Investing in the part of the car that will never change

Future Needs Fund
Jul 30, 2017 · 4 min read

Morgan Housel’s blog “Betting on Things That Will Never Change” really resonated with me, as my current investment project is trying to figure out Future Needs of humanity — what will, and even more importantly, what won’t change about what individual people and societies consume.

So here’s a riff on that theme looking at the rapidly changing auto industry.

What part(s) of the car won’t change?

To start with, I’m convinced that cars in some form will be broadly popular for most of the next century. See: American love of driving freedom, China’s love of driving freedom, not to mention undersized and poorly maintained public transit the world over.

My goal in this post is to focus on the best component(s) of the auto industry to buy for a long-term buy-and-hold portfolio. Not to keep you in suspense: for me, so far, tires are it.

I’ve been considering the whole smorgasbord:

  • Automakers
  • Cars as a service
  • Related equities like insurers
  • Component manufacturers
  • Commodities

Ultimately, I’ve got a lot of unanswered questions to answer for automakers around the EV transition, international competitive pressures, recalls, Tesla vs. Detroit, etc. I’ll keep studying those areas, but I’m not confident about many things: long-term oil demand levels, car insurance if self-driving takes over, the fate of Detroit, and certainly not the for-realness of Uber & co.

What am I confident about? As the great American rock band Phish sings in the poignant ballad “Contact”:

The tires are the things on your car
That make contact with the road
The car is the thing on the road
That takes you back to your abode

I’m in the ballpark of 99.9% confident that there won’t be hovercars in my lifetime. I’m more confidant about that than any other known unknown the industry faces. EVs will need tires, whether Teslas or Chevys. Same for any other alternative fuel vehicles. Cars will need tires for the foreseeable future if people buy, rent, Lyft, or share them.

What’s a good tire play? Personally I’m looking at equity holdings in industry leaders. From what I know (some research links are at the bottom of this post): it doesn’t seem easy to build manufacturing capacity for tires; they are already being produced in Asia for Asian markets; and it’s not an easy business to jump into given the need to understand a niche commodity market for rubber.

What other soft spots are there to worry about? Tech innovation around tires doesn’t worry me too much. Some technology is involved, but the big players are innovating, like Michelin with its maybe-tire-of-the-future. As for the supply chain/customer relationship, they’re sold through established brick and mortar channels that seem firmly ensconced — I’m not worried that Amazon will start delivering tires to your house and putting them on your car on the spot. Although now that I mention it…I’ll be keeping an eye on AMZN..and, you’re welcome, Jeff Bezos.

So, I’m a believer that tires are here to stay. That’s why I’ve got a chunk of the Goodyear Tire & Rubber Co., #3 tire manufacturer by revenue in 2016, in my Future Needs Fund Motif.

Now here’s that tune I’ve been alluding to. It’s a beautiful ballad by a band that’s often criticized for silly lyrics, noodling jams, and high fans.

It’s also a band that knows the truth about the car industry: the tires are the thing on your car that makes contact with the road. Tires. They’re essential.

Here’s that tune, with a handful of good tire links below:

Yes the cover art is wacky, don’t sweat it. Listen to the track.

Tire and auto industry-related links I’m reading:


The Future Needs Fund

Looking for future essentials for humanity, from a value investing perspective. More detail: www.futureneedsfund.com.
To see the Motif: https://goo.gl/2YXYAa

Disclaimer: First and foremost, nothing on Medium, the main website, or on the Motif page represents the views of my employer. I’m working on this project independently, because it’s an interesting hobby. It’s strictly extra-curricular and in no way relates to my day job.

This site is a research project conducted for self-education purposes, and does not constitute investment advice. Full disclaimer on the site. Please read it.

Future Needs Fund

Written by

Looking for future essentials for humanity, from a value investing perspective. More detail: www.futureneedsfund.com. To see the Motif: https://goo.gl/2YXYAa

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