the age of automation - scdn.brownstoneresearch.com
TRANSCRIPT
SPECIAL REPORT
A Brownstone Research Publication
The Age of AutomationBy Jeff Brown
2The Near Future Report
The Age of AutomationBy Jeff Brown, Editor, The Near Future Report
The world has suddenly realized how fragile it really is.
The COVID-19 pandemic brought much of society to a standstill. Many industries are only just beginning to adjust to the new normal. But this virus hasnāt just changed our present. I want to show you what it means for our future.
You see, the pandemic has had several knock-on effectsā¦ It disrupted supply chains, spurring on the current semiconductor shortage. Thatās creating a ātech shockā that is affecting many other industries. Without semiconductors, we canāt produce TVs, smartphones, and laptopsā¦ household appliances like microwaves and laundry machinesā¦ or even critical medical devices.
I created another report discussing how we can profit from that situation which you can find here.
But that isnāt the only shortage weāre seeing: Weāre also experiencing a labor shortage that is going to affect another big technology trend. Right now, people are āopting outā of the labor force ā despite all of the available job openings.
No matter the reason for this shift, itās serving as a catalyst for businesses to switch to automation. Human workers are being replaced by robots. Our slow, gradual transformation is over. If companies want to survive, then automation is now an essential technology.
Weāre seeing kiosks in restaurants for patrons to order their food electronicallyā¦ robots that will flip our burgersā¦ robotic farm equipment harvesting our cropsā¦ āmachine visionā speeding up our assembly linesā¦ and so much more.
And, of course, all of these additional machines will reinforce the semiconductor ātech shock,ā driving demand even higher.
Old ways of doing business are being washed away. And they are being replaced with bleeding-edge technology that will accelerate the demise of legacy industries and old incumbents and rapidly usher in the next generation of technological giants.
There are exciting investment implications ā and in the months and years ahead, weāll be investing in companies that are well-positioned for these new ways of automating work. Global spending on robotics and drones is expected to reach over $241 billion by 2023. That makes this a tech trend ripe for investment. When thereās this much money being put into an industry, companies can soar.
Thatās why, in this report, Iām sharing several of the top companies that will profit as the automation trend takes hold.
But first, let me provide a little backgroundā¦
Special Report 2021
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Welcome to The Near Future Report
My name is Jeff Brown, and Iāve built a 25-plus-year career working with cutting-edge technology. I feel fortunate that I have been able to work in this field at a time of such radical technological transformation. Better yet, I spent the majority of those years living and working outside of the U.S.
I was able to see how technology was impacting more than 50 countries around the world, not just one single country. I have found that having this perspective has proven to be invaluable as an investor.
It has given me a global network of contacts and an incredible knowledge base, and it developed my ability set to see problems and opportunities from many different angles. And as excited as I was during the first part of my career, I can tell you I am five times more excited about the next decades. Actually, I can barely wait for what will happen in just the next few years.
Right now, transformational automation technology is being developed. It will dramatically affect the way that we live our daily lives. It will change how we commute to work and go on vacation, and it will save millions of lives in the process.
For reasons that Iāll explain, this trend is happening much faster than the market
understands. And this presents an incredible opportunity for us as investors. Like Silicon Valley insiders, we have a chance to āstake our claimā in this new technology in its earliest days.
Let me explain how.
Fragile Supply Chains
The current labor shortage has only deepened our need for automation. But weāve been getting a fresh glimpse of the critical nature of this technology during recent events. As production ground to a halt in China in early 2020, for example, it didnāt take long for supply chains to be disrupted.
Consider thisā¦ Around 80% of the drugs taken in America and Europe have key pharmaceutical ingredients made in China. What if people donāt have a supply of life-saving drugs?
In October 2019, Janet Woodcock, a medical doctor, and director of the Center for Drug Evaluation and Research ā part of the Food and Drug Administration (FDA) ā presented to the Subcommittee on Health, Committee on Energy and Commerce, in the U.S. House of Representatives. Woodcockās presentation outlined a critical perspective on national security with regard to pharmaceuticals on the U.S. marketā¦ and specifically where drugs are manufactured around the world.
