Contact

Menu

Article

Automating the automobile

In this Thematic Insight, we explore automation in today’s passenger cars, what the future is likely to bring and whether we should consider the car itself as an automation solution.

January 27, 2022

Angus Muirhead

CFA, Senior Portfolio Manager, Credit Suisse Asset Management Thematic Equities

Once upon a time, not so long ago, we might have sent a few postcards from holiday to friends and relatives. More recently perhaps we might send a text message, or a few photos by email or WhatsApp. Today it is becoming more common to make a quick video call, tomorrow perhaps there will be no need to travel, since we will be able to meet in a virtual world, or “metaverse”. Technology has a habit of creeping up on us, and while the pace of technological change in so many aspects of daily life is startling, the greater surprise is how fast we adapt to these new technologies, and how quickly we forget what things were like only a few years ago.

I felt this phenomenon recently, when my car was sent to be repaired, and I was lent a new fully electric vehicle by the garage as a temporary replacement. It proved to be a glimpse into the future. The immediate shock was of course the electric motor, its total absence of engine noise and its huge torque available even from a stand still, but the greater surprise still was the amount of automation built into the car.

Themes

Our thematic strategy aims to outperform by identifying the powerful trends and themes likely to shape the future investment landscape.

Advanced driver assistance

First seen on the Tesla Model S, the Porsche Taycan offers “Comfort Access” (or in Tesla terminology, “Auto-present”). Approaching the car with the keys still in my pocket and placing a hand near the door handle, the door handle (normally flush to the car door) “pops out” to allow you to place fingers under the handle and open the door.

Sitting in the car and engaging the seatbelt, the car is already "on" and ready to drive. In fact, the first time I drove it, I pushed the "ignition" button (something that resembles the "on" button from a PC) and was confused to be greeted by a "Goodbye" message on the dashboard.

Only afterwards, I understood that there is no need to push the "on" button. The car recognizes the key and turns on automatically. In fact, the Driver’s Manual1 also recommends that there is no need to turn it off when you have arrived at your destination: "When you leave the vehicle and take the driver's key with you, the vehicle is locked automatically and switches off completely."

As you set off, the seat-belts tighten up automatically to ensure the occupants are snugly secured, and a warning alarm sounds if the driver or passengers have not engaged their seatbelt or have not properly shut all the doors. Steer too close to the edge of the lane or to the centre line in the middle of the road and the steering wheel gently tugs you back into your lane. Drive too close to the car in front and the brake pedal will depress until a safe distance in between has been restored.

These automations were just the tip of the iceberg. The vehicle of course had all of the well known and widely adopted automated safety features, such as ABS braking, smart headlights, automatic windscreen wipers, blind-spot monitoring, lane assistance, adaptive cruise control, seat-belt tensioning, airbags, and convenience-focused automation such as automatic transmission, folding side-mirrors, power steering, and personal ergonomic settings relating to your preferred seat, mirror and steering wheel position, which adjust automatically when your key is recognised.

It also carried some rather more esoteric and arcane automation features, such as "soft-closing doors" (something more often seen in a modern kitchen), the "emergency stop function", which is activated automatically if the vehicle recognizes erratic steering, braking or acceleration patterns at different speeds, and "surround view" which provides a surprisingly accurate bird’s eye view of your vehicle and automatically engages when an object is detected nearby or when the vehicle is put into reverse.

In fact, there are so many automation features available in the car that there are 268 instances of words starting with "automat-" (automatic, automatically, etc.) in the Driver’s Manual, perhaps more than any other adjective or adverb. Today’s modern automobile is a mobile treasure trove of automation.

"The cost share of electronic components in relation to the total value of the car will grow from approximately 16% currently to around 35% by 2025"

according to the Roland Berger study, “Computer on Wheels / Disruption in Automotive Electronics and Semiconductors”2

Is the automobile an automation system?

Our thematic equity strategies focus on "pure-play" companies, which we define as those with at least 50% of current revenues from products and solutions directly related to the specific theme. Our Robotics strategy invests into "automation" and therefore the question for us is always whether a company, industry, technology or product, qualifies as a pure-play maker of automation systems. Since the modern passenger car is so full of automation, can we plausibly include car makers in our "pure-play" universe for the Robotics strategy?

