Key Points
- Society is in the early stages of a transformational shift to next-generation mobility, reshaping and expanding across all modes of transportation, use cases and business models, led by advancements in connectivity, autonomous driving, sharing and electrification (CASE).
- These trends are shaping a future where transportation is smarter, safer, more integrated and environmentally friendly.
- Our investing in the mobility space seeks to capitalize on these opportunities, investing in companies across the CASE landscape and the many sub-themes within them.
- Our emphasis is on the companies that are leading producers or beneficiaries of technological innovations that have profound significance on the mobility eco-system, not just autos.
The rapid advancements in technology, along with increasing consumer demand for sustainable and efficient transportation solutions, underpin the strong outlook for mobility investment. Innovations in connectivity, autonomous and assisted driving, electrification and smart infrastructure are transforming the mobility landscape, creating significant opportunities for growth and profitability. Furthermore, government initiatives and regulations aimed at reducing carbon emissions are accelerating the adoption of new mobility technologies. As cities around the world evolve into smart, connected hubs, the companies leading in mobility innovation are well-positioned to capitalize on this paradigm shift, making it a compelling theme for forward-looking investors.
Connectivity: Paving the Way for Mobility
Transportation is undergoing a transformative phase, with connectivity driving future advancements. Vehicles are increasingly becoming software-defined, leading to the consolidation of domain controllers and the integration of infotainment, display and connectivity solutions. Portfolio companies are at the forefront of these efforts, enhancing the overall driving experience.
For example, a leading player in wireless connectivity, including cellular, Wi-Fi, Bluetooth and GPS, is collaborating with a major online retailer to democratize vehicle software development. This partnership allows automakers to experiment with cloud technologies, making vehicles more intelligent, adaptable and safe. Artificial intelligence (AI) and machine learning services are being integrated into automotive solutions, highlighting the potential for intelligent, responsive vehicles. The company’s digital chassis exemplifies connectivity innovation, contributing to a $45 billion automotive pipeline. This innovation demonstrates the potential for intelligent and responsive vehicles, improving safety and convenience for drivers and passengers.
As vehicles evolve, the demand for frequent over-the-air (OTA) updates should grow, ensuring they remain equipped with the latest innovations. This connectivity can facilitate continuous enhancements and maintenance without the annoyance of in-person interventions. Additionally, AI digital assistants are expected to offer customized services, enhancing the driving experience and improving safety for occupants.
Original equipment manufacturers (OEMs) are expected to leverage connectivity to deliver advanced features seamlessly. Additionally, the adoption of digital twins—digital replicas of physical vehicles—could drive demand for enhanced connectivity. These digital models will monitor vehicle performance in real time, comparing actual data to the model, reducing accidents and extending vehicle lifespan by addressing potential repairs proactively.
Connectivity is central to these advancements, enhancing the driving experience and ensuring vehicle longevity. We believe the automotive industry is on the cusp of a new era, where connectivity transforms vehicles into smarter, safer and more adaptable modes of transportation.
Autonomous/Assisted Driving
We believe advanced driver assistance systems (ADAS) will continue to grow, with partial automation (L2) and eyes on/hands off (L2+) adoption rising, while basic driver assistance (L1) is already standard in developed markets and China. Auto OEMs need these technologies to stay competitive. The uptake of highly automated driving (L3) is slow due to cost and speed limitations, but L2 and L2+ meet most convenience and safety needs for buyers. In 2025, passenger vehicles are likely to focus on testing and data gathering for full self-driving (L4), with obstacles like public trust and regulatory approval. While pilot self-driving taxi services are expanding in the US and China, the latter is closer to commercialization due to better governmental support. Revenue from ADAS may surge to $307 billion by 2035. Emerging markets will see significant L1 growth, though L2 and L2+ remain limited to premium vehicles. ADAS and self-driving systems are also being adopted in commercial, agricultural, construction and railway vehicles.
Sharing
Continuing from 2023, driver supply improved in 2024, allowing rideshare companies to shift incentives from drivers to consumers. With Covid-related challenges resolved, companies focused on driving bookings growth and long-term adoption through attractive pricing. Now, market share has shifted towards a major player due to improved driver supply, enabling a premium pricing strategy, while its competitor focuses on cost competitiveness. Insurance headwinds are easing, and renewal costs are trending downwards.
In Europe, regulatory clarity around driver status remains country specific. Companies with larger geographical reach benefit from investing margins from established markets into growth areas. Emerging markets see increased competition, but rationalized incentive spending and advertising integration have aided profitability. Chinese government stimulus is expected to boost consumer spending and travel, benefiting internet platforms.
Looking to 2025, the ridesharing industry faces changes with the push towards autonomous vehicles (AVs). One leading AV company aims to deploy robotaxis in select US states within a year, pending regulatory approval. Partnerships between rideshare and AV companies are increasing, with AV impact likely concentrated in the US due to operational challenges in dynamic road environments. AV deployments will focus on organized, grid-based infrastructure layouts.