Active Pharmaceutical Ingredient Manufacturing Sites for Medical Countermeasure Drugs
MCM Type(# products)
U.S. API Sites# (%)
China API Sites# (%)
Other Foreign APISites # (%)
Biological (14) 19 (11%) 37 (21%) 117 (68%)
Chemical (10) 24 (29%) 6 (7%) 52 (64%)
Influenza (3) 2 (11%) 0 (0%) 16 (89%)
Radiation (7) 13 (46%) 0 (0%) 15 (54%)
Source: Janet Woodcock, M.D.
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Where Woodcockās revelation was striking was when the analysis turned to drugs on the medical countermeasures (MCM) list. MCM drugs are used to counter biological, chemical, nuclear, or radiation threats ā and also include drugs like antibiotics used to combat influenza and airborne viruses like coronavirus.
In the case of the biological drug category, the U.S. only has 19 facilities ā China currently has 37. China controls about 80% of all of the worldās antibiotics manufacturing. And almost 100% of the worldās supply of penicillin G comes from China.
Can we imagine the fallout if an event like the recent pandemic crippled our global supply chains? What if pharmaceutical companies donāt have the ingredients to produce more? What if medical device manufacturing companies donāt have the key electronic components required to make ventilators? Or what would happen if the Chinese government withheld critical drugs as retaliation against the U.S.?
Rosemary Gibson ā a senior advisor at the Hastings Center ā summed it up: āIf China shuts the door on exports of medicines and the ingredients to make them, within a couple of months our pharmacies would be empty. Our healthcare system would cease to function. Thatās how dependent we are.ā
Suddenly, the world has realized how fragile its supply chains really are. Todayās centralized manufacturing models are vulnerable to these sorts of black swan events.
Thatās why I see this as a catalyst for changing where and how products are manufactured. Rather than having a highly centralized manufacturing infrastructure, primarily in mainland China, companies and countries will look to bring their manufacturing back onshore.
The reality is that the labor cost differentials just arenāt that large anymore. And with technologies
like 3D printing, computer vision, robotics, artificial intelligence (AI), and automated manufacturing, companies can now affordably produce products in developed markets.
Iām envisioning a future where goods will be āprintedā or produced at smaller manufacturing sites close to the markets they serve. Not only would this reduce the risk of supply chain disruptions, but it would also cut logistics costs and speed up the delivery time.
Weāll see autonomous robots (and vehicles) dropping off our packages at our front doorā¦ harvesting our cropsā¦ and working our production lines in factories. As Iāve covered in my daily e-letter, The Bleeding Edge, weāre even developing self-healing robots that can repair themselves. Obviously, this has potentially large benefits when it comes to automated factories and warehouses that employ robot workers. Self-healing robots limit downtime in the event of damage.
In sum, automation will change the nature of workā¦ and our daily lives. And weāre going to invest in the stocks that will profit from this trend. Below, I share six companies on the bleeding edge of the automation revolution that I believe will lead us to big profits.
Letās dive in with the first oneā¦
Recommendation 1: Amazon (AMZN)
Amazon (AMZN) is a company that many subscribers will recognize. Yet it is one of the most widely misunderstood companies in high tech. At face value, Amazon is an e-commerce company, but behind the curtains, something entirely different awaits.
Not every consumer buys products online using Amazon, but I can guarantee that if you use a computer, youāve been using and benefiting
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from Amazonās technology services for more than a decade.
In fact, itās nearly impossible not to use Amazon. The largest percentage of companies actually āhireā Amazon to host their software. This means that weāve inadvertently used the most profitable segment of Amazon ā its web services division.
But in the automation space, Amazon is also making big strides with its self-driving vehicles.
In December 2020, Amazon officially rolled out an autonomous ride-hailing service featuring Zooxās self-driving cars. Amazon entered negotiations to acquire the company in July 2020. Zoox is an autonomous vehicle company with an approach that is quite unique.
