One of the growth themes in our portfolio is that of the evolution of the car. As we move ever closer to an electric fleet and driverless cars, the components within automobiles will become lighter, more integrated, and increasingly complex. Consumers and regulators are demanding safer, connected, smarter, lighter cars that provide more entertainment options for passengers and less pollution to our environment.
In the United States, which is undergoing a significant regulatory shift in the wake of the presidential election, some investors question whether that last component of demand; the desire for less pollution, is still relevant. To answer this question effectively, one merely needs to examine two things: where most cars are sold, and the reason the automobile was invented in the first place.
The largest car market in the world is China, which is nearly the size of the U.S. and European markets combined.1 Car ownership there is rising thanks to urbanization and rising affluence. And look at the effect those cars are having.
China is choking on its car emissions.
Furthermore, with fewer than 20% of households owning a car, and the future demand for more cars that implies – this problem is going to get worse unless cars, and even the way they are used, change. We’re at a tipping point due to the waste that’s created by the primary means of urban transport. And believe it or not, we’ve been in a similar position before.
Emissions from Cars Are Horse Manure 2.0
The rapid industrialization and urbanization of North America and Europe in the second half of the 1800s exponentially increased the number of horses providing transport and delivery services in cities. This led to a dramatic increase in manure and horse urine. It’s estimated that in 1893, New York City’s 100,000 horses were producing 2.5M pounds of manure a day.2 (These illustrations of Ludlow Street on the Lower East Side of Manhattan in the late 1800s give a sense of the magnitude of the problem.)
This situation was the impetus for delegates from around the globe to gather for the world’s first urban planning conference in 1898.3 From New York to London, Paris and Rome – nearly every major city was drowning in a toxic combo of manure and horse urine.
Within this context, one can understand the need to invent a widely usable “horseless carriage,” the consumer demand that met it when it appeared, and the regulatory support it received. When viable models did finally appear, they took over fast. By 1912, cars outnumbered horses in New York City. In 1917, the last horse-drawn tram car was taken off its streets.4
Now it is the cars themselves that are producing waste problems. And now, just as then, those problems are calling for technological solutions that are being met with consumer demand and regulatory support. China provides more government support for electric car and car battery research, development, production and ownership than any other country on earth.5 All over the world, efficient engine technologies, such as stop-start systems that turn engines on and off automatically as necessary to limit fuel loss and excess emissions caused by unnecessary engine idling, are receiving a lot of attention.6
Autonomous vehicles, which can alleviate congestion, are being tested worldwide as well, in cities as varied as Singapore and Pittsburgh.7
Call it a tipping point, or call it our manure moment. The point is that the worldwide drive toward smarter, safer, autonomous and electric cars and trucks is clearly accelerating – all puns intended. This is a strong secular trend that is not dependent on any one region or factor and is well-nigh unstoppable.
Those vehicles need componentry that is far more complex and valuable than ever before. The technology is rapidly evolving, and we believe the companies providing it are the winners in this trend. That is why we began investing in them nearly three years ago, and continue to do so today.
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