Disruption is Afoot in the Auto Space (Short Syncreon)

Rod Lache, Managing Director of Wolfe Research and Institutional Investor’s #1 ranked auto analyst every year since 2012 puts it bluntly: “The automotive landscape will change dramatically over the next five or 10 years.” Recode’s Kara Swisher asks, will owning a car “[b]e as quaint as owning a horse” one day?

We’ve been talking about a coming wave of auto disruption and distress since our inception. Here we discussed the cascading effects of EVs (“Removing the engine and transmission destabilizes the car industry and its suppliers” h/t Benedict Evans); here, using the case of GST AutoLeather Inc., we declared, “Disruption, illustrated”; and here, in October 2017, we asked “Is Another Wave of Auto-Related Bankruptcy Around the Corner?” Ok, fine, “around the corner” is open to interpretation. ……

One company that garnered our attention provides services on both sides of the border: Auburn Hills-based Syncreon Group BV is a specialized contract logistics company focused specifically on tech and auto supply chains with locations scattered throughout the US and Canada, including Detroit and just over the border in Windsor. Major clients include FCAU, Ford Motor Company ($F), General Motors Inc. ($GM), Volkswagen Group ($VWAGY), and many others (e.g., Harley Davidson Inc. ($HOG), Audi AG ($AUDVF), BMW ($BMWYY), etc.). The company is at risk.

Exemplifying this risk are some recent events:

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Why You Should Care About 3D Printing

A few weeks ago we summarized a Andreessen Horowitz presentation about autonomous cars and what the rapid movement in that technology means for various kinds of entities: OEMs, municipalities, etc. If you weren't a subscriber at that point, you can go back and read the summary on our website here. As a footnote to that piece, a Tesla Model S has 150 moving parts. A typical internal combustion engine car has over 10,000. So, you can do the math: as cars shift towards electric and towards autonomy, manufacturing will surely be impacted. 

We like focusing on tech because once you filter through the 98% of startups who claim to be "revolutionary" and "disruptive," you may actually find some that truly are. And that means incumbents are realistically under attack and further that - particularly where there are unsustainable balance sheets - there will be a world of hurt sometime soon for a number of companies. In many cases probably much quicker than many management teams and restructuring professionals currently advising them realize.

Which brings us to 3D printing. Desktop Metal is a two-year old 3D industrial metal printing startup based in Burlington Massachusetts. It recently raised $45mm in new VC (at a $350mm post-money valuation) from an impressive and notable group of strategic investors, including Alphabet, BMW, GE, Saudi Aramco, Stratasys, and Lowes. The use of proceeds is to ramp up mass production of printers. 

That print what, you ask? Good question. Answer: metal components that its new investors would be interested in. BMW could use the printers for car parts, Lowes for in-house product, Saudi Aramco for oil-field services uses, etc. This article notes, specifically, that printed carburetor parts could be immediately deployed on the road. 

There are a number of 3D printing companies. And there has been a lot of hype around them and quite a bit of failure in the space. At some point, however, the technology will become cheaper and more dependable. Will it be Desktop Metal, specifically, that gets it there? Nobody knows. But when companies like BMW, GE and Lowes put their weight behind something, incumbents ought to take notice. If not, certain manufacturers may soon find themselves in distressed/restructuring circles before too long.