Zoox Autonomous Vehicle
Source: thedriven.io
Most other self-driving cars have been developed with the assumption that a safety driver would be needed at first. Not Zoox. It developed a vehicle without a steering wheel right from the beginning.
And this approach allowed Zoox to develop a smaller, more mobile vehicle that is optimized for passengers and urban travel. Amazon is going to take Zooxās tech off the market and repurpose it for vehicles in its own logistics network. Thatās how Amazon is going to automate its logistics network and eventually its package deliveries even more.
This isnāt the first time Amazon has done something like this. It acquired robotics company
Kiva Systems back in 2012. Kivaās technology became the backbone for Amazonās robotics systems in its warehouses around the world.
With self-driving vehicles, Amazon can cheaply shuttle goods back and forth between warehouses and distribution centers as needed. And, of course, the master plan is to deliver all packages to consumers via self-driving vehicles. That would cut out a major cost and bottleneck for the company, especially as it scrambles to catch up with increased demand thanks to COVID-19.
One day soon, weāll see one of Amazonās self-driving delivery vehicles pull up in our neighborhood. The car will stop, and the back latch will pop open. Several humanoid robots will hop out, packages in hand. They will take the packages to the right house, leave them on the porch, and jump back into the vehicle. Then the car will take off, heading for its next deliveryā¦
Amazonās Whole Foods already offers grocery delivery. We can imagine those deliveries being done with Zooxās self-driving cars instead of delivery drivers. We place our order online, and then we get a message on our phone when the Zoox-based delivery car is outside. We simply walk out, use our phone to flash a code to a scanner, and the car opens. Then we grab our groceries and go back inside.
Such a service would be incredibly convenient and completely contactless.
So Iām excited to see which way Amazon goes with this one. And we wonāt have to wait long ā Amazon didnāt spend $1.2 billion just to sit on the tech.
And letās not forget that Amazon is the master at creating marketplaces. With Amazonās incredible backing and customer base, Zoox could quickly become a front runner in urban ride-hailing. And imagine if Amazon tied in Zooxās ride-sharing into its Amazon Prime service somehow. That
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would be a fantastic way to accelerate adoption.
And for the record, this move is very bullish for Amazon. Self-driving tech will boost both margins and free cash flow, and we know what that does to share prices.
Action to Take: For our current buy-up-to price for Amazon (AMZN) please see our online model portfolio.
Risk Management: Because we will be holding this stock without a stop loss, I encourage all readers to establish rational position sizing. We should remember to never go āall-inā on any one investment. Our mission is to build a portfolio of our companies. Thatās how weāll optimize our success.
Recommendation 2: Cognex
Cognex (CGNX) has been around since the early ā80s. Its first product was a camera with the power to read, verify, and assure the quality of letters, numbers, and symbols marked on physical goods. At that time, the camera had to send data to a separate computer. And both were quite largeā¦ not something that would fit in your hand.
Today, theyāve been miniaturized down to what you see below.
Cognexās Machine Vision Camera
Source: Cognex
Machine vision has been around for decades and is most widely deployed in factory automation. Oftentimes thousands of these types of vision systems are deployed throughout manufacturing facilities. These vision systems appear to be just small cameras, but theyāre more akin to a ābrain.ā
Theyāre used primarily to spot manufacturing defects. And they can do it far more accurately than any human. This is where Cognexās machine vision technology is widely used in China ā factory automation. If the U.S. were experiencing similar economic dynamics, it would reduce investment and production as well.
In 2018, Cognex launched its deep learning software, VisionPro ViDi, for factory automation. This product was the result of the 2017 acquisition. Itās one thing to acquireā¦ itās another to incorporate the new technology into a product and start generating revenue.
And thatās exactly what Cognex has done.
Cognex is spending time implementing this new deep learning technology for its manufacturing customers. Just like a human working in a factory, the AI still needs to be trained on what to ālookā for.
