he noted it was a good time to buy a vehicle “if you can find the one you want,” with the real monthly cost of ownership levelling off from historical levels. Murphy summed up the current challenge as a “Core to Future” transition: to make money in the current environment dominated by trucks/SUVs and luxury to charting a future course to electrification. 

Justin Mirro similarly noted that “the #1 trend is the electrification of the powertrain,” which will require public market capital to support (in addition to private capital and government support).  His SPAC Kensington (NYSE:  KCAC) recently completed the acquisition of battery maker QuantumScape and EV charging company Wallbox.

Trevor Upton echoed the comments of the other panelists, noting that the simplification of the powertrain in an electrified mobility world will be very disruptive, and is the leading challenge facing the industry. 

Faler then launched into an extensive Q&A session, which included the following:

• Murphy predicted, as a “base case,” 7% EV penetration in the U.S. by 2025 and 20% by 2030.  Murphy stated that significant additional government incentives and industry and government investment (in the Trillions with a T) will be necessary to get to the target EV penetration number of 50% by 2030 that the Biden Administration announced that day, in order to bump up the base case.

• Murphy and Upton also weighed in on whether contract manufacturers like Foxconn will displace traditional industry players in the future EV powertrain world, casting doubt on that thesis while noting their belief that traditional manufacturers will play a key role in the future EV world. Mirro offered support, noting that Kensington’s investment focus is on companies that are extending themselves into electrification, “but with a manufacturing footprint or understanding that they have built in the past.” Murphy noted that 45 companies have gone public in the last 12 months in the automotive space, reflecting a strong public investor appetite for advanced automotive technologies.

• Mirro reviewed three M&A strategies that he sees in play going forward: Consolidation (for segments with too many players, such as stamping), Unlocking Shareholder Value (citing the FCA spinoff of Ferrari as an example) and Technology Acquisitions which allow companies to participate in the EV and other megatrends (citing QuantumScape as an example). 

• The panelists weighed in on Autonomous Vehicles only briefly, with Mirro underscoring that the ubiquitous rollout of Level 4 and Level 5 AVs is “still a long way off.” Murphy noted the tremendous societal benefits that AVs will bring, making them a long term and compelling megatrend. Finally, Upton noted that most technology leaps started with a “bad version” followed by a “good version” – which is not possible with AVs given the need to deploy on day one at automotive safety grade. The challenge will be to identify “what is good enough?”

The headline from the panel is that public and private investment in the automotive industry is alive and well, with aggregate public capitalization of about $1 trillion and aggregate private capitalization of $2 trillion. Market developments and government support should continue to drive these numbers up, as the transition to the EV world unfolds over the next decades.