The tough U.S. fuel economy standards announced by President Barack Obama
on Tuesday represents a bonanza for companies that supply hybrid
technology and other gas-conserving components needed to meet the new
Potential winners range from established suppliers such as
BorgWarner Inc, Honeywell International Inc and Johnson Controls Inc to
battery makers such as start-up A123 Systems, Continental AG and LG
Chem Ltd, analysts say.
To improve fuel efficiency by as much as 40 percent, major
automakers will need to order a lot more turbochargers, more advanced
lithium-ion batteries and more electric motors for cars and trucks
already under development.
There are a lot of suppliers out there with credentials that are
lining up to get into this gold rush, said Larry Rinek, an expert in
fuel efficiency at consulting firm Frost & Sullivan. This is going
to be a drama to watch.
Other analysts expect steel to be swapped for lighter aluminum and
plastics. Copper demand could grow as electric motors are rolled out to
meet the rising production of hybrids.
The hitch: analysts expect American consumers will pay more than projected and face sharply limited choices.
With General Motors Corp and Chrysler LLC operating under government
funding, analysts also expect demands for large new subsidies to
automakers and incentives to get consumers into greener and smaller
S&P equity analyst Efraim Levy said he was keeping his hold
recommendation on shares of Ford Motor Co, the only U.S. automaker to
have steered clear of a bailout.
We do think it will burden an already struggling industry, Levy said in a note for clients.
Barclay's Capital analyst Brian Johnson, meanwhile, said the new
policy reinforced his view that BorgWarner and Johnson Controls could
benefit from increased demand for turbochargers and lithium-ion
BorgWarner and Johnson Controls shares each closed around 3 percent
higher at $29.82 and $19.95, respectively, while Honeywell was up less
than 1 percent at $33.09.
SEND FOR MORE LITHIUM AND ALUMINUM
The bump in demand for those advanced batteries, now widely used to
power everything from cell phones to power tools, reflects the view
that more automakers will be pushed into the market for hybrids now
dominated by Toyota Motor Corp and Honda Motor Co Ltd.
The new regulations will ensure that manufacturers immediately
reconsider conventional hybrids, plug-in hybrids, electrically powered
vehicles and battery electrics to have a variety of them ready for
consumer purchase in the next decade, Kelley Blue Book analyst Jack
Analyst Charles Bradford of Affiliated Research Group expected the
steel content in vehicles to drop, while aluminum and plastic usage
That is bad news for some because the auto industry is the second
biggest user of steel, behind construction. ArcelorMittal SA , United
States Steel Corp and AK Steel Holding Corp are the three steelmakers
with the biggest exposure to the car industry, he said.
Bradford also expected a boom in demand for lithium that has to be
imported from markets such as China, Chile and Bolivia and could be in
Frost & Sullivan's Rinek expects hybrid vehicles to make up 7
percent of U.S. vehicle sales by 2015, up from under 3 percent
currently, but is reviewing that projection.
Now that looks conservative. We would probably nudge that up, he said.
HOW MUCH WILL IT COST?
Sandy Stojkovski, an engineering and fuel economy expert at auto
industry consulting firm Ricardo, estimated it could cost consumers
between $5,000 and $12,000 more per vehicle under the federal fuel
The Obama administration has said the efficiency upgrade could cost
just $1,300 per vehicle and consumers could look to recoup much of that
by spending less on fuel. If that estimate proves low, evidence
suggests American consumers will balk.
A poll conducted for Johnson Controls in March found an overwhelming
88 percent of adults surveyed said the United States should become a
leader in hybrid vehicles. But an almost equal margin -- 80 percent --
said the extra cost of a hybrid would prevent people from buying one.
The technology isn't the hard part here. It's aligning consumer
demand with the technology that is going to be the hard part,
Erich Merkle, an independent auto analyst, said the new standards
threaten to cut into margins on the big trucks where GM, Chrysler and
Ford have dominated in recent years.
Merkle also expected Congress would have to double the amount
budgeted for taxpayer-backed loans to offset the cost of producing a
new generation of greener cars.
We're going to have to start at $50 billion and work from there, he added.