The global market for automotive sensors is worth more than $26bn – and that figure is expected to jump to $43bn by 20211. In the second instalment of our three-part series on future mobility, we explore how intelligent vehicles can improve safety, increase efficiency and cut emissions.
Modern cars are already getting smarter: they can detect and respond to hazardous situations, such as another vehicle slowing suddenly ahead or a pedestrian about to cross the road, by using sensor technology.
Sensors are increasingly being used in vehicles as the automotive industry attempts to meet evolving efficiency standards and environmental regulations. Today, vehicles have an average of between 60-100 sensors on board2 – and recent industry figures suggest that this number is likely to grow to as much as 200, based on current trends.
Sensor technology will therefore play an integral role in modernising transportation.
Future mobility: intelligent vehicles
As documented in our first instalment of this three-part series, future mobility is one of the eight key impact themes that guides our investment decisions for the Hermes Impact Opportunities Fund. In turn, these themes are aligned with the United Nations Sustainable Development Goals. Each theme helps us to define, validate and report on positive corporate impacts.
A key strand of this theme is intelligent mobility. Governments the world over have pressed ahead with aggressive regulations to drive down emissions from combustion-engine vehicles for many years, and so the level of sophistication required in automobiles to continue to deliver improvements is growing.
Alongside catalytic converters, which reduce the toxicity of exhaust fumes, one of the most significant technology developments in recent years has been the proliferation of sensors throughout modern vehicles.
Sensors have driven staggering advances in efficiency by improving powertrain, engine, petrol-tank pressure, throttle and torque management, among other functions. The safety and comfort of driving has also been enhanced by sensors that enable dynamic braking, side airbags, roll-over sensors, particle filtration, GPS mapping and parking assistance.
This future mobility sub-theme is illustrated well by our exposure to Valeo.
Valeo: reinventing the wheel
French auto-parts manufacturer Valeo is at the vanguard of new technologies. In the past decade, the company has transformed: once a manufacturer of commoditised parts, such as windshields, it is now known for advanced and proprietary engineering, a road taken under the leadership of Chairman and CEO Jacques Aschenbroich since 2009.
Figure 1: Shares in Valeo have risen steadily since 2009
Source: Bloomberg as at 8 June 2018
As well as repositioning the business, Aschenbroich has simplified the company’s structure, consolidating the number of divisions from 11 to four.
Today, Valeo manufactures a range of products from sensors through to software and engine parts, and its electric mobility-focused joint venture with Siemens develops products such as inverters and electric motors. Valeo’s development of sensors to reduce emissions and improve fuel efficiency excites us greatly. That’s because technological progress enabling greater reductions in CO2 emissions is one of the main drivers of growth in the automotive industry amid the growing pressure from governments worldwide and the surge in efficiency standards.
Furthermore, bringing electric vehicle technology down to a competitive cost is crucial if climate change is to be addressed, given transport is responsible for 14% of global emissions3. Valeo is tackling this by delivering innovation solutions through continued research and development in areas such as vehicle electrification and emissions reduction – and this strategy seems to have paid off so far. For example, it recently developed an electric supercharger that helps improve vehicle performance without increasing fuel consumption. Moreover, the company acquires the highest number of new patents in France every year, and about half of its order intake comes from products developed in the last three years.
But Valeo’s new roadmap does not conclude with the future coronation of electric vehicles as the main form of popular transportation. In addition to its prowess in emissions reduction, Valeo’s driving-assistance systems – such as anti-glare glasses, camera systems, and automated parking – are helping to make driving safer and reduce road accidents.
These capabilities will play a significant role in the development and safety of autonomous vehicles, by providing signals to driving software. What’s more, this will give the business a major role to play in the manufacturing of future vehicles that are either semi or perhaps even fully autonomous, requiring a complex array of situational and positional sensors to navigate the urban landscape.
The road to tomorrow
We target emerging-growth opportunities and believe that many are harboured within the theme of future mobility. In doing so, we seek strong long-term returns from purposeful companies that are focused on society’s underserved needs.
In our view, Valeo generates sustainable impact through its innovative solutions that are driving future mobility. These solutions currently are – and will continue to – help vehicles become more efficient. Through our investments, we encourage positive change and the reduction of negative outcomes, and we therefore believe that Valeo is a solid addition to the fleet of stocks in the Hermes Impact Opportunities Fund.
1 “Global Markets for Automotive Sensor Technologies,” published by BCC Research in April 2016
2 “BMW partners with IBM to add Watson’s cognitive computing capabilities to its cars,” published by Forbes in December 2016
3 Source: “Climate change 2014: Mitigation of Climate Change,” published by the Intergovernmental Panel on Climate Change in January 2015