But after a short period of time, Cognexās technology can beat the best human quality inspectors in detecting defects, finding deformed parts, verifying assembly, reading distorted characters, and even classifying materials. Right now, Cognexās deep learning software is being used for consumer electronics and automotive industry applications.
But whatās important to understand is that Cognex is at the early stages of adoption of its deep learning technology. Itās at the very beginning of explosive growth. This technology is so important, manufacturers that donāt use it will be at a competitive disadvantage.
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Thatās why right now is the perfect time for us to be establishing our position.
Action to Take: For our current buy-up-to price for Cognex (CGNX) please see our online model portfolio.
Risk Management: Because we will be holding this stock without a stop loss, I encourage all readers to establish rational position sizing. We should remember to never go āall-inā on any one investment. Our mission is to build a portfolio of our companies. Thatās how weāll optimize our success.
Recommendation 3: Infineon
Infineon Technologies (IFNNY) is one of the most important semiconductor companies in the world and is a global leading semiconductor manufacturer. And as a result of a recently completed strategic acquisition, this company has suddenly become the No. 1 semiconductor supplier to the automotive industry.
Headquartered in Germany, Infineon started as a division of the conglomerate Siemens. Eventually, it grew big enough that Siemens spun out the company in March 2000. It has historically been known as one of the top suppliers to the automotive (No. 2 globally), industrial, and secure semiconductor (No. 2 globally) markets.
And Infineon actually holds the No. 1 spot globally for power semiconductors used across all sectors including automotive, wireless communications like 4G and 5G, and industrial, among others.
We can see how dominant Infineon is in power semiconductors with one simple chart below.
Infineon is a massive company that will generate about ā¬7.5 billion in revenue this fiscal year (ending September 30, 2021). It provides solutions to just about anything we can imagine. But the companyās primary drivers are actually easy to understand.
Infineonās presence in the automotive industry represents an 11.2% market share, just barely behind NXP Semiconductors, which has maintained the No. 1 spot at 12%. I know Infineon well. I competed in some areas against Infineon when I worked in the semiconductor industry as the president of NXP Semiconductors Japan. At the time, Infineon was the No. 1 semiconductor supplier in the industry.
Also, The electric vehicle (EV) market will see exponential growth over the next 10 years. As of 2021 in the U.S., only 2.5% of cars sold are EVs. But Credit Suisse predicts over half of all cars sold will have some type of electric power by 2030. That will translate to about 60 million EVs sold annually.
But I donāt believe it will take nearly that long to see the mass adoption of electric vehicles. The shift toward electric vehicles is happening more quickly. The total cost of ownership is already lower than a comparable internal combustion engine (ICE) vehicle.
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And with battery costs continuing to drop and efficiency improving every year, we have already passed the inflection point. In short, these estimates are too conservative. But even if we use Credit Suisseās predictions and assume that we will see 60 million EVs sold by 2030, the market will grow by 32.2% per year.
As technology investors, we must have exposure to markets growing that fast. Infineon is now the market leaderā¦ And it will grow its automotive revenue even faster.
The key dynamic that we need to understand is that electric vehicles and even hybrid electric vehicles require a lot more semiconductors. Itās estimated that electric vehicles require more than twice as many semiconductors as ICE vehicles.
So Infineon will be able to potentially double its revenue per car in this fast-growing market. And thatās before accounting for self-driving vehicles. Over the next few years, we can expect at least two million cars to be fully equipped for self-driving capabilities. Again, COVID-19 will catalyze the adoption of this technology.
And hereās why the rise of autonomous vehicles (AV) is important for Infineon ā each AV comes with an additional $970 of semiconductor content. In June of 2019, Infineon announced that it would acquire U.S.-based Cypress Semiconductor for about $10 billion. And in April 2020, Infineon announced that the deal closed after receiving final regulatory approvals.
What was the strategic motivation for the deal? It was the automotive industry and microcontrollersā¦ Sound familiar? In the two and a half years that followed NXP Semiconductorās acquisition of Freescale Semiconductor, its stock nearly doubled, and the same thing is going to happen with Infineon.
