Investing in the Industry in 2020

Cash reserve

Most automotive companies cut future-product spending sharply during the 2008-2009 recession. The few that didn’t, including Ford and Hyundai, had fresh products in their showrooms when the recovery began and were able to gain market share.

That was an important lesson for the industry. Now most global automakers have substantial cash hoards — $20 billion is common — to keep future-product efforts running through the next recession, whenever it arrives.

Many automotive companies also pay dividends to their shareholders. Some automakers have said that they will use their cash reserves to continue to pay dividends during a recession.

Competition

Generally speaking, the automaker with the newest products will get the highest prices and the best profits. Automakers must invest constantly to ensure that they have a steady flow of new products in their pipelines.

Nowadays, automakers and parts suppliers are also making big investments in future technologies like electric vehicles and autonomous driving systems. Most experts believe that those technologies will be necessary for automakers if they are to stay competitive in the not-too-distant future.

Electric vehicles

It’s possible that some of the most exciting opportunities of the next few years will involve manufacturers of electric vehicles. Electric vehicles are new and different, and most analysts expect them to largely displace internal-combustion vehicles over time.

Electric vehicle companies might see high growth, which is exciting for investors. But it’s important to remember that the processes involved in developing and manufacturing electric vehicles aren’t all that different from those used by makers of traditional internal-combustion vehicles. That means electric vehicle makers face high costs just like traditional automakers.

It’s also important to remember that all the traditional automakers are introducing electric vehicles of their own, and the competition in this segment of the market will be fierce in time.

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