Imagine it’s the year 2022, and you’re taking your next car out for a spin.
After unplugging it from the charging station, you settle behind the steering wheel and into the driver’s seat, where you’re greeted by a brilliant glass touchscreen which houses all your controls. To start the car, you simply tap the touchscreen.
Trips to the gas station are a thing of the past for this fully Electric Vehicle (EV), and unlike the rumble of your old gas-powered car, all you hear when this automobile starts, is a chime. It’s a bit chilly outside, so with a simple voice command you tell the vehicle to set the temperature at a comfy 79 degrees.
Then, the car sees you have an event on your calendar and programs your destination into the GPS automatically.
As you pull out onto the road, you barely notice the hum of the electric-powered engine. When you stop at red lights, the car’s battery gets a partial recharge thanks to regenerative braking technology which allows you to get more miles to the charge.
There’s a slow driver ahead of you as you merge onto the highway, but you’re able to accelerate past them with ease even though your motor only has a fraction of the moving parts that your old gas-powered car had.
The Safest Car Ever? Need to make a call during your trip? Through voice commands you tell the car who to call without ever taking your hands off the wheel. Unfortunately, like many drivers, you get a bit distracted while you’re on the phone and don’t realize you’ve dangerously drifted out of your lane. But not to worry – your new car gently beeps to warn you and it nudges itself safely back into the center of the lane.
As you’re driving down a rural road, all of a sudden a deer runs out in front of your car! If forced to rely on your human reaction time, there’s no way for you to brake quickly enough to avoid a collision.
Fortunately, your car is always watching the road and the areas around it, and thanks to built-in cameras and laser detection technology, it’s able to apply the brakes before you collide with the deer. Both you and the deer are able to continue with your respective days, neither of you worse for wear thanks to the lightning-quick reaction time of your car.
As my colleague George Evans recently wrote, automobiles are evolving rapidly in response to growing demand from both consumers and regulators for vehicles that are safer, environmentally friendly, and connected to the Internet.
Thanks to this demand, the fleet of cars driving the world’s roads is likely to look very different five years from now than it does today.
As Portfolio Manager of Oppenheimer Global Opportunities Fund, I look to buy companies that have years of exponential growth ahead of them – and the evolving automotive sector is a theme that I believe will help create substantial wealth for investors in the years ahead.
How We’re Investing in an Evolving Automotive Sector We believe EVs will be adopted by consumers much faster than many people expect.
Today, EVs account for around 1% of car sales, but this figure could rise to 5%-10% of sales by 2020,* according to a report by McKinsey & Co. Batteries are getting cheaper and more efficient every year, which is rapidly driving down the price of EVs.
This same trend is occurring in the production of solar energy, which will make the economics of EVs even more attractive to consumers— and even more friendly for the environment. We invest in a company that manufactures equipment to produce high efficiency solar cells. These solar cells will provide an additional source of energy to your electric car’s charging station, further enabling our shift to a cleaner automotive future.
We see a huge opportunity in companies that make semiconductors as well. Semiconductors are a necessary component for vehicles with features like anticipatory braking, self-parking or even autonomous driving.
McKinsey projects that the global automotive semiconductor market will range between $39 billion and $42 billion in annual sales by 2020.** In addition, semiconductors for use in automobile safety systems are expected to grow at a compounded annual rate of 22% for the same time period. This compares favorably with overall growth rates of 3%-4% for the entire semiconductor industry.^
The Internet of Things (IoT), which refers to everyday devices being connected to the Internet, also factors heavily into our investment approach. In order to build connected cars that can download and process vast amounts of data, auto manufacturers need to adopt 5G networks.
This next-generation computing power will bring a range of capabilities to drivers and passengers that were once unheard of. From the dashboard, not only will you be able to stream music, conduct e-commerce or access social media accounts – you’ll even be able to sync up with your smart home. This will allow you to do things like control appliances, access your home security system, adjust your thermostat – and more – all from your seat in the car.
We’re invested in a company that leads the way in secure machine-to-machine communication software, which should benefit in the coming years as more and more cars get connected to the Internet.
And that brilliant glass display, complete with the touchscreens that have made those old analog dials and switches a thing of the past? We’re invested in a company that makes those, too.
Our Investing Philosophy In our view, companies have a lifecycle. They begin as entrepreneurial ventures and then develop into fast-growing enterprises if they’re successful enough. The next stage in the lifecycle is healthy corporate adulthood – which can last quite a long time – and then finally the decline phase.
Oppenheimer Global Opportunities Fund seeks to invest in companies that are on the cusp of developing into fast-growing enterprises that are positioned for dramatic growth and substantial return for investors who get in early enough. This Fund provides what we see as a compelling opportunity to invest in the companies that are developing the technologies we’ll rely on into the next decade – and beyond.
*Source: McKinsey & Co.
**Source: McKinsey & Co.
^Source: McKinsey & Co.
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