And with Infineonās acquisition of Cypress, it is gaining a suite of microcontroller, sensor, memory, and connectivity semiconductors that will give
Infineon a complete technology solution for EVsā¦ and basically, all AVs are electric vehicles.
And like we shared above, Infineon has a solid foothold in the market to sell these products. Even companies that donāt use Tier 1 suppliers ā like Tesla ā use Infineonās solutions. Infineonās semiconductors are in Teslaās Model 3 and Model S sedans. In fact, Infineon supplies the chips to control the batteries and motors in eight out of 10 of the worldās top-selling EVs.
And guess where Cypressā headquarters is located? In San Jose, California, just a few miles down the road from Teslaās headquarters in Palo Alto. Do we think that was by coincidence? Definitely not.
This is a company we want to own for the next few years.
Action to Take: For our current buy-up-to price for Infineon Technologies (IFNNY) please see our online model portfolio.
Infineon is a German company that lists its shares in the U.S. as an American depository receipt (ADR). That means the liquidity may be a little lower than average compared to a normal Near Future Report recommendation.
International subscribers can also buy shares on Germanyās stock exchange under the ticker symbol IFX. For portfolio purposes, we will be tracking the ADR (IFFNY).
Risk Management: Because we will be holding this stock without a stop loss, I encourage all readers to establish rational position sizing. We should remember to never go āall-inā on any one investment. Our mission is to build a portfolio of our companies. Thatās how weāll optimize our success.
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Recommendation 4: Microchip
Regular readers know that our mission at The Near Future Report is to identify, and profit from, industry-altering trends like automation. I use my decades of experience in the tech industry to spot mid- to large-cap companies at the leading edge of these near future trends.
And Iāve found a company that has big stakes in this trend.
Microchip (MCHP), is a direct competitor of Japanese semiconductor manufacturer Renesas thatās built up a large portfolio of secure microcontroller (MCU) solutions for the automotive industry over the last decade.
Microchipās Microcontrollers
A microcontroller (MCU) is basically a small computer distilled onto a single integrated circuit (IC). An MCU has a central processor, some memory, and the ability to have inputs and outputs.
The major differences between an MCU and the central processing unit (CPU) that runs your computer comes down to scale, size, and power consumption. CPUs ā like one of the latest Intel Core i9s ā are designed for general computing purposes, like running an operating system like Windows and other software applications. Theyāre also quite large, at 42 mm by 28 mm.
By comparison, an advanced 32-bit MCU offered by Microchip is typically a fraction of the size (only 9 mm by 9 mm, less than 7% the size of the Intel Core i9). Thatās tiny enough to rest on your fingertip.
These products can be used in very small devices
like digital watches, fitness trackers like the Fitbit, or augmented reality glasses.
While CPUs are good for general-purpose use, MCUs are designed to be application-specific. And with much smaller sizes comes lower power consumption. MCUs are often paired with analog integrated circuits (ICs) that take analog inputs like sound, temperature, or vibration.
These are then converted into a digital format that can be analyzed, processed, and used for diagnostics, improvement, or control of a device ā or vehicle.
That last part is especially important. Microchipās technology allows future vehicle models to have more technical capabilitiesā¦ with higher efficiencyā¦ and will keep them safe from remote hacking.
Today, most cars are loaded with semiconductors. The average midrange internal combustion engine (ICE) car has around $350 worth of semiconductors inside. These semiconductors are used for everything ā steering, airbags, collision warning, power doors and windows, entertainment and navigation systems, power systems, and sensors that assist with parking and automatic emergency braking.
Given this, itās not surprising that the automotive industry is the second-largest market for semiconductors ā around 25% of all sales worldwide. And in 2018, Microchip pulled off its largest acquisition yet. In May of 2018, it
Comparative Size Difference Between a CPU and an MCU
Source: Getty Images
32-bit MCU (9 mm by 9 mm)32-bit CPU (42 mm by 28 mm)
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acquired Microsemi for $10.3 billion, a healthy price for a company generating about $2 billion in annual revenue at 62% gross margins and about $418 million in free cash flow.
