Breakingviews - Shareholders leave Autos 2.0 on the hard shoulder

The 2019 Ford Edge ST is unveiled during the press preview at the North American International Auto Show in Detroit, Michigan, U.S., January 14, 2018. REUTERS/Brendan Mcdermid

DETROIT (Reuters Breakingviews) - Shareholders are leaving Auto 2.0 in the hard shoulder. As the industry gathers in Detroit for its annual confab, carmakers are revving up their plans for the next generation of vehicles. Ford on Sunday said it’s more than doubling its electric battery investment to more than $11 billion by 2022. A day earlier, General Motors revealed it had asked regulators to approve its driverless car. Toyota, Volkswagen and others are tanking up, too. Investors, though, aren’t buying it.

Most of the world’s major carmakers trade in a narrow range between 7 and 9 times this year’s expected earnings, according to Thomson Reuters data. That suggests the industry is not only failing to grow, but in decline. Only Toyota and Honda are worth more than the 10 times net income that implies an expanding business, based on their estimated calendar-year results.

In a usual cycle, such skepticism would be expected. Vehicle sales in North America are retreating from record highs and European growth remains sluggish. Meanwhile, interest rates are rising, albeit slowly, making car loans more expensive.

This time round, though, the industry is grappling with what are likely to be fundamental changes to the business model. The wealth of data captured from connecting vehicles to the internet could represent more $120 billion-a-year revenue opportunity, reckon UBS analysts – think everything from improved diagnostics to traffic info to infotainment and shopping.

And autonomous cars may alter how we own and use transportation – and how vehicle manufacturers make money. GM reckons it could bring in 10 times or more the average $31,000 in revenue it currently earns over the lifetime of a vehicle from owning and operating its own fleets of self-driving taxis and ride-sharing vehicles. It’s hoping to roll out its first commercial fleet of self-driving taxis in cities next year.

There are admittedly questions about how fast such new technologies will be accepted and adopted. Sourcing raw materials for electric batteries is an issue, too. Miner Glencore reckons cobalt supplies will have to triple by 2030 to meet automakers’ planned demands.

None of these concerns weighs on Tesla. It trades at 230 times unadjusted 2020 earnings, the first year it’s expected to turn a profit, despite missing several production targets as Chief Executive Elon Musk tries to turn it into a mass producer.

Musk, of course, has a cult following. If shareholders in his longer-lived rivals had the same belief in them, carmaker valuations would soar.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at and follow us on Twitter @Breakingviews and at All opinions expressed are those of the authors.