When it comes to EV, buy the bullets not the guns
Just this past week we shared with subscribers our recasting of the Disruptive Innovators investment theme. Established businesses tend to focus on improvements to their existing products and services, usually for their most demanding and most profitable customers. Their focus is on making iterative changes and adjustments along the way, which allows them to maintain their pole position in their particular category, without rocking the boat too much, safe and steady.
Disruptive Innovators on the other hand not only look to rock the boat but often tip it over and completely change the lake.
One of the hot topics on the street today is who will emerge as the victor when it comes to the electric vehicle, something this article in the Wall Street Journal digs into:
The next fortune in the auto industry will be made by companies that dominate the electric car market. Good luck picking the winners. Within a decade or two, electric cars are widely expected to replace conventional engine cars. A big wave of new models is coming next year. Right now though, relatively few fully electric cars are being sold. The market is wide open.Investors trying to pick winners are parsing what little data is available, but that could lead them down the wrong path. Wide variations in quality, price and profitability make handicapping the race nearly impossible. Even investor darling Tesla is struggling with production and financing problems. These have pushed the stock down more than 10% in the past year.
Source: The Fool’s Game of Picking the Electric Car Champ – WSJ
What this article reminds us of is that when it comes to investing, not only do we look at the landscape thematically, we also oftentimes utilize a key strategy we like to call – “buy the bullets, not the guns.” This strategy looks to move down the eco-system within a theme or category where no single winner will, or even needs to emerge. Instead, we look to profit from those suppliers and manufacturers that service all the players benefiting from the tailwinds.
In the auto industry, there is no single winner today — we’re not all driving a Porsche (although I highly recommend it myself!) — so why would only there be one winner when it comes to electric vehicles? And even so, the reality is coming right on the heels of the EV revolution will be the mainstreaming of the autonomous vehicles, a change that adopts a whole different set of technology.
When it comes to our Disruptive Innovators theme and electric and/or autonomous vehicles we’re looking to those companies and technologies that are making their way into all these vehicles — the software, chips, batteries, sensors and new materials — rather than picking between the Volkswagen Group, Tesla, Toyota, General Motors and the like.