Acquiring Microsemi added a large aerospace and defense business to Microchipās overall revenue. This business was 26% of Microsemiās annual revenues in the 2017 fiscal year, $473 million in revenue in total. I believe this will certainly be a positive growth sector for Microchipās new aerospace and defense business.
And given that Microchip is so well positioned in two of the biggest near future technology trends ā autonomous driving and the 5G wireless boom ā even higher gains are likely within the same time frame.
Action to Take: For our current buy-up-to price for Microchip (MCHP) please see our online model portfolio.
Risk Management: Because we will be holding this stock without a stop loss, I encourage all readers to establish rational position sizing. We should remember to never go āall-inā on any one investment. Our mission is to build a portfolio of our companies. Thatās how weāll optimize our success.
Recommendation 5: ON Semiconductor
With the explosion in investment and innovative new designs, the whole automation industry has begun ā and we are in for a decade-long period of growth. We already discussed one of the best automotive semiconductor companies in the world ā Infineon ā earlier in this report. Now weāll cover our next promising company in this spaceā¦
Every single electric vehicle (EV) created will need hundreds of dollarsā worth of semiconductors. And the largest area of semiconductor spend in
electric vehicles is on power semiconductors.
In early 2020, I sent one of my research analysts ā Nick Rokke ā to the Consumer Electronics Show (CES) in Las Vegas. Longtime readers know Iām a big believer in āboots on the ground research.ā And when I canāt attend a conference or event, Iāll often send one of my handpicked analysts to attend and report their findings.
And at CES 2020, ON Semiconductor (ON) reported that it sells about $100 of semiconductor content into internal combustion engine (ICE) cars. But it sells about $500 of content into EVs. Thatās five times more revenue than semiconductor companies can make per car.
ON Semiconductor is also enabling the machine vision tech trend that I spoke about above with Cognex. ON has amazing complementary metal-oxide-semiconductor (CMOS) sensors. These sensors are mainly used to help cars āsee.ā ON dominates the auto camera market with a 50% market share in auto cameras and an 80% market share in ADAS (advanced driver assistance) cameras. ON will be a major player in the autonomous driving revolution.
Also, ON has a major partnership with Tesla, which is the closest to releasing fully autonomous vehicles. The Tesla Model 3 has a triple forward-looking camera using three ON CMOS image sensors. And the Model 3 has five more cameras that look out the back and sides of the vehicle using ON CMOS image sensors.
ON also works with NVIDIA and is the image sensor provider for its NVIDIA DRIVE Constellation simulation platform. NVIDIAās graphics processing units (GPUs) process the complex data to enable autonomous driving in many leading car manufacturers. And according to Navigant Research, NVIDIA is the leader in the space. That leader uses ON chips in its systems.
These chips are also used in factories to help enable robot vision and automation. This will
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become a bigger market as the manufacturing renaissance Iāve predicted comes to the U.S.
Based on the share price alone, this may look like an āexpensiveā investment, but the nominal share price tells us nothing about a companyās valuation. ON trades at a significant discount to its peers. Its closest competitors are NXP Semiconductors and Infineon.
What a great setup. Rather than trying to predict which automotive manufacturer will be the biggest winner in the booming EV field, or overpaying for a company like Tesla, weāll invest in a key supplier with exposure to the entire market.
Letās not pass up this opportunity.
Action to Take: For our current buy-up-to price for ON Semiconductor (ON) please see our online model portfolio. For the time being, we will hold this stock with no stop loss. Always remember to use rational position sizing.
Risk Management: Because we will be holding this stock without a stop loss, I encourage all readers to use rational position sizing. We should remember to never go āall-inā on any one investment. Our mission is to build a portfolio of our companies. Thatās how weāll optimize our success.
