Three years ago, we wrote about “your car in 5 years’ time,” but it is already time for an update. Voice commands have been fully integrated into new cars, and they’re capable of doing much than the commercials demonstrating “Alexa, start my car,” promised. Making phone calls hands-free in the car seems normal now, and so progress goes, the fantastic and whimsical becoming commonplace.
The auto companies are serious about innovation. Research and development (R&D) dollars spent in the auto industry were close to $130 billion in 2018, only trailing R&D dollars spent in the Healthcare and Information and Communications Technology sectors.1
We didn’t predict the auto slump in the fourth quarter of 2019, but we believe there will be a quick rebound, helped by the pandemic. People will be increasingly relying on their cars for transport as concerns about exposure to the virus has caused the volume of public transport and air travel to fall off a cliff. We expect motor vehicle miles travelled will benefit from these declines.
The pandemic has started a deurbanization trend, as fewer employers may return to requiring workers to be onsite five days a week. As more people have the opportunity to work from anywhere, more are likely to leave cities and commuter towns. The move to areas with fewer public transportation options will encourage more travel by vehicle. So too will the fact that people can combine work and travel more easily because they can now work remotely from any location, even as passengers in car while travelling to an area they’re visiting for a getaway.
Millennials are getting married and having kids later than previous generations did.3 Having more young families living further away from major cities will increase the pace of deurbanization and create more multi-car families.
From “Alexa, start my car,” it is an easy next step to “set the temperature to 70 degrees,” and or having the car automatically program the GPS for the address of an event in your calendar. While all this technology-based convenience does require more interconnectivity, with greater demands for communication between the car and the driver’s smartphone, this level of connection can be facilitated through 5G cellular access. 5G can handle many times more bandwidth than 4G, and that will enable all sorts of tiny devices to connect to the internet and talk to each other. Examples of this may include communicating with personal wearable devices that can detect a driver’s body temperature and set the car temperature to best align with that or sense when a driver is getting drowsy and lower car temperature to keep them more alert.
Qualcomm is the leader in the 5G with the intellectual property rights to much of the technology that drives it. All the major producers of 5G communication equipment have agreed to work with Qualcomm or pay it a royalty. 5G will allow more users to have high-speed Internet access at the same time, so cars can talk to other cars and to the cloud, while passengers stream their entertainment or work video calls, without any delays in data transmission times.
Making some of the examples cited here – like adjusting the car’s internal temperature in response to the driver’s or delivering directions to an event scheduled in someone’s calendar — requires not just communication between devices, but also quick and local machine intelligence, facilitated by processing semiconductor chips in the car. The technology required is already in cars. For example, with lane departure warning systems, a sensor detects when a car is drifting and sends the information to a central processing unit, which then sends information to the steering and tires to bring the car back into its lane. Adding more functionality adds complexity and increases need to keep the systems separate and secure, and that is something Blackberry is most expert at doing.
Corning, which makes touchscreens, is also developing tough but lightweight glass that will be used in car windows. Reducing a car’s weight helps save on battery power and also lowers the car’s center of gravity, thereby increasing a car’s ease of handling.
It is easy to understand why people compare new electrified cars to smartphones. Still, there is a huge difference in the power demands of smart phones vs. cars, with the primary purpose of the latter being to move people and cargo — a power-hungry task. While smartphones can be powered by 12-volt batteries, cars will need much higher voltages to power all these new features. While smartphones can be powered by simple 12-volt batteries, the voltage needed to quickly charge powerful car batteries is much higher, and the silicon semiconductor chips that are used in smartphones can’t handle this level of voltage or the associated high temperatures. The auto industry is instead looking to use Silicon Carbide (SiC).
SiC is a crystal that is transparent and glittering. Picture a diamond without the branding people behind it. It is difficult to make because high temperatures and high pressure are required. The American manufacturer Cree has been making SiC for 30 years for more niche applications, and we believe it is poised to benefit from the growth in the usage of SiC.
As part of our investment process, we get to travel the world to find companies that will benefit from changes such as the ones transforming the auto industry. An example is PVA TePla in Germany, which makes the furnaces that Cree uses to grow SiC under high temperature and high pressure. Another example DISCO Corporation in Japan, which makes cutting-edge tools to slice the SiC. Silicon can be cut using grinding saws, but SiC is much harder, and much more expensive, and saws cause too much waste. DISCO has developed laser cutting tools for SiC that allow companies to get significantly more out of each SiC ingot.
We may not have cars traveling through the air, as many futurists imagined, but cars continue to deliver breakthrough technologies that make driving safer, convenient, and more fun. We continue to search for companies that we think can enable investors to benefit from these transformative innovations.
1 Source: “European Autos: The Reincarnation of the Car,” Sanford C. Bernstein & Co., LLC, 9/8/20.
2 Source: “European Autos: The Reincarnation of the Car,” Sanford C. Bernstein & Co., LLC, 9/8/20.
3 Source: The US Census Bureau, Feb. 2020
As of 9/30/20, Qualcomm represented 1.57% of Invesco Global Opportunities Fund’s holdings; Blackberry, 0.24%; Corning, 0.43%; Cree, 0.85%; PVA TePla, 0.38%; and DISCO Corporation, 0.65%. Holdings are subject to change and are not buy/sell recommendations.
Image Credit: Monty Rakusen / Getty
Many products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the issuers.
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The opinions referenced above are those of the authors as of Oct. 31, 2020. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
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