Etymology

The word "automobile" is a classical compound derived from the Ancient Greek, autós, meaning "self", and from the Latin, mobilis, meaning "movable".3 Therefore "self-movable". It entered English dialect from French, and was adopted by the Automobile Club of Great Britain (now the Royal Automobile Club) when it was established in 1897.4

The "auto-" suffix in automobile is the same as the auto- in automation, but in the case of automobile, it refers to the means of propulsion rather, i.e. moving by itself (rather than being pulled by a horse, or something else). In contrast, the "-mation" in automation is from the Greek, "matos", meaning thinking or animated, and thus automation is focused on sentient or "self-thinking", self-aware systems.5

Although the modern automobile contains a vast and varied arrangement of automation, its primary purpose is as a vehicle to transport us from one place to another, and in this function it is not automated. Not yet at least. A human is still required to operate and "drive" it. 

Autonomy - almost

As advanced driver assistance systems, or ADAS, become more sophisticated, they take on more responsibility for the "-matos", or the thinking part of driving, and the requirement for a human driver starts to wane.

The Society of Automotive Engineers (SAE) has defined 6 levels of driving automation ranging from no automation (Level 0: the human driver performs all driving-related tasks at any time) to full automation (Level 5: the automated driving system is able to perform all driving-related tasks at any time).6

Key 2020 initiatives supporting sustainability

Figure 1. The 6 levels of vehicle autonomy (SAE)

Sources: Credit Suisse; SAE; based on SAE’s 6 levels of vehicle autonomy

Currently available ADAS systems can perform lower levels of driving automation (SAE-Level 2-3) under specific circumstances. In these cases, the human driver is still required to monitor the environment and the system constantly and to take over the driving task if necessary.

Although we have seen significant technical progress toward higher levels of driving automation (SAE-Levels 4–5), there remain a number of major hurdles, technical, regulatory as well as "social", and many kilometers of test driving to be completed before passenger vehicles become fully autonomous and then many years before they become ubiquitous on our roads. Only when these challenges have been overcome, for the purpose of our "pure-play" approach we might be able to consider cars as automation solutions. In the meantime however, we continue to focus on companies which develop the automation systems that go into the vehicle. In other words, while our "pure-play" approach does not allow us to buy Tesla, Baidu, Hyundai or GM, despite all the work they are doing on autonomous vehicles, we are able to invest into pure-play suppliers of automation systems to these companies. 

Auto makers do not make the automation

In the race to differentiate their models from the competition and boost profit margins, auto makers are keen to build more and more automation and other options into their cars. However, it is generally not the auto maker who builds these systems.

Car makers are often known as auto "OEMs", or Original Equipment Manufacturers. However, this is something of a misnomer, since car makers today are mainly only involved in design, assembly, marketing and sales, and are generally not involved in the manufacturing of parts, components and subsystems.7

Counting every part down to the smallest screw, a typical passenger car today has approximately 30,000 individual parts.8 Most of these parts, including the automation solutions, are supplied to the auto OEMs as systems and sub-systems, by the major "tier 1" parts suppliers, such as Bosch, Continental, Denso, Magna, ZF, Aisin, Hyundai Mobis, or by "tier 2" suppliers such as Panasonic, Intel, Nvidia, NXP and Qualcomm.

Traditionally the combustion engine and drive train were the heart of the vehicle and these core technologies were developed and manufacturer inhouse by the auto OEMs. However, as the cost and complexity of developing new engines has increased, many small to mid sized auto OEMs have elected to buy-in engines and drive trains from larger makers. 

As the number of electric vehicles sold continues to grow (PwC expects that EVs may represent approximately 14% global new vehicle sales in Europe and China by 2025, up from 1% in 2017),9 a larger part of the value of the vehicle will again shift away from the auto maker into the supply chain. And since the lithium-ion batteries in an EV can account for 50% of the cost of an EV, the breadth of the supply chain will also expand beyond the traditional makers, much further into the digital world.

This shift in value will be amplified further as more cars become "connected" to the internet and connected to one another through other wireless networking technologies. As more cars are connected, the number of possibilities for digital applications and automation expands greatly.

