Electric and self-driving vehicles have often been highlighted as a potential source of huge disruption for companies like auto parts supplier Bapcor Ltd (ASX:BAP).
As the theory goes, shifting from mechanical combustion to electric drive trains will lead to more reliable cars and less maintenance and demand for parts. On the face of it, that sounds sensible. However, previous quantum leaps in mechanical development – from carburettors to electronic fuel injection, or from manual transmission to CVT, for example, have not changed the viability of the autos parts industry as a whole.
Sure, some things like the oil filters supplied by GUD Holdings Limited (ASX: GUD) could become obsolete, but I don't envision the end of the auto parts industry – far from it.
One thing that is commonly overlooked is that, although the mechanic parts of cars are getting simpler, the electronics are getting ever more complex, and this is only going to increase. There will likely be considerable demand for electronic parts in the future. If you think about all the times you've repaired your post-2005 model car, I would bet that electronic issues significantly outweigh mechanical replacements.
It's possible in the future, for example, that replacement parts may increasingly be met by computer or telecom suppliers, (as cars get more computing power and internet capability) which could hurt conventional suppliers like Bapcor. Still, this explanation also does not consider the long 'tail' life of cars – plenty of people still drive cars from the 1990s, and it's not inconceivable that today's petrol cars will be driven well into the 2030s. As a result, I would not be overly worried about what the future holds for Bapcor.
The end of auto insurance: A fallacy?
The second part of this theory says that self-driving vehicles will lead to an end of demand for vehicle insurance from the likes of Insurance Australia Group Ltd (ASX:IAG) and Suncorp Group Ltd (ASX: SUN).
Sure, maybe there will be no car crashes whatsoever in this theoretical bright future. However, we must remember that a car is an expensive asset, and there will still need to be insurance against fire, theft, and damage. It's also likely that this brave new world includes such things as computer viruses and car hacking, which potentially leads to significant third party and/or personal liability. Possibly a driver could be liable for injuries to third parties caused by a computer virus, if they did not update their car software when instructed to.
Previous generational leaps in crash safety including the ANCAP rating, and the switch from using all-steel car bodies to plastic fenders and crumple zones, did not lead to the end of insurance either. Certainly, the insurance industry will have to change significantly in the future to deal with new developments. However, there will always be large claim events and it is hard to see a future where auto insurance and auto parts supply businesses no longer exist.