Recommendation 6: Uber
I recently rode in an almost fully autonomous vehicle. All Tesla cars have the option to enable self-driving functionality, and while regulations donāt allow the cars to be fully autonomous, the
Tesla 3 drove me down the street and across the I-95 in South Florida with no problem.
And if anyone has driven around the West Palm Beach/Miami area, you know thatās quite an accomplishment. Many of the worst drivers seem to congregate there. The future is now. And autonomous vehicles are going to be a huge market.
Goldman Sachs estimates the future of autonomous mobility will be a $7 trillion market. The firm plans to provide $750 billion in loans, underwriting, advisory services, and investments to sustainable transportation, among other green projects.
This next recommendation will allow any self-driving car to join its network when the time is right. And it already has 93 million monthly active users on its app. That company is Uber (UBER).
Now, I know Uber is a company most of us are familiar with. Many of us have used its ride-hailing app when on vacation or for a night on the town. We probably think we know everything there is to know about Uber. I remember hearing similar comments when I recommended Tesla.
So Iāll say the same thing I said when I
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recommended Tesla. This company is much more than we realize. Just like Tesla was more than ājustā a car company, Uber is much more than just a ride-hailing app.
SAV, which stands for āshared autonomous vehicles,ā will be the future of transportation. In the near future, we will be able to āopt-inā our self-driving car to a network of autonomous taxis. And just like that, our vehicle is no longer a depreciating asset. It is now an income generator.
We already know that Tesla is planning to launch its own SAV network. But it wonāt be the only one. At the end of 2020, rumors surfaced that Uber was looking to completely sell off its self-driving unit called the Advanced Technologies Group (ATG). Many assumed that Uber was abandoning its self-driving ambitions.
But thatās not the case at all.
Uber made a large investment into American self-driving vehicle technology company Aurora and transferred its autonomous driving division into the company. In exchange, it received 26% of Aurora. Basically, Uber paid Aurora to take ATG off its hands, and it received pre-IPO shares in return. And it is also able to maintain access to autonomous driving technology.
Aurora just inked a big deal with Toyota and Japanese automotive components manufacturer Denso to develop and test self-driving cars. Per the deal, it will contribute Sienna minivans to the self-driving tests. I wouldnāt expect many readers to know Denso, but it is one of the largest Tier-1 suppliers to the auto industry.
Denso develops and integrates components and systems into vehicles on behalf of carmakers like
Toyota. Itās a company that I know well because for years it was one of my largest customers in Japan. I used to visit its headquarters in Nagoya all the time for meetings. It is a massive company that is a powerful force in the automotive industry.
This is why the fact that Aurora is working directly with Denso is critical. If Auroraās goal is to get its self-driving technology into cars, that will be much easier to accomplish in collaboration with Denso, which already has relationships throughout the auto industry.
And hereās where Uber comes back into the pictureā¦
I predict Uber will adopt the same self-driving vehicles that come out of this partnership between Aurora, Toyota, and Denso. And it will use them to launch its own SAV network. I know readers may think Iām going out on a limb here. But consider this. Lyft ā an Uber competitor ā now has self-driving cars operational in Las Vegas.
Uber knows this. It knows that SAV is the future of transportation. It was the companyās original plan all along. And Uber will not be left behind.
We can see revenue is expected to nearly double from 2020 and triple by 2024. This is amazing
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growth. And itās creating the scale weāre looking for. That scale is leading to increased gross margins, which are projected to grow from 49% in 2019 to 60.7% in 2024.
One day, in the near future, we will order an Uber vehicle on our smartphone app. The car will show up in our driveway. And there will be no driver in the front seat. The car will be fully autonomous.
Action to Take: For our current buy-up-to price for Uber (UBER) please see our online model portfolio.
Risk Management: Because we will be holding this stock without a stop loss, I encourage all readers to establish rational position sizing. We should remember to never go āall-inā on any one investment. Our mission is to build a portfolio of our companies. Thatās how weāll optimize our success.
Regards,
Jeff Brown Editor, The Near Future Report