3 Bold Bets for the Automotive Industry Over the Next 5 Years

With recent recall scandals, emissions cheating allegations, a surge in autonomous vehicle interest, and more stringent fuel economy standards, the automotive industry is about to look very different in the near term.

Daniel Miller
Daniel Miller, Jason Hall, and John Rosevear
Oct 4, 2015 at 10:40AM

Ford's 2015 aluminum bodied F-150 was a bold bet that could pay off handsomely. Image source: Ford Motor Company.

If you follow the automotive industry, you already know that Ford made a bold bet by producing its most profitable and important vehicle, the 2015 F-150, with aluminum body panels in hopes that the improved fuel economy would pay off with increased demand for the truck in the years ahead.

There is no shortage of bold bets made in the automotive industry on a yearly basis because it's a highly competitive industry with plenty of global juggernauts trying to out-innovate each other. Here, three of our analysts make fun, yet bold, predictions for the years ahead.

John Rosevear: Here's my bold bet: Diesel cars are toast. It may take longer than five years for that to fully play out, but it could well be visible by then. 

My bet may be a surprise if you know that about half of new cars sold in Europe are diesels. That's unlikely to change until and unless the European Union rethinks its environmental regulations in a big way. But in the wake of the Volkswagen (OTC:VWAGY) emissions-cheating scandal, I think that might actually happen. 

Diesels are appealing to some green-minded folks because they get better fuel economy than equivalent gasoline engines. All other things being equal, they emit less carbon dioxide per mile than gas engines. Carbon dioxide has been implicated in global warming; controlling it is a regulatory priority all around the world -- including in Europe, where taxes and regulations give diesel-powered cars a financial advantage.

But it's not the only pollutant that matters. Nitrogen oxides are linked to smog, acid rain, and a long list of respiratory illnesses. Carbon dioxide affects the whole world in subtle ways, but nitrogen oxides affect traffic-congested cities and regions in ways that aren't subtle at all.

Years ago, spurred by an effort to clean up California's infamous smog, the U.S. government cracked down on emissions of nitrogen oxides. The auto industry was able to clean up gasoline engines, but diesels emit more nitrogen oxides, and cleaning them up has been a harder problem. That's why diesel cars are far less common in the U.S. than in Europe: It's hard to make them pass America's stricter emissions requirements.

New "clean diesel" technology has helped make diesels more popular here in recent years. But truly clean diesel engines are apparently still a hard problem: VW engineers had to rig its diesels to cheat in order to pass U.S. emissions tests while maintaining the performance and fuel economy the cars needed to be competitive. 

I think it's very possible the VW scandal will lead to a global rethink about how much sense it makes to push diesel as a "green" technology (a push that has been largely spearheaded by VW and the other German automakers, by the way). I think that as battery-electric cars start to look more and more like viable mass-market options -- and as gasoline engines continue to get cleaner and more efficient than was thought possible not long ago -- the idea of a diesel-powered car will start to seem increasingly unattractive.

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Jason Hall: I'm going to go out on a limb and predict that Tesla Motors (NASDAQ:TSLA) will deliver at least 250,000 cars to customers in 2020. For context, that's roughly five times more cars than the company will deliver in 2015. That works out to about 30% annualized growth in unit sales.

I'm also comfortable predicting that Tesla will also be the largest maker of electric cars in five years -- even with major automakers finally beginning to think bigger about fully EV cars as a large-scale market. Here's why.

To start, Tesla's lead over the traditional automakers is probably more substantial than people want to admit. If there's one thing the industry has proven over and over, it's that they just don't turn on a dime. One good example is the big news that Porsche was developing a so-called "Tesla-beater" with better range, faster recharging, and Porsche-like performance...

...that should be available in about five years.

Get this: The touted specs for Porsche's so-called Mission E are based on advances in technology that haven't even happened yet. And that's the biggest threat to Tesla so far.

Don't get me wrong -- Tesla won't be the only EV maker in five years. But between the hugely successful Model S, the imminent Model X, and the not-too-far-away Model S, its lead in the segment is only going to grow over the next five years. 

Daniel Miller: Ford Motor Company (NYSE:F) has done an incredible job of reinventing its vehicle lineup since the recession. Ford's commitment to improving quality and fuel economy in its passenger cars gave birth to the Fusion, which quickly became the automaker's second best-selling vehicle in the U.S. market. However, sales of SUVs are on fire in the U.S. right now, and my bold bet is that Ford will indeed bring back the Bronco SUV toward the end of this decade, and it will sell more than 200,000 units during its first year at full production -- that would have made the Bronco Ford's fifth best-selling model in its profit-churning U.S. market last year.

While the Bronco's comeback is entirely speculation at the moment, and Ford commented there are no official plans to bring the SUV back, it would certainly fit well into the automaker's current SUV lineup. The Escape, Edge, and Explorer all sell well in the U.S. but none of the three are considered an off-road capable vehicle, and that isn't how the models are marketed. Bringing the Bronco back would enable Ford to address a more "off-road" consumer market that currently eludes the automaker and shops at Jeep dealerships. 

In theory, the Bronco making a comeback makes sense, but this is the real world: You don't simply snap your fingers and make production happen. That's what makes the potential Bronco comeback intriguing, though, because Ford has already announced it would move production of the next-generation Focus and C-Max from the Michigan Assembly plant in 2018. That could open up production capacity in the U.S. -- where it's more desirable to produce higher-margin vehicles such as SUVs and trucks -- to make production of the Bronco a real possibility. 

The Bronco would fit well in Ford's current SUV lineup, and with SUV sales on fire, cheap financing available, and lower gas prices, the timing has seemingly never been better to bring the Bronco back to life.