Remember what it means to be a contrarian investor.
It doesn’t mean doing the opposite of other investors.
It means spotting a potential investing opportunity and buying before the masses.
When doing so, you’re a contrarian because you’re investing in a stock that most others would rather avoid.
A great example of being a contrarian investor is a story we’ve followed since the middle of last year. Only now is the mainstream starting to take note…
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When most people think of technology they think of computers, wireless devices, or the internet.
What they don’t think of is the car industry.
And yet right now, quietly, one of the most interesting and exciting battles in new technology is taking place in car plants around the world.
But it doesn’t have anything to do with the in-car entertainment system. Nor is it to do with automated parking, or GPS navigation.
This has everything to do with weight…or rather, how to lose weight.
Get that steel outta here!
It’s a simple fact that the heavier the car, the more fuel it will use compared to a similar but lighter car.
For decades car firms didn’t really worry about the weight of cars, especially in the US, where petrol was so cheap.
The size of a car was a status symbol…a sign of prestige.
But in recent years things have changed. The oil price, and therefore the petrol price, has skyrocketed. Not to mention that people are more conscious about fuel efficiency, pollution, and other impacts on the environment.
You can see how that has played out. Even in the US, where apart from the big pick-up trucks, sedans are smaller — on average — than they were 20 years ago.
Of course, there’s only so far a car company can go. A car has to be a minimum size in order to comfortably fit the driver and perhaps three or four passengers.
Add in all the extra gadgets, safety features and technology that you find inside most new cars, many cars have actually increased in weight even as the size of the car has shrunk.
This has created a problem for the car industry. How to add all the bells and whistles that consumers want, without adding to the weight, worsening fuel efficiency, and adding to vehicle emissions?
It seems carmakers have found the answer — get rid of all that sturdy structural steel. That’ll fix it. If you think that would make the car less safe, think again. Carmakers are developing what we call ‘New Steel’.
‘Flyweight’ technology isn’t just for super cars
Take this article from the Drive.com.au website:
‘Ford has found a way to trim the majority of bulk out of the average family car, paving the way for more efficient vehicles.
‘The blue oval’s North American arm has built six examples of a family-sized Fusion sedan that weigh 25 per cent (up to 400kg) less than comparable models.’
Make no mistake, that’s a big deal — 25% less, just by chopping out ‘old steel’ and replacing it with something new.
The article explains further:
‘The savings come from the use of aluminium and carbon fibre, as well as hollow suspension parts and tall carbon-fibre wheels with skinny tyres.’
Ford’s effort is only a prototype. Other firms have already put this initiative into action. Japanese carmaker Honda is one of them. As is Germany’s Audi.
It’s a clever idea. Rather than using 100% heavy steel to provide strength to a car’s chassis, carmakers have discovered a way to bond steel to lighter materials (such as aluminium) to reduce weight while maintaining the structural integrity of the car.
In some cases, the carmakers have been able to entirely replace steel with lighter materials. That’s usually with the lighter aluminium metal, or the composite material carbon-fibre.
Carbon-fibre’s high cost means it’s typically reserved for high-spec cars.
‘New Steel’
From an investment perspective it creates an interesting opportunity.
Where should you invest?
Should you invest in the individual carmaker?
If so, which one: Honda [TYO:7267], Ford [NYSE:F], Audi [ETR:NSU]…General Motors [NYSE:GM]?
Arguably, investing in a carmaker is only marginally better than investing in an airline. The margins are usually wafer thin, and they have to sell a heck of a lot of cars in order to generate enough volume to make a profit.
In our view, there’s a better way to invest in this trend. It’s by investing in the firms at the beginning of the ‘New Steel’ food chain. That means looking at the companies producing the key ingredient — aluminium.
This is a story we’ve covered for almost a year, but only now is the mainstream starting to sit up and take notice. By this time next year, it’s possible that every production car, from the most expensive to the most affordable, will have a ‘New Steel’ style structure.
In that case, the next year stands to be an exciting time for at least one part of the beaten-down resources industry — aluminium producers.
Keep watching as this story develops.
Cheers,
Kris+
