China, Tesla Power Major Changes in Automotive Engineering

Investors should keep an eye on Tesla and China to read the future of the automotive industry.

Timothy Healey
    Aug 01, 2017 10:00 AM  PT
China, Tesla Power Major Changes in Automotive Engineering
author: Timothy Healey    

It's no secret that the automotive industry is changing.

As technology transforms the automotive industry, the way engineering is performed will have to change, as well.

Tesla, for example, is changing the industry by innovation, from over-the-air software updates to its gigafactory for battery production.

Meanwhile, traditional automakers are struggling with sales, due mostly to a plateau in sales after the post-recession rush.

Chinese Growth

But that has happened as China's automotive industry is seeing growth. For example, Geely Automobile has seen 67 percent growth in revenue while Dongfeng Motor has had 48 percent revenue growth.

With China's market growing and the overall industry undergoing seismic shifts as alternative-powertrain vehicles become more plentiful and autonomous cars begin to reach the market, automakers are facing all sorts of change.

"The industry has always been very complex and has always faced a lot of risk," Dave Andrea, executive vice president at the Center for Automotive Research told Investors Business Daily. "But it has never faced so many issues and risk factors, and the magnitude and implications of those risks have never been so great."

Supplier Parity

One major change from the past is that suppliers now have more parity – for example, Hyundai no longer has an image for using low-tier products. That's because the brand has gotten much better at quality over the years.

All this change has had unintended consequences, such as unforeseen partnerships and the breakup of longtime pairings. In the former category stands the three-way partnership between Toyota, Nissan and Honda on fuel-cell cars. General Motor's decision sell Opel-Vauxhall and leave the European market is an example of the latter.

Keep an Eye on Tesla

The stock market – or more accurately, investors and analysts – continue to keep an eye on Tesla as the industry churns. Tesla has been the world's most valuable automaker, at least by stock price, at times this year. That's in part because of the small company's reputation for innovation, which has been fueled not only by its all-electric powertrains but its ability to innovate in other areas, such as with over-the-air updates and its AutoPilot autonomous-driving software, which allows for autonomous driving in controlled situations. Many industry observers think that Tesla will force other automakers to change sooner than they otherwise would have.

"It will become far more mainstream to have hybrid and battery-operated vehicles," analyst Ryan Issakainen told Investor's Business Daily. "Companies like Tesla are forcing the rest of the industry to adapt."

The industry is changing, and that's going to mean that not only will automakers and suppliers have to adjust, but so too will investors.

Investor's Business Daily