Post #38: Planes, (no trains), forklifts and automobiles - Heptagon Capital – Production

Researching the future is never dull. So far this week, two plane journeys to two cities (Munich and Amsterdam) to see two very different businesses and to…

Post #38: Planes, (no trains), forklifts and automobiles

Researching the future is never dull. So far this week, two plane journeys to two  cities (Munich and Amsterdam) to see two very different businesses and to learn about two very different sets of future trends. The former involved a tour around a forklift truck manufacturing facility, while the latter gave us a unique opportunity to learn about the car of the future.

First stop: Munich

Rather than visiting the Oktoberfest (which seemed to be the reason most were travelling out to Germany on the first Monday morning flight), we ventured 50km north of the city to Moosburg. It is here that Jungheinrich has its Degernpoint production facility. Built in 2013 and with a current capacity expansion underway (to be complete in 2020), this is one of the most modern forklift truck production plants in the world. Described by our guide as being where “the Ferrari’s” of the forklift truck world are made, Degernpoint produces up to 4,000 highly specialised vehicles annually. These are being sold to the likes of Amazon (a major customer) and Jungheinrich believes that secular factors such as online retail growth and increased workplace automation will continue to drive demand going forward. 

The two key developments underway at Degernpoint relate first to an increased amount of truck production with lithium-ion batteries (more environmentally friendly) and next, to a growth in automated guided vehicles. Such vehicles, also known as AGVs are the fastest expanding segment within the Jungheinrich portfolio (albeit from a low base) and represent “the future,” per the company.  Not just a truck, but a whole software system, these trucks need no drivers and can operate unmanned, picking and carrying across a pre-designed and installed warehouse ‘grid.’ Payback to customers on their AGV investment is less than two years, according to Jungheinrich. Against this background, inbound enquiries are unsurprisingly rising. 

Second stop: Amsterdam 

Many people still think of TomTom as being a company that sells portable navigation devices and sports watches. However, the business has undergone a major transformation over recent years. Consider now that ~70% of its revenues come from software at present versus less than 10% a decade ago. Given the critical role that TomTom plays in the car of the future (as a provider of maps - best thought of as critical location technology, or the effective ‘brains’ behind the car), its perspectives are always instructive.

In summary, autonomous cars are coming. By 2030, TomTom expects almost all new cars produced to have some form of autonomy, even if very basic, such as simply lane-assist. However, by 2025, the first vehicles with level-4 or ‘hands-off, autonomy should be available. Despite the likely presence of such vehicles in the not too distant future, TomTom was keen to emphasise that most cars would remain ‘multi-modal’ and so not default to autonomy in all situations (driving autonomously on a motorway, for example, makes more sense than in a busy city at rush hour). In all cases though, the importance of data is crucial. Maps that can update in real-time with centimetre-level accuracy - such as those being produced by TomTom - constitute a crucial potential differentiator. TomTom currently generates over 2bn mapping updates every month. Nonetheless, consumers continue to worry about vehicle safety, perhaps with some justification. Computers can still crash, or worse, be hacked. These issues clearly need to be overcome before greater autonomy in vehicles becomes more widespread. 

Next stop, London; by aeroplane rather than self-driving car.

Disclaimers

The document is provided for information purposes only and does not constitute investment advice or any recommendation to buy, or sell or otherwise transact in any investments. The document is not intended to be construed as investment research. The contents of this document are based upon sources of information which Heptagon Capital believes to be reliable. However, except to the extent required by applicable law or regulations, no guarantee, warranty or representation (express or implied) is given as to the accuracy or completeness of this document or its contents and, Heptagon Capital, its affiliate companies and its members, officers, employees, agents and advisors do not accept any liability or responsibility in respect of the information or any views expressed herein. Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation. Where this document provides forward-looking statements which are based on relevant reports, current opinions, expectations and projections, actual results could differ materially from those anticipated in such statements. All opinions and estimates included in the document are subject to change without notice and Heptagon Capital is under no obligation to update or revise information contained in the document. Furthermore, Heptagon Capital disclaims any liability for any loss, damage, costs or expenses (including direct, indirect, special and consequential) howsoever arising which any person may suffer or incur as a result of viewing or utilising any information included in this document. 

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