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Automotive

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The COVID pandemic hit the auto industry hard. In the spring of 2020, the pandemic closed many auto retail stores for a month or longer... and shut down many factories for as many as two months. People stayed home, saved their money, stopped commuting… and stopped buying cars—especially during the first part of the year.

In other words, the previously roaring automotive industry and its global supply chain came to a halt.

This hit car company profits big time. The automotive industry sold about 14.5 million cars and light trucks last year, amounting to a 15% decline from 2019, and the lowest level since 2012. 

That said… car companies and consumers alike are expecting a better 2021. 

According to predictions by Fitch Ratings-Chicago, sales of U.S. light vehicle sales in 2021 are anticipated to total 15.6 million. Still, 2021 sales are expected to fall about 8% below 2019. According to predictions by Fitch, sales won’t reach that of 2019 until 2022 at the earliest.  

And although COVID takes the headlines for 2020, more exciting disruptions—including electric mobility, advancements of driverless cars and automation technology, and the rise of ridesharing patronage—were taking place in the industry even before COVID-19. 

Here’s what investors should know about the automotive industry. 

What Is the Automotive industry?

On any one car, there are about 30,000 parts. Before a car is ever assembled, the making of all of those parts takes a lot of hands and a lot of work. 

In the U.S., the automotive industry employs tens of thousands of skilled workers in all 50 states, which is in part why it’s considered a powerful engine driving the U.S. economy.

Globally, the automotive industry employs roughly 34 million workers. Approximately 25% of these workers are employed by automakers or original equipment manufacturers (OEMs).

What are original equipment manufacturers (OEMs), exactly? Automakers don’t make every piece of a car or truck. Instead, they buy them from OEMs. This leaves other companies to focus on rubber production for items like tires and belts, for example.  

The automotive industry extends beyond just auto manufacturers and OEMs. There is an additional market for aftermarket parts, a market for individual and fleet vehicle sales, a market for vehicle rentals, repairs, and more. Collectively, these subsets of the industry help the automotive industry to create jobs across sectors.  

These days, as cars get smarter, their parts are becoming more complicated. Electric cars for example, require a range of new, component parts, including lithium batteries, chargers and controllers.

The global supply chain that keeps finished cars moving off of the line is crucial to the manufacture of finished vehicles. A global semiconductor shortage is expected to majorly impact automakers this year. Ford Motor Co., for one, plans to slash its vehicle output by up to 20% in the first quarter of 2021 because of the lack of parts.

The increasing need for new, smarter parts will no doubt power increased demand across the supply chain. 

Why Invest in the Automotive Industry?

As of early 2021, inventory is running short and manufacturing engines are powering up again to meet new demand. 

In February, for example, U.S. manufacturing was operating at the fastest pace it has in three years because of a surge in new orders. According to the Institute for Supply Management, manufacturing activity rose to 60.8% in February, up from 58.7% in January. That marks the strongest performance since February 2018 and indicates an expansion in the manufacturing industry. 

Like with many other industries, the pandemic has accelerated existing trends in the auto industry, including both the growth of online traffic and a “greater willingness of OEMs to cooperate with partners—automotive and otherwise—to address challenges,” according to McKinsey. 

From an industry and consumer standpoint, the pause of the pandemic has also ushered in new excitement for the electric car, which are key to reducing emissions. According to Fitch, as emissions regulations tighten in global markets, specifically China and Europe, the pace of vehicle electrification is increasing.  

In recent years, more and more automakers are creating new electric vehicles (EVs). That said, the EV market is not without hurdles. Namely, they are still up against the familiarity and affordability of standard vehicles in the face of near-term uncertainty, according to the 2021 Deloitte Global Automotive Consumer Study.

Beyond electric cars, dealers and car makers alike are stressing customer experience, especially online. Although most customers still like to see their car before buying, no doubt, COVID has put a damper on the test drive. This is pushing more consumers to make their buying decisions online. So, while cars are getting smarter, car shopping is too, as car makers build data platforms to “to elevate and evolve the customer experience.”

Autonomous vehicles are also in the works, although they aren’t expected for large scale rollout just yet. 

In 2019, the global autonomous vehicle processor market reached  $5.07 billion. That number is expected to grow to $42.20 billion by 2030. According to one estimate by UBS Group AG analysts, the global robo-taxi market could be worth as much as $2 trillion a year by 2030. That’s not to mention the impact that the mass adoption of driverless vehicles could have on other industries who employ the technology. 

