Q: How have key disruptions in 2024, like AI, pharma, and the auto industry, evolved, and what do they mean for non-US investors moving into 2025?
Krishna Mohanraj, CFA
The technology disruption we talked about maybe five or six months ago, industry by industry, I'd say it's only gotten more intense. Now, I'm not even going to talk about AI, let's keep that aside because I think that probably requires its own dedicated session. Let's stick with one of those examples.
Autos for international investors, the auto industry is important. Huge amounts of disruption happening there, and for many of the markets we invest in, whether it's Europe, Japan, or South Korea, it's been a very important market for jobs, for GDP manufacturing in general, and politically as well. So, it's a market we want to really think about, and with the shift to EVs and the massive capacity bill that you're seeing in China, it's become a really brutal environment.
In fact, maybe about six months ago, I think I might have mentioned it in the same forum the last time we were here, Carlos Tavares, the CEO of Stellantis, it is the fourth largest car maker in the world. Brands we all know: Jeep, Ram, Cadillac. Six months ago, he made the statement that the auto industry competition is turning Darwinian. That's the term he used. Now he's one of the most respected leaders in the space, and if you fast forward just a few months from then, two weeks ago, we heard that he stepped down from his job. Now, we are invested in Stellantis indirectly through another investment. So, we've followed the business, we've followed CEO Taveras for a long time. So, is this resignation a surprise? Yes, but if you think about this, it shouldn't be in an industry with already huge capital demands, super tight margins, big technology shift. The last straw really is this capacity addition, huge uneconomic capacity addition from the Chinese players just creates a pressure cooker-type situation for leadership, and it's not getting easier.
As a team, we were just looking at videos of the BYD plans. BYD is a Chinese car company. They're building, they're extending their factories in Zu, they're also building a new one in Hungary going directly after the European market. The size of these plans is something else. So, you're seeing huge capacity additions in an industry that already has too much capacity. It's a story that's played out over and over again before it doesn't end well.
So, we asked the next question, okay, there is tech disruption. China's doing its part to make it even harder. What is going to be the response politically? And it seems to me if you look at the election results country by country, we are collectively asking questions about the future of globalization. It's whether you talk about every election result, headline statement or tweet from any global who's who. It all kind of goes down to what does it mean to be a global citizen when it comes to trade, immigration, climate, any kind of regulation all seem to be influenced by that.
One big question. So, looking ahead in 2025, that's going to play out and it's going to cost more uncertainty, and we don't make macro predictions, but to me, this doesn't feel like a prediction, right? It's kind of easy to see that Europe is struggling. Germany, we follow a lot of industrial businesses in Germany. Germany, in particular, is going through to struggle, right? It's not rocket science. Germany makes cars. Chinese EVs are better than German ones that have the price and getting cheaper. That's going to be a really hard time to be a German car maker and it's hard to see how Germany replaces that vast ecosystem.
So put all this together, you've got tech disruption, you've got the geopolitical reaction to it. It's not an easy time to run global businesses, but I don't want to leave you with the idea that it's all doom and gloom and international markets. In fact, that's not the message at all. There are many interesting, wonderful businesses. The key is you want to be selective in what you invest, and if you invest in some of these companies, like I mentioned, we are invested in Stellantis. It has to be at the right price, and I think all put together it's a great time to be an active investor, especially in international markets.