Goldman Sachs: Electric cars, vehicle autonomy, and ride sharing will define 'Auto 2.0'

Guest Blog Post: Charles Morris is the Senior Editor of Charged, the magazine of electric vehicles, for which he writes a daily blog and regular print articles. He's also written five books including Tesla Motors: How Elon Musk and Company Made Electric Cars Cool, and Sparked the Next Tech Revolution.

During the recent Tesla Gigafactory investor event, David Tamberrino of Goldman Sachs wrote, "Overall we found the [Tesla Gigafactory] tour helpful in illustrating the layout and process for manufacturing lithium ion battery cells and packs for its automotive and energy products. However, there was a lack of quantitative updates for 2017 and the ramp expectations." Goldman continues to be cautious, yet intrigued by Tesla Motors [NASDAQ: TSLA]. With Goldman's conservative outlook on Tesla, it's worth analyzing the investment giant's broader views on the automotive industry's future.


Above: Model 3 being showcased at the Tesla Gigafactory (Image: Motor Trend)

It’s obvious to anyone paying attention that the auto industry is on the cusp of major changes. For the past few years, I’ve been writing about what I call the Triple Trend - electrification, connectivity and autonomy. New ownership models (car sharing, mobility as a service) also portend big changes. Goldman Sachs has their own spin on the coming upheaval. In their recent "Auto 2.0" video (see below), Goldman's Michael Ronen notes: "the [coming] disposal of the engine and the transformation of cars into electric devices... we should think about cars in the next several years becoming all electric fairly quickly." Encouraging.


Above: Goldman Sachs makes its case for "Auto 2.0" (Source: Goldman Sachs*)

However, Goldman's "Cars 2025" report backpedals a bit. In contrast to Ronen's forecast, this particular report appears to be far more conservative. Goldman predicts that by 2025, 25% of vehicles sold will be electrified, but that most will be hybrids, and 95% of cars will still use legacy fuels. Most in the electric vehicle press would laugh out loud at such a timid forecast, but it’s in line with predictions coming out of the auto and oil industries.


Above: Goldman sees the need to lower carbon emissions adding a weighted cost increase of over $2,500 per vehicle by 2025 (Source: Goldman Sachs*)

Instead, the report identifies self-driving cars as a trend likely to arrive sooner. “Fully autonomous cars are being tested on roads today, and the first commercially available semi-autonomous cars could be on the road in the next 1-2 years,” write Goldman’s analysts (oddly ignoring Tesla’s semi-autonomous cars, which have been on the road for a couple of years already). “The competition to lead this change is intense, coming from companies both inside and outside the industry.”


Above: A look at the levels of vehicle autonomy; Level 3 showcased here (Source: Goldman Sachs*)

New technology will continue to empower new competitors: “With software and other technologies taking the lead, it’s no surprise that consumer tech companies are entering the automotive world. These businesses’ focus on design, ease of use, automated assistance and battery life will bring new kinds of innovation to the field. One catalyst for tech innovators to move into the automotive industry now: electric vehicles have just 1/3 the parts of conventional vehicles, lowering the barriers to entry.”


Above: Electric vehicles have just 1/3 the parts of conventional gas-powered vehicles (Source: Goldman Sachs*)

The “Internet of Cars” is another major theme discussed. “Connected cars...will not only reduce accidents and ease traffic. They will have powerful effects beyond the auto industry. Insurers, for example, will have new ways to monitor driver behavior, reward good drivers and distribute costs to bad ones. And ride-sharing companies can better connect idle cars with the customers that need them.”


Above: The popularity of ride sharing differs across generational lines; more Millennials are willing to share cars (Source: Goldman Sachs*)

In addition, at the recent Goldman Sachs Global Automotive Conference in London, the company asked auto industry execs what they believed would be the biggest changes in the automobile industry over the next decade. Here's a summary of what they highlighted...

  • Henkrik Eskilsson, CEO of eye tracking tech provider Tobii, believes the biggest trend will be vehicle autonomy. “We’re going to see a gradual evolution...eventually going into fully autonomous cars. It fundamentally transforms the car from something that you own and buy into something that you use, and buy mobility.”
  • “We talk a lot about the Internet of Things, but take autonomous driving and add connectivity, you get the Internet of Cars,” said Stefan Burgstaller, Goldman’s Head of European Automotive Equity Research. “That will be the basis for new mobility concepts. Instead of owning a car outright, we might start consuming mobility services. I believe new entrants will come and challenge the automotive industry.”
  • “We are no longer in the car business - we are in the business of individual human mobility,” said Dr. Axel Kalthoff, Director, Group Sales Management for Volkswagen. “There will be a tremendous change in the way people think about cars - ownership, social hierarchy.”
  • “The traditional auto industry is more or less ticking in a seven-year cycle,” said Dr. Philipp Schulte, Associate Principal at McKinsey & Company. “We see much faster innovation cycles in the IT industry, and as these players are spilling over into the traditional auto industry [established] players may have to dramatically accelerate their pace.”
  • There were a couple of outliers - Yoko Dochi, Head of IMEA Investor Relations at Toyota, thinks hydrogen is the coming thing, and Dr. Wolfgang Ollig, CEO of automotive lighting supplier Hella, says, “the biggest change in the next decade will be related to the lighting of the car.” However, most of the speakers talked about autonomy and connectivity combining to disrupt the traditional model of car ownership.

Interestingly, none of industry executives interviewed by Goldman Sachs named electrification as an important trend, and none mentioned Tesla. However, as the California carmaker is currently the world leader in both autonomy and connectivity, it’s a safe bet that it is never far from their minds.


*Source: Goldman Sachs