Reinventing Cars—Risks and Rewards on the Transportation Highway

New mobility technologies are reshaping how cars are powered, driven and used for years to come. In this excerpt from the latest edition of FT Thinks: “The Promise of Innovation,” Franklin Templeton Fixed Income Group outlines three mega-trends—electrification, autonomous mobility and ride-hailing services—upending the old world order. They offer perspec­tive on where we think the auto industry is headed, and the credit qualities the team look for from companies in the rapidly shifting auto industry.

It has been 106 years since the Model T rolled off Henry Ford’s new assembly line in Highland Park, Michigan. Ford’s mass production did more than bring lower prices to consumers and higher profits to Ford. It helped kick-start a consumer love affair with cars.

Fast forward to 2019, and the auto industry is at a new crossroads. Regulatory changes and “new mobility” technologies are reshaping how cars will be powered, driven and utilized for years to come. We see three mega-trends—electrification, autonomous mobility and ride-hailing services—as offering mean­ingful long-term benefits to societies and economies. These trends are also driving significant investment risks and opportunities across credit markets.

As credit analysts, we recognize the payoffs and profit­ability of new mobility technologies are still years away for many companies in the auto sector. We favor firms that can still generate tangible near-term cash flows, while tran­sitioning toward the new world order.