When they are finally ready, not only will self-driving cars allow drivers to do other things while their cars drive along, they should reduce collisions and traffic deaths by as much as 80%

The automotive industry will continue to be a key economic driver long after the pandemic, especially as innovations like electric power and autonomous driving take hold. While the industry is still coming back from the impacts of COVID-19, investors shouldn’t shy away from this powerhouse industry.

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This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not offer brokerage or custody services.[/vc_column_text]


Smartphones

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Smartphones have changed the fabric of our lives. From instant news updates, to social media, to checking our phones countless times each day out of habit— they have changed how we think, how we interact, and how we meet our needs (from getting groceries to finding directions to meeting our future mate).

In 2020, the global smartphone market was valued at $714.96 billion. It is expected to surpass $1 trillion by 2026. While it is expected that the market will plateau because of sheer penetration, mobile technology isn’t done yet.  From a wide rollout of 5G to foldable phones, the world of smartphones has new opportunities on the horizon. 

Interestingly, the pandemic of 2020 increased the demand on cellular networks. According to Ericsson, the number of mobile 5G subscriptions in North America will reach 325 million. That’s compared to 3 million in 2019.

In other words, it accelerated the need for digital connectedness, making smartphones more vital than ever. 

What Is a Smartphone?

A smartphone is “a mobile phone that performs many of the functions of a computer, typically having a touchscreen interface, internet access, and an operating system capable of running downloaded applications,” according to the Oxford dictionary. 

While the iPhone launched in 2007, the iPhone didn’t change the world on its own. The first iPhones cost between $399 and $599, which at the time was a large premium.

Androids played an important role in bringing the price of smartphones down. In 2008, after the launch of the iPhone, HTC’s T-Mobile G1 launched for a price tag of $179. This price drop, in conjunction with other factors (including a data price drop, better apps, and better camera technology), helped to make smartphones more accessible and ubiquitous globally.

Today, 91 percent of US households own smartphones and use them a lot. Approximately half of web traffic worldwide is mobile, in fact. In the third quarter of 2020, alone, mobile devices (not including tablets) generated 50.81 percent of global website traffic.

Worldwide, there are more than three billion smartphone users. That number is predicted to grow by several hundred million in the next few years. With more than 100 million users each, China, India, and the US are home to the highest number of smartphone users.

Why Invest in Smartphones?

While it might seem that the smartphone market is tapped, lots of growth potential exists. 

First, investing in smartphones isn’t limited to investing in Apple shares. Today, the leading smartphone companies include Samsung, Apple, and Huawei Technologies. These three technology companies sell about half of all smartphones worldwide. While all three shipped at least 200 million smartphones in 2018, Samsung outsold the other two competitors, selling more than 290 million smartphones. Other smartphone makers include Google, LG, Motorola, Vivo Communication and Xiaomi.

Networks are also getting better by going 5G, and that takes equipment. 

5G chip makers include Qorvo, whose “revenue for the third quarter of fiscal 2021 increased 26 percent year over year to nearly $1.1 billion.” Its shares nearly doubled, from $1.86 per share a year ago to $3.08 per share at the end of the year. The company expects that 2021 might be an even better year, estimating that 500 million 5G smartphones could be sold in 2021, compared to just 250 million units in 2020. 

Chips are required in almost anything powered by software (including smartphones, cars, laptops, PCs, video games and data centers), and they are seeing more demand than ever. Alternatively, instead of choosing a particular chip company, semiconductor ETFs are also available. 

Beyond new networks, cellphones themselves aren’t done innovating just yet. 

These days, foldable phones are on the horizon. Foldable phones can adjust their size to meet the user’s need—making it larger to function more like a tablet, or smaller to function more like a mobile phone. 

While foldables are on the market (Royole introduced the first foldable phone, the FlexPai, in October 2018, and Samsung has since released three, and Motorola recently released one), they haven’t arrived or been adopted in full force. 

And, what would our phones be without the apps we rely on? 

Google’s Play Store is home to nearly 3 million apps and Apple’s App Store is home to nearly 2 million apps. Consumer spending on app stores on these two platforms and third-party app stores hit $143 billion in 2020. The dating app Tinder alone grossed $33.86 million and the gaming app Monster Strike grossed $28.92 million. That’s a lot of revenue generated by tiny little display squares. 

Beyond gaming and dating, finance and communication apps (for platforms like Zoom) are growing too. Investors aren’t missing the boat. Between 2016 and 2020, global funding to mobile technology companies more than doubled compared to the previous five years.  

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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today. 

This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]

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