Security

As we have seen in previous Thematic Insights, Security and Automation often share a symbiotic relationship: the increasing prevalence of automation in the world often increases the need for greater security, and the more layers of security built into a system, the greater the need to automate the security processes to ensure that the security does not become an obstacle to performance.

While automation can make life more convenient for the intended user, it can also aid unwelcome users. The "Home Link" feature in many cars is an automation solution now loved by burglars and other malevolents the world over. A car stolen from a public place, will politely guide the thief back to it’s home via the "take me home" function in the navigation system, and once home and the "home link" feature will helpfully unlock the garage door, which in a modern home often enables easy access to the entire house. Caveat usor!

Conclusion

View and subscribe to Fund Newsletters

Fund newsletters provide regular updates from fund managers and interesting insights into asset classes and themes.

The securities mentioned in this section are meant for illustration purposes only and are not intended as a solicitation or an offer to buy or sell these securities.

1 Berger, R. (2020). Computer on Wheels. Focus. 2021, January. p.9f
2 Porsche Taycan “Good to know – Driver’s Manual”. 2021
3 Oxford Dictionary of English Etymology
4 The Royal Automobile Club (n.d.). History. Derived from  www.royalautomobileclub.co.uk on Nov 25, 2021
5 Oxford Dictionary of English Etymology
6 SAE International (2021). Taxonomy and Definitions for Terms Related to Driving Automation Systems for On-Road Motor Vehicles. April 2021. p25f
7 Berylls (2020). Study on the Global Automotive Supplier Industry”. 2020. Derived from 20200721_Study_Top_100_2020_EN.indd (berylls.com) on December 5, 2021
8 Toyota (n.d.). Frequently asked questions. Derived from Toyota.co.jp on December 7, 2021
9 PWC (2019). Merge ahead: Electric vehicles and the impact on the automotive supply chain. Derived from Electric vehicles and supply chain: PwC on November 30, 2021
10 With the “pure-play” concept we mean companies which have at least 50% in revenues directly attributable to the corresponding theme.

IMPORTANT INFORMATION

Source: Credit Suisse, otherwise specified.

Unless noted otherwise, all illustrations in this document were produced by Credit Suisse Group AG and/or its affiliates with the greatest of care and to the best of its knowledge and belief.

The information provided herein constitutes marketing material. It is not investment advice or otherwise based on a consideration of the personal circumstances of the addressee nor is it the result of objective or independent research. The information provided herein is not legally binding and it does not constitute an offer or invitation to enter into any type of financial transaction. The information provided herein was produced by Credit Suisse Group AG and/or its affiliates (hereafter "CS") with the greatest of care and to the best of its knowledge and belief. The information and views expressed herein are those of CS at the time of writing and are subject to change at any time without notice. They are derived from sources believed to be reliable. CS provides no guarantee with regard to the content and completeness of the information and where legally possible does not accept any liability for losses that might arise from making use of the information. If nothing is indicated to the contrary, all figures are unaudited. The information provided herein is for the exclusive use of the recipient. Neither this information nor any copy thereof may be sent, taken into or distributed in the United States or to any U. S. person (within the meaning of Regulation S under the US Securities Act of 1933, as amended). It may not be reproduced, neither in part nor in full, without the written permission of CS. Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investor's reference currency. Equities are subject to market forces and hence fluctuations in value, which are not entirely predictable. Emerging market investments usually result in higher risks such as political, economic, credit, exchange rate, market liquidity, legal, settlement, market, shareholder and creditor risks. Emerging markets are located in countries that possess one or more of the following characteristics: a certain degree of political instability, relatively unpredictable financial markets and economic growth patterns, a financial market that is still at the development stage or a weak economy. These funds are domiciled in Luxembourg. The representative in Switzerland is Credit Suisse Funds AG, Zurich. The paying agent in Switzerland is Credit Suisse (Switzerland) Ltd, Zurich. The prospectus, the simplified prospectus and/or the Key Investor Information Document (KIID) and the annual and half-yearly reports may be obtained free of charge from the representative or from any branch of Credit Suisse AG in Switzerland.