Talk about a V-shaped recovery!
New vehicle sales in the U.S. plunged 48% at the start of the pandemic as consumers vanished and factories were shuttered.
Then demand kicked into high gear in April, and the industry has rebounded straight up thanks to a recovering economy, aggressive stimulus and low financing rates.
But just as car purchases are returning at a brisk pace, manufacturers now face another crisis.
There’s a severe shortage of semiconductors — the building blocks of our modern electronic components. Without them, we can’t build cars.
It goes to show how technology is now a massive part of the driving experience. That creates profit opportunities for investors…
Electronics Will Contribute Half the Cost of a Vehicle
Electronic content in cars has steadily increased over the past several decades. But that trend is set to surge, as you can see in the chart below. Electronics will make up 50% of the cost of a car at the end of this decade, compared to 20% at the turn of the century.
When you think about technology in your car, you probably envision an entertainment system or other onboard display.
But it’s the parts you don’t see that are also driving the demand for semiconductors — particularly your vehicle’s safety features.
Nearly all new vehicles now come equipped with advanced driver-assistance systems (ADAS), like blind-spot monitoring or lane departure warnings. By the end of this decade, more than 85% of new cars will come with advanced features like automatic braking and steering. That’s why electronic content keeps growing.
It also means ADAS keeps moving closer to a level of autonomy that requires no human intervention, which is why fully autonomous vehicles are the next frontier. And while that means more semiconductor content per vehicle, it will also create demand for another emerging technology.
The Technology That Will Enable Autonomy
The Bauman Letter highlighted the explosive ADAS demand for semiconductors about a year ago. Our pick to profit from that trend has delivered over three times the return of the S&P 500 Index since then. But the push toward full autonomy is accelerating another technology that is about to become mainstream. It’s called “lidar,” which stands for “light detection and ranging.” It allows vehicles to “see” their surrounding environment.
It’s not just our cars that will leverage this technology. Lidar will enable quick growth in new industries like drones and last mile delivery and will revolutionize industrial robotics.
That’s why the market for lidar applications could swell to $12 billion next year … and $150 billion by the end of this decade.
So, one year after pinpointing how ADAS would drive semiconductor demand, the most recent issue of The Bauman Letter has uncovered the perfect play for explosive growth in the lidar market. Click here to learn more.
Research Analyst, The Bauman Letter
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