Electrification
Electrification-related equities are expected to benefit in 2025 from electric-vehicle (EV) growth and investments in infrastructure such as grid enhancements, power generation and charging networks. Lower battery-pack costs are reducing vehicle prices, enhancing affordability.
EV volume growth varies by region, with China leading, while the US and Europe grow at different rates due to local policies and incentives. Multi-powertrain strategies are common outside China, where battery-powered electric vehicle (BEVs) and plug-in hybrid-electric vehicles (PHEVs) lead. Geopolitical factors are influencing the auto industry, with new tariffs on Chinese-made vehicles in the US and European Union to protect local workforces, and potential retaliatory actions from China.
Affordability and charging infrastructure are adoption hurdles for BEVs in the US and Europe, but more low-priced models and expanding networks should help. Europe could see significant BEV growth due to stricter CO2 regulations. Emerging markets like India and Indonesia face affordability and infrastructure issues, which may be addressed over time.
Governments play a crucial role in promoting EV adoption through policies and incentives. The electrification of commercial fleets presents significant opportunities for reducing emissions. Companies recognize the benefits of transitioning to electric fleets, driving further adoption of electrification technologies.
Mobility Benefits from AI-driven Tailwinds
AI drives the mobility sector by advancing connected and autonomous vehicles, predictive maintenance and enhancing safety features. Data centers, crucial for AI infrastructure, demand significant energy, leading to increased energy infrastructure with new power plants, grid enhancements and renewable energy integration. The rise in data-center energy needs prompts innovation in cooling technologies, data transmission and cybersecurity.
Energy demands from AI and mobility innovation are intertwined. Developments in battery and cooling technologies, charging infrastructure and power generation benefit both sectors. AI’s energy requirements foster advancements that directly support EV development, making mobility and AI growth interconnected. This synergy creates a promising future for mobility innovation, capitalizing on AI-driven energy advancements.
Semiconductors: The Tie that Binds
Semiconductors are the key component across all CASE categories, but especially crucial for EVs, enhancing power management, battery efficiency and overall performance. As EV adoption rises due to strict emissions regulations and government incentives in the US, Europe and China, the demand for high-performance semiconductors is expected to grow significantly.
ADAS and autonomous driving capabilities also rely heavily on sophisticated semiconductor solutions. These technologies need sensors, microprocessors and communication modules, all dependent on cutting-edge chips. The evolution of smart mobility, including connected and automated vehicles, highlights the importance of robust semiconductor infrastructure.
However, the US-China tariffs pose a challenge to the semiconductor supply chain. While driving up costs and potentially slowing innovation, these tariffs might also stimulate domestic production and innovation within the US and other regions, leading to a more resilient global industry. Balancing the short-term challenges and long-term opportunities presented by these tariffs is essential for the continued advancement of semiconductors in the EV sector and beyond. This dynamic is factored into our stock selection process, favoring semiconductor manufacturers with diversified fabrication capabilities.
Impact of the US Election and the Republican Sweep
With a new incoming US administration and Republicans in full control of Washington, investors are unsure of the longer-term impact to energy transition and zero-emission vehicles. However, it is worth remembering that while some of Donald Trump’s earlier administration’s policies were perceived as potentially hindering environmental progress, his administration’s overarching goal of fostering American technological innovation provided a supportive backdrop for the growth of the EV industry. Tax incentives for research and development, infrastructure investments and support for domestic manufacturing all contributed to creating an environment where EV technologies could thrive. Despite the complexities and contradictions of Trump’s policy agenda, the alignment between his desire for American technological leadership and the innovative nature of the EV industry suggests that EV adoption could continue to grow, even within the framework of his broader policy agenda. Overall, the future of EV adoption in the US appears attractive, driven by the continuous push for innovation and the undeniable shift toward more sustainable transportation solutions.
Gearing Up for the Future
We remain focused as we seek to capitalize on these myriad opportunities, investing in companies across the CASE landscape and the many sub-themes within them, which we expect to provide tailwinds to accelerating company growth. Our focus is on the companies that are leading producers or beneficiaries of technological innovations that may have profound significance on the mobility eco-system. As such, our universe of stocks continues to grow, from 175 in 2018 to over 400 today. Importantly, private companies continue to grow in the mobility ecosystem. StartUs insights estimates that there are over 3,300 startups and scaleups within mobility across many sub-themes, including autonomy, internet of things, mobility as a service, micromobility, AI and smart infrastructure. Identifying new opportunities and emerging technologies early can significantly boost a company’s competitive advantage and is critical for investors. Given our dynamic research platform that includes specialty research areas of investigative and private markets research, it positions us well as we seek to capitalize on both the existing and newer entrants to the mobility ecosystem.
Authors
George Saffaye
Global investment strategist
Robert C Zeuthen
Head of secular pod, portfolio manager
Frank J Goguen
Research analyst, portfolio manager
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