Morgan Stanley: tech companies are automakers’ biggest threat

The likes of Ford and Toyota would be wise to consider the arrival of tech companies such as Google and Uber into the auto industry as a threat rather than a growth opportunity, according to Morgan Stanley senior analyst, Adam Jonas. Mr. Jonas spoke at the Detroit Auto Show on Wednesday, stating: “You’re talking about the end of human driving, the end of private ownership, the end of the internal-combustion engine and the end of car dealerships… Other than that, it’s business as usual.” He also stressed that every established automaker is vulnerable to the threat, using the example that Google could form a partnership with Ford (for example) soon, purely to gain automotive industry knowledge, using them “as a host and devour them later.” Mr. Jonas also published a note to clients on Wednesday, writing “Many auto firms now openly admit tech disruption of the core business model is real, radical and happening now…”

DETROIT -- Defending against interlopers is almost impossible for the traditional auto industry, Adam Jonas says. Newcomers are just as smart and better heeled, but more importantly they see the business differently, the managing director of Morgan Stanley said.

Both sides see a $10 trillion industry, about 14 percent of the global economy, Jonas said.

But after more than a century of capital-intensive development, traditional auto companies see that $10 trillion as vehicles built times sales revenue. To the disruptors, the business is 10 trillion miles traveled annually at a dollar a mile, and it’s not fully developed yet, Jonas said.

Noting that 10 trillion miles is 1.6 light years, Jonas quipped, “It’s an astronomical business” too big for newcomers to resist.

And the long-time entry barrier of enormous capital costs won’t hold anymore. Today the sector’s entry point is wide open because of two emerging trends: shared ownership replacing individual vehicle purchases and autonomous vehicles that won’t need drivers, Jonas said.

Electric vehicles cost too much to appeal to individuals who might drive them one hour a day.

“If I save four cents a mile, it takes me 28.5 years to break even,” Jonas said. “But if an EV is used six hours a day, that’s a 4.6-year payback. Now I’ve got a business.”

And those 10 trillion miles of travel don’t include the value of the driver’s time, which autonomous vehicles could free for more productive pursuits. Jonas suggested Apple, for example, would love to equip autonomous Apple taxis with app stores for all those freed eyeballs. Automakers aren’t ready to tap into that potential.

Jonas said traditional automaker executives “all say the same thing, that ‘we’re going to lead’” the industry transition. He thinks the industry is well prepared for autonomous vehicles -- but not for a significant change in individual ownership patterns.

“Automakers have capital, they have smart people,” he concluded. “But it might require out-of-the-box thinking to make the transition.”