Mark January 13 – 26 down on your calendar, as it could be an important time for investors. Jan. 13 – 26 are the dates for the Detroit Auto Show. Automobile manufacturers will showcase their newest concept vehicles, and the 2015 Ford (NYSE:F) F-150 is sure to garner some attention, as it is rumored to be built out of aluminum.
Making the F-150 out of aluminum would greatly reduce the weight of the truck, thereby increasing its gas mileage by as much as five miles per gallon. This is important as the federal Corporate Average Fuel Economy, or CAFE standards that were enacted in 2012 will require auto manufacturers to have an average fleet wide miles per gallon rating of 48.7 to 49.7 by 2025. The new standards begin to take effect in 2017, gradually increasing every year.
Making an aluminum automobile is not entirely new; Land Rover, Jaguar, and Audi use aluminum in their automotive frames. What is significant about this is that the Ford F-150 is the best selling vehicle in the U.S., and has been for the past thirty years. Last year, Ford sold 763,000 F-Series pickups in the U.S. Changing the composition of the best selling auto in the U.S. could have a significant impact on the auto industry, and thereby impact the aluminum industry.
The company that stands to gain the most from this is Alcoa (NYSE:AA), the world's largest producer of aluminum. Alcoa has the advantage of being able to mine, refine, and manufacture aluminum. Alcoa had revenue of $5.6 billion for the third quarter of 2013, and is projecting that its aluminum products in the auto industry will increase four times by 2015 and tenfold by 2025. If an aluminum F-150 does well in the marketplace, other car manufacturers will certainly make the switch to aluminum as well. Aluminum is already the second most common material used in automobiles. Considering that the auto industry sold 15 million vehicles in the U.S. last year, this could be a massive market for aluminum producers, as well as for aluminum recyclers such as Metalico. As the price of aluminum went from $2,000 per ton at the end of 2012 to $1,700-1,800 at the end of 2013, Alcoa needs the price increase that would come from increased demand for aluminum.
On the losing end
U.S. steel producers could be in for some competition if car manufacturers begin switching from steel to aluminum.Steel Dynamics estimates that 16% of its steel is used by the automotive industry. In 2012, ArcelorMittal (NYSE:MT) generated $84.2 billion in revenue, and $13.2 billion of that, nearly 16%, was generated by its automotive division.
However, aluminum is not the only possibility for lighter automobiles. At Los Alamos National Laboratory, researchers are working to develop high-strength, lightweight steels. The research is funded by a $1.2 million grant from the Department of Energy. ArcelorMittal is also researching lighter, stronger steels; it has 1,300 full-time researchers working for it. A breakthrough in lightweight steel would help auto manufacturers meet CAFE standards and make steel companies more competitive in the auto industry.
For Ford to succeed with this F-150 it will have to strike a balance between increased cost and fuel economy. If it is too expensive and offers only slight gains in fuel economy, it could go the way of the stainless steel DeLorean. You can bet that Alcoa will be watching the auto show closely this year.