Last week, Elon Musk, founder and CEO of Tesla Motors, unveiled Tesla’s newest vehicle, the Model 3. The $35,000 electric automobile, which is still a prototype, generated tremendous buzz – and received over 275,000 pre-orders (worth almost $10 billion) in just two days. Impressive for a vehicle that is not expected to begin production until late 2017. While Mr. Musk enthused that “you will not be able to buy a better car for $35,000,” real details on the Model 3 were sparse. Based on the prototype’s lack of traditional dashboard and instrument cluster and a steering system that, according to Musk, will feel “like a spaceship,” many believe that Tesla will announce plans to integrate a fully autonomous driving system into the car in “Part 2” of the vehicle's reveal, which is expected to happen sometime next year. This is all pretty cool for an electric car in this price range that will also do 0 to 60 mph in less than six seconds and has a driving range of over 215 miles.
This announcement and the excitement surrounding it previews an automotive arms race that is heating up. As automobiles become much more reliant on computer technology, the industry is beginning to garner attention from traditional automobile industry players and newcomers alike. Excluding the now-public Mobileye (NYSE: MBLY), which raised a huge $400 million in 2013, 2015 was the most successful auto tech fundraising year in recent history. According to CB Insights, investors deployed $409 million of venture capital in auto tech companies across a record 41 deals – a 154% jump in funding and a 58% increase in deals in 2015 from the prior year. This investment pace shows no sign of slowing.
Investments have targeted such automotive technologies as:
- Assisted driving/autonomous software
- Driver safety tools
- Driving data/connected car
- Fleet telematics
- Vehicle-to-vehicle communication
- Cyber security
This push for innovation in the auto industry has been driven by a number of different players. Aside from the auto manufacturers, their venture groups and traditional VC firms, some of the more active investors in the space include technology players Intel and Qualcomm, automotive supplier Magna, oil and lubricants company Castrol and mobile technology company Nokia. These investors recognize significant change is coming to the industry and are all trying to position themselves to capitalize on it. The innovation that is born out of these ventures has already started to, and will continue to, trickle down into the vehicles that we purchase/operate in the near future.
Key Takeaway: When will the next generation of automotive technologies go from science fiction to commonplace, and when will they find themselves in our automobiles? No one knows for sure. What is certain, however, is that based on the technologies that are currently being developed, the driving experience over the next ten years will look drastically different from that of the prior ten, and those with the ability to spot these trends early will likely be rewarded with strong investment returns.
And on a side note, congratulations to the 2016 Men's Collegiate National Basketball Champions – the Villanova Wildcats. Way to go, Cats!
The material provided here is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management.
This material is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.
High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.
