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Daily Intelligence Briefing

Thursday, May 6, 2021

Identifying Change-Driven Investment Themes – Five sections, explained here.

The Daily Intelligence Briefing is published by McAlinden Research Partners. The report is provided to Hedge Connection blog readers once per week for free. Below is just one of the five sections that delivers Change-Driven Investment Themes everyday.

I. Today’s Thematic Investment Idea

A deep dive into a market driver with alpha generating potential.

Rubber, Semiconductor Shortages Add to Automakers’ Increasing Headwinds

Summary: After a rollercoaster 2020 for automakers, 2021 is creating some headaches for the industry. Currently hindered by the global chip shortage, automakers’ woes are piling up amid a growing rubber shortage that is running up the price of the material and depleting buffer levels of inventory across the sector.

On top of that, the overwhelming transition towards electric vehicles is proving to be a make or break shift for automakers as they struggle to balance future gas engine vehicle output and the level of production necessary to meet the rising EV demand.

Related ETF & Stocks: First Trust NASDAQ Global Auto Index Fund (CARZ), General Motors Company (GM), Forward Industries, Inc. (FORD), The Goodyear Tire & Rubber Company (GT), Bridgestone Corporation (BRDCY)

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The Chip Shortage Has Yet to Subside

The global semiconductor shortage has continued to hinder the performance of major automakers worldwide. Big players such as Ford and General Motors have had to institute temporary factory shutdowns within the last month. Some analysts project the shutdowns will cost the global automotive industry $60.6 billion in revenue this year.

As MRP has noted, the shortage could result in 1.3 million less vehicles manufactured this year. Global consulting firm AlixPartners holds a more bearish sentiment, forecasting a production drop of 2.5 million vehicles.

As it becomes more and more apparent there is no quick fix for the chip crisis, major chip manufacturers are striving to prioritize the automotive industry. MRP previously mentioned that Intel CEO Pat Gelsinger is planning to ramp up production to bring more chips to automakers within six to nine months.

Now, the US Commerce Department has called upon Taiwan Semiconductor Manufacturing Co. (TSMC) to prioritize US automakers to ease their chip shortages. The Commerce Department is holding a ‘high level’ meeting with US automakers next week to address these concerns, which will hopefully find some solutions to alleviate the industry’s worries.

MRP recently re-affirmed our LONG Semiconductor theme.

A Rubber Shortage Poses a Threat in the Near Future

As if the automotive industry needed anything else on its plate, a natural rubber shortage poses an additional threat to the production of tires.

Natural rubber is harvested off of trees, so the material is greatly affected by weather related changes. In 2019, a leaf disease began to ravage major rubber producing countries like Thailand and Indonesia, depleting their levels of supply. In addition, lost automotive production resulting from the COVID-19 pandemic gave farmers little incentive to plant trees. It takes six to seven years for natural rubber trees to mature, so now that demand has come surging back, a rubber deficit is on the horizon.

Due to this, industry watchers are expecting this year to be the beginning of a cyclical, multi-year rally for the price of rubber. Through the first three months of 2021, the price of natural rubber rose 58%. Natural rubber reached a four-year high of $2/kg at the end of February, and some industry executives expect that number to jump to $5/kg in the next five years.

Bloomberg recently reported that excessive stockpiling in China has only added to the scarcity. China sourced over 5 million tons of the material in 2020, compared to the US at 0.85 million tons, a worrying sign for domestic automakers.

Recent interviews with executives from Goodyear and Bridgestone suggest that domestic tire manufacturing is running as scheduled with a rubber supply that remains solid, for now. However, supply is very likely to tighten further into the year and should be monitored closely by investors.

Transitioning to EVs is More Complex Than Expected

To muddy the waters even further, the overwhelming transition toward a clean energy future has forced the automotive industry to ramp up the production and development of electric vehicles (EVs). The EV market is projected to reach $1.9 trillion by 2028, and every major automaker is trying to grab a share. The sudden shift leaves automakers scrambling to project how many new EVs they should manufacture, and how relevant gas-powered vehicles will remain in the future.

Big players have made some recent announcements to promote a cleaner transportation. General Motors has planned to phase out all of their gas-powered vehicles by 2035. Ford and BMW have positioned themselves to benefit from the transition by investing $130 million into a battery power startup, solidifying themselves in the EV market.

This projection could ultimately make or break some automotive companies. Bloomberg has said if the EV market climbs to 30% by 2030, it would leave 40 million excess vehicles for gas-powered cars, or roughly 200 unneeded factories. The transition toward EVs won’t go up in a straight line either, as Business Insider recently reported 20% of EV owners in California have switched back to gas-powered cars, mostly due to inadequate charging infrastructure.

In short, if companies bet too big on EVs they will be left with excess inventory and a loss in revenue. If companies fail to invest enough, they will miss out on the huge profits of a massive shift in the industry.


The semiconductor shortage has no end in sight, and natural rubber’s increasing scarcity is expected to hinder the industry even more. Trying to time the adoption of EVs to maximize profits proves to be an impossible task and only adds to the headwinds. The auto industry got through a tumultuous 2020 looking forward to 2021, but it appears this year will cause just as many headaches for automakers across the globe.

Investors can gain exposure to the automotive industry via First Trust NASDAQ Global Auto Index Fund (CARZ).


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