More than half of hedge fund manager and value investor Mohnish Pabrai’s portfolio is composed of shares in General Motors Company GM and Fiat Chrysler Automobiles NV FCAU. Given his stake in the auto industry, as well as our own cherished stake in the Motor City, Benzinga was eager to get Pabrai’s take on for the future of Detroit automakers.
In an interview with PreMarket Prep, Pabrai outlined why he’s extremely optimistic about the state of domestic car manufacturing.
Detroit, Up And Coming Once More
“Detroit went from being, in 2007, one of the worst places on the planet to produce a car to, by 2010, being one of the best places on the planet to produce a car,” Pabrai said. “Almost every North American auto plant is running full-out 24/7, 365. And the reason it is running full-out is that one of the cheapest places to build cars is now the Midwestern U.S.
“President Trump talks about all the border taxes. The price differentials in producing a car in Mexico versus the United States is, for most cars, less than $1,000. So, if you are talking about a $50,000 truck, you’re talking about a 2 percent difference in terms of the cost and half that difference — or more than half of that difference — gets eaten up with transportation costs.”
Part of Pabrai’s bullishness on automakers comes from autonomous vehicles. In his view, full disruption of the auto industry by automation won’t happen for another 20 years.
Full Autonomy Still Decades Away
“There is a lot of things changing in the auto business when you talk about ‘full autonomous.’ I would say what you are referring to is what the industry calls ‘Level Five automation,’ which is: I get into my car, it doesn’t have a steering wheel, it doesn’t have a brake pedal, and I tell the car take me to granny’s house and it does that. That is at least two decades away.
“We are going to get lots and lots of features in cars that will almost automate driving, but they will necessitate having a driver, they will necessitate having a steering wheel, and they will necessitate having all of the other features we are used to. Until you completely get rid of the driver in the driver’s seat, the disruption that comes from autonomous driving doesn’t really happen. It makes our lives easier, it makes accident rates go down, but it does not change a lot of the economics and dynamics of car ownership.”
While Pabrai stressed that he didn’t feel as though predictions about fully autonomous vehicles stand to dramatically impact the current auto industry, that did not stop him from forwarding his own estimation of what self-driving cars might do to the industry.Related Link: Nvidia And The Self-Driving Auto: Competition Is Good For Investors
“So, I think when we finally have fully autonomous driving, it will have some reduction in ownership of cars. I think mobility will go up significantly, so miles driven by humans will go up. But it’s not clear to me looking today versus 20 years from now that the number of cars produced and used in the U.S. will be less than 10 or 15 million a year.”
For context, Wards reported, seasonally adjusted,18.29 million cars were sold in the United States last year.
Listen to the full interview with Pabrai in the clip below.
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