"When you come to a fork in the road, take it." --Yogi Berra
NEW YORK (
earnings report suggested that at least one American carmaker's going to prosper during the coming years.
Considering where Ford was barely five years ago (as
noted), that's no small accomplishment. But where should investors go from here? That all depends on which industry scenario you think will unfold. There are a few different ones.
Scenario 1 (status quo):
Let's assume nothing much changes for the industry in the next few years. In that case, Ford seems a pretty good bet. At least based on the U.S. market.
But the big enchilada is fast-growing China, and the 8,000-pound gorilla there is
. With a growing middle class and the inevitability of China allowing domestic consumption to expand, China is hard not to think about. There are also Korean auto companies
. It's hard not to notice their increasing presence on America's highways. So pick which market you want to invest in. (There's also the integrated oil companies and refiners to pick from.)
Scenario 2 (disruptive electricity).
No, I'm not thinking of
. Tesla's the conventional electric-car company.
For the disruptive scenario, you should look at
Start-Up Nation: The Story of Israel's Economic Miracle
by Dan Senor and Saul Singer. Among the first persons discussed in this short (under 200 well-written pages) book is a young Israeli entrepreneur, Shai Agassi, whose company,
, seeks to disrupt the electric-car marketplace with a change in paradigm.
Agassi astutely recognized the challenges in having a plug-in electric car -- the time needed to recharge a battery. His alternative: At a service station, just change the decharged battery with one fully charged. If it takes less time than it does to fill up a gas tank, consumers would go for it. Is it economically feasible?
Pilot studies in Israel, Denmark and Hawaii (finished by the end of the year) will determine if it may be. If they're successful, roll-out starts in 2012. Who wins then? Anyone involved in electricity generation and transportation. Think
Quanta Power Services
. There are lots of choices to pick from.
There will likely be an infrastructure boom for the stations at which to change batteries. Think cement makers, such as
One other aspect of the disruptive-electricity scenario: With the internal-combustion engine (and all the labor needed in its manufacture) out of the way, American car companies become more competitive in the U.S. The engineering costs of a new car also decline. Car prices might even drop -- though that's probably getting a bit over the top. In any case, it's as though someone punched the "reset" button on the American car market. As with the status quo, Ford seems a likely winner here, too.
Scenario 3 (natural gas).
didn't become a billionaire for nothing, and he's been pretty clear on the potential for natural-gas-fueled cars. If natural gas is going to fuel our personal transportation system, then
Clean Energy Fuels Corp.
will be a big winner.
would also be a likely winner. Then there are the natural-gas companies.
come to mind, though one might go with one of the integrated majors, like
, both of which have considerable natural-gas operations.
Scenario 4 (conventional electricity).
In this scenario, there's a technological breakthrough in battery life so cars can go 300-plus miles on a charge. Think of it as Teslas everywhere. I consider Tesla the 21st-century DeLorean -- a nice, high-priced niche car. Hybrids are niche cars too; they're not economic --
at Forbes had a great analysis.
Fuel cells, you say? Yes, at one time
Ballard Power Systems
looked promising, but its promise seems to be always in the future.
That leaves one possibility: technological breakthroughs with lithium-based batteries. The winner in that space is
Sociedad Quimica y Minera SA
(Chemical and Mining Co. of Chile). It mines one of the largest (if not
largest) lithium deposits in the world.
For the more speculative,
Quantum Fuel Systems
may be of interest, as one of its interests is lithium batteries. There's also the challenge of creating and transporting all the electricity needed to power the cars, the same as with disruptive power. The same winners prevail, companies like USEC, Quanta Power Services, Comverge, EnerNOC, Fluor, Jacobs Engineering, Mitsubishi, United Technologies, Shaw Group, Areva, Siemens, Pike Electric, General Electric, ABB and Powell Industries. That is, companies needed to build power plants and upgrade the grid to transport that electricity. Maybe even the photovoltaic companies like
(a supplier to the solar companies), though they'll likely have just a small piece of the action.
So, four scenarios, four different investment strategies. You need to pick one and go with it.
Which one am I picking? The safe approach is Ford, and its seemingly safe-for-now dividend means you get paid to wait. But I think the disruptive-electricity scenario is the one we'll be living through.
Speculative? Sure. Then again, who would have thought a geeky nerd (a Harvard drop-out, at that!) leading a struggling software company in the New Mexico desert would be worth $55 billion two decades later? Black swans are more common than we think. The given for any of these scenarios, of course, is that cars aren't going away anytime soon.
At the time of publication, the writer held shares of Ford, Devon, Chesapeake and Exxon Mobil.
David Lilienfeld is an individual investor who works as a consultant in the biotechnology and pharmaceutical industries.