Morgan Stanley Predicts Death Of Auto Industry, Analysts Respond

Earlier this month, Morgan Stanley MS released an analyst note titled “Death of an Auto Analyst” that outlines what it calls an enormous shift in covering the auto industry.

The analysts state that they can no longer simply review “monthly sales, pension accounting and union negotiations” of the industry, but must also give time to the technology that is transforming it.

The note goes on to make some possibly grandiose claims for what the future of the auto industry holds. Benzinga reach out to other analysts for their own opinion of the Morgan Stanley assertions.

“End Of Human Driving”

The note first touches on the idea of full autonomous driving, where the analysts predict that vehicles without steering wheels will arrive sooner than the market anticipates. They compare the transition to that of the horseless carriage at the dawn of the 20th century, saying that public sentiment focused on the difficulty of finding “mechanics, fuel and roads in good enough condition” to make the technology widely available.

“And after all, why would any rational person want to replace the assuredness of that hot horse body trustily pulling your comfortable carriage with an unreliable, oil-spurting heap of gears, belts and chain?” The analysts explain in the note.

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Autonomous vehicles do have the potential to change the world in a positive manner, but that transition will take time and be filled with setbacks, Kelley Blue Book Director of Residual Consulting Eric Ibara told Benzinga.

“While the future highways in our country could be populated with computerized, autonomous cars in a couple of decades, it is likely that they will not be totally free of human-controlled cars,” he explained. “ A portion of the population actually finds joy in the act of driving, especially if the freeways are less congested -- a promise that the new technology may deliver.”

Cars.com Consumer Affaris Editor Kelsey Mays also emphasized people enjoying the act of driving. The longevity of driver-oriented brands like Mazda Motor Corp MZDAY and BMW shows that there is still a portion of Americans who still enjoy driving and don’t want to give it up, he told Benzinga.

“Horseless carriages aside, I don’t count myself an autonomous car skeptic. The industry will transition there, but Morgan Stanley’s assertion of ‘far sooner than the market thinks’ -- that is, sometime between 2020 and 2025 -- seems premature,” he said.

The technology exists, Mays explained, but the industry still needs to find a way to bring down the new-car transaction price and develop ways for vehicles to communicate with each other and the infrastructure, not to mention insurance and legal hurdles.

“IHS predicts 9 percent of cars will be driverless by 2015, which certainly qualifies as ‘mass-market,’” he said. “That seems like a legitimate timeframe.”

“More Tech Companies Making Cars”

This claim seemed a little more realistic for analysts, to an extent. The note says that the analysts would be surprised if over the next engineering cycle, technology companies like Google and Amazon were creating and building their own cars.

While tech giants have definitely breached into the auto industry like Microsoft teaming up with Ford on Sync and Apple introducing CarPlay, AutoTrader analyst Michelle Krebs says they won’t be building factories and making cars any time soon.

The tech industry is used to making huge profit margins, Krebs explained, because they can build their stuff in China for cheap and then sell it over here for big profits.

“That’s not the way the auto industry works. It’s a huge investment. That’s why [Tesla Motors Inc TSLA] isn’t making money yet,” Krebs said. “You have to make huge investments in factories and some way to sell and service them.”

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Mays said that automakers still have “enormous leverage” in terms of supplier networks, assembly infrastructure and brand perception.

“Google, Amazon and the others will make inroads, but I don’t expect the GMs and the Toyotas of the world to become irrelevant any time soon,” he said.

Ibara echoed similar comments to mays, saying that tech giants might have the capital to invest in manufacturing facilities, but would need years to develop the industry knowledge that established automakers already have. He thinks the industry will probably see more partnerships between the tech and auto sectors.

“End Of Individual Ownership”

The Morgan Stanley note also says that the future will see every car as a rental or shared. Krebs chuckled in response to this and said not to expect that in her lifetime.

“I do not think the whole way cars are bought and sold is going to turn upside overnight,” she said.

Krebs does think that ride-sharing services like Uber and Lyft will be the first to utilize autonomous vehicles.

Mays also doubts that car-sharing companies will threaten new-car sales. He said that car sharing only works in densely populated areas, where consumers can easily walk to a nearby parking lot and pick up the shared car. But even though there have been trends of increasing urbanization, Mays explained, that’s not where the vast majority of Americans live.