Longhorn Investment Team Weekly Insight: Game of Thrones Edition (4/14/2019)

Welcome back ladies and gentlemen. We know it was windy yesterday, but this content is sure to blow you away haha. It took us hours to think of these GoT puns so be sure to tell all your friends about us. In this episode, we’re beginning with the latest gossip on transportation because we love transportation and so should you.

Game of Cars

The automobile industry is on the brink of game-changing innovations: electric vehicles (EVs), autonomous vehicles (AVs), and connected cars (CCs?).

The question remains: who will win and lose in the war to control these new and exciting markets? Let’s take a look at the major battlegrounds.

Connected Cars: The average 5-year-old car uses over 100 million lines of code with the processing power of over 20 PCs – and that was mostly dedicated to improved GPS and safety functions. Now, the money is being spent on internet connectivity, specifically to enhance the in-car experience beyond DVD players.

House Big Tech vs House OEMs: Software and Telecom companies like Alphabet and Apple have plenty of reasons to join the car dashboard revolution. Because people in the car are a literal captive audience, whoever owns the software in your car has plenty of monetization opportunities (ie advertisements that correspond to your driving route, integrations with other apps, and in-car payments for gas and other stuff).

As Apple and Google try to maximize their stakes in the dashboard, some Original Equipment Manufacturers – in this case, automobile producers like Ford – are aggressively developing in-house software to preserve their share of the new market (and the consumer data that comes with it). In other words, who is going to run the app-store in your car, Toyota or Apple? Nobody wants to be the dump pipe.

Key Trends: The main “drivers” (lol) of the connected car include new features and with them, new monetization avenues mentioned above. Roughly 90% of vehicles on the road should be connected to the internet by 2020. However, these innovations don’t come without barriers to adoption – namely privacy concerns on the tech side and design concerns on the automotive manufacturer end. A McKinsey survey found that 35% of consumers would never buy a car with internet connectivity because of concerns over data privacy and hacking. Additionally, many OEM’s aren’t good at making dashboards with a good user interface and struggle to integrate outside technologies. Ever been in a car with a dashboard that looks like airplane controls?

Ford is recalling about 13,500 2015 Lincoln MKCs after moving cars stopped suddenly when drivers confused the push-to-start button with other dials.

CNN

And no, that was not a Boeing joke, but we just can’t have this stuff going on!

Electric Vehicles:

Too many Houses to count. Here are some companies investing heavily in electric vehicles:

Ford Motor Co. recently announced an $11 Billion restructuring effort and shifted upper level management with EV, AV, and dashboard software ambitions. That’s a bold strategy, Cotton; we’ll see how it pays off for ‘em.

General Motors announced layoffs and increased EV investments earlier this year.

Tesla is shifting away from EVs to focus on innovative gasoline powered vehicles. Just kidding, but Tesla does face new competition in China and potentially in other regions from Geely, a Chinese auto company that owns a 50% stake in Smart (the Smart Car people). Geely’s new “Geometry A” model will cost about $31,000, already making them a low-cost competitor with similar features to Tesla’s Model 3.

China’s Red Wedding: Due to subsidy cuts and stagnating demand for new vehicles, experts forecast difficult times for the 500 plus Chinese EV startups, which have raised over $18 billion in capital in 8 years. While larger players like NIO should whether the storm, smaller startups betting on breakthrough technologies face serious shutdown risks. Importantly, the US is introducing legislation to raise EV credits while China is phasing them out.

Key Trends: Most people don’t know enough about EVs to buy them. According to an Engine International survey, 75% of consumers don’t know where to find charging stations, and a majority aren’t aware of 30-minute charging times or the $7,500 available in tax credits for EV purchasers. To be fair, I have reason to believe the survey results could be biased to a degree, but it’s no secret that EV’s aren’t far off from becoming mainstream among consumers and auto-makers alike.

Autonomous Vehicles: We just realized this is running long, so we’ll pull a George R. Martin and leave everyone in suspense. Stay tuned for our follow up on key trends in the AV space plus insight on Disney’s big announcement and the future of your digital life from privacy to memes.

Fun Facts:

Tiger Woods won The Masters, but you already knew that. Smash that like button.

We didn’t include any GoT spoilers because this AI algorithm can do it for you. Students at technical University of Munich have assessed the survival chances of every major character using web data, only time will tell if it actually works… dun dun duna dun dun duna dun dun duna dun!