• Christopher Hall

Infrastructure Disruption - Are you next to be extinct?


Rapid innovation from smart-phones, electric cars, home solar-battery combinations through to car-sharing is changing the world around us – fortunately we’re all driving that change as consumers. These technological advancements are completely re-shaping infrastructure investments making way for multi-decade profits, just make sure you’re on the right side of the divide when it happens.

We can easily spot the winners of current trends, these are the brands we identify at the forefront of this innovation and change; the brands we know: Apple, Tesla, Google, eBay and Uber just to name a few.

But what about the dinosaurs that are left for dead in the wake of innovation?

How often do you think about buying Kodak film for your next family holiday? Never. The market leader of film died a decade ago and you probably didn’t even notice.

What most investors haven’t yet realised is that there is a much larger shift occurring in our investment world. In comparison to the newest smart-phone released or tech gadget, these shifts feel like tectonic plates moving at the speed of a glacier, or a sleeping sloth. Although, these shifts are as monumental as Columbus’, Magellan’s and Cook’s expeditions – they are changing the way we all live in the world.

The key for infrastructure investing is really understanding what the long-term impacts of Apple, Telsa, Google, eBay and Uber etc. will have on our lives. Look beyond next year, and cast your eye out ten years from now.

Today’s Change Leaders

We all understand the below innovations, and most likely use them on a daily basis in one form or another.

Apple:

- Each new smart phone has more computer-power than the last;

- Even the first iPhone had more storage, speed and functionality than all the computers used to get Neil

Armstrong and Buzz Aldrin to the moon and back.

Telsa:

- A boot full of laptop batteries was more than just freedom from petrol stations, it was the automotive industry joining the battery-storage race;

- Add in the smart-phone’s hunger for more battery capacity and the personal electronics industry jumped on the battery-storage race too;

- With rapid battery storage innovation, the Telsa power-wall now makes solar panels useful at night.

Google:

- They know your every move down to how much the traffic will slow your journey home from the gym;

- This mass-collection of ‘big data’ has unleashed the beast of computers into all the weird correlations you’d ever thought of. My personal favourite is algorithms reading millions of Tweets to assess a country’s overall mood and make reasonably accurate share-market predictions three days later!

eBay:

- Took your mum’s cottage industry global in less than 10 minutes;

- Removed the need to walk into a shopping centre ever again

Uber:

- Monetised car-pooling without needing to make a phone call

What is next-level, Next-decade thinking:

What happens when you combine these technologies? You have mass innovation, rapid changes to our lifestyles, huge investment potential and mass-disruption.

The one investment area that is often missed with all this innovation is the slow to react, costly to update infrastructure (for Australian investors think NBN, US investors think NY sewerage works).

Why Infrastructure:

Infrastructure assets are long-term developments or projects serving communities. These are the assets required for communities and economies to function and prosper.

Common examples are airports, gas, electricity, powerlines, railways, telecommunications, water and roads.

The best infrastructure assets barely even felt a pinch during the GFC, are amongst the most stable investments available and pay steady dividends year after year. That is a winning combination for long-term investing (superannuation/401K etc).

Good infrastructure provides key economic services efficiently. They improve the competitiveness of economies and generate high productivity.

Because of the long-term nature many of these infrastructure assets are government owned or held by large institutions such as your old industry super fund before you started your SMSF/one.K/self directed IRA (another disruption in itself).

When was the last time you thought of a government or large institution as being truly innovative? - That’s part of the investment problem and opportunity.

Here’s the future

Change is afoot and you, personally, are already driving that change with these technologies. Now to see what happens to infrastructure with next-level thinking when putting these technologies together.

Tesla + Uber + Google

a) This change is already underway.

In November 2017 Uber ordered 24,000 Electric Volvos for their driver-less fleet.

When those cars hit the road, your next Uber ride will be without a driver.

You will use Uber to order the Volvo/Tesla to drive you somewhere using Google Maps.

b) The electric Tesla/Volvo is much cheaper to run. The Tesla/Volvo has about 18 moving parts, compared to your Holden/Chevy with 10,000 moving parts. Plus, there is no driver now, so no wages/salaries to pay.

Suddenly your Uber fare is now 80% cheaper.

c) Now you’re thinking do I even need a car?

No, you don’t.

You now sell your car because it’s cheaper to get the Uber-Volvo/Tesla everywhere.

That might sound like the punchline, but here it comes:

You sold your car so:

  • The local car dealership went bankrupt because everyone else sold their car too (US now has a 3% reduction in car re-registration);

  • The petrol station closed because all the cars on the road are now electric (Diesel cars will be illegal in Paris by 2030);

  • The trucking/ fuel-transportation company (old-infrastructure) now has no petrol stations to transport fuel to and has gone bankrupt;

  • Your local mechanic is now out of a job too;

  • Less cars and trucks on the road means less wear and tear on the roads. Now the engineer next door is out of work because she no longer builds highways or repairs the local main-road.

  • The road-construction crews making your old morning-commute a nightmare are also out of jobs.

  • Less cars commuting into the city reduce demand for CBD parking because the same Uber that drove you in at 7am, can drive three more commuters into the CBD who work different hours to you. Suddenly parking stations are a bad investment.

  • On-street parking is reduced or dug-up for more parks etc. – including roads and parking stations, that’s 40% of the land in most major cities.

  • Apartments with parking decrease in value. With nowhere in town to park your car, and no need to drive your car there is no need for a garage. Now there is no need to pay more for apartments close to the city with parking. (US already has investment funds buying up city apartments with no parking)

  • Insurance costs are dramatically changed to penalise those still driving their own car, as human-driven cars are less reliable/safe than driver-less cars (already proven by these early model driverless Volvos etc)

Tesla vs Telcos/Telstra

Elon Musk’s SpaceX is a sister company to Tesla.

SpaceX is working on international wi-fi provided by hundreds of mini, low-orbiting satellites.

Ask yourself, would you pay one small fee to SpaceX for international satellite wi-fi, or stick with Telstra and NBN (domestic telco provider) for their notoriously poor service?

If you thought the long-term prospects for Telstra (Australia’s largest telco TLS.ASX) already looked bleak, just wait until Elon Musk enters the arena.

Pick any other combination and you’ll soon see that where you invest today will be dramatically different, even in three years’ time.

Investing for the future:

Here are some other areas to consider:

Don’t own:

  • Powerlines, because solar on your roof is cheaper when coupled with batteries (read more in Solar - just like the iPhone factory before the first device hit the shelf)

  • Base-load, inefficient power-plants (coal, nuclear etc)

  • Parking stations

  • Most toll roads until you have good justification for driver-less fleets to use them

  • Car manufacturers, especially complimentary/service parts

  • Vehicle insurance

  • Car leasing / fleet service

  • Fossil fuel extraction/mining/engineering/service companies

  • Fossil fuel/energy transportation

The ‘do own’ list is a little more difficult as that is akin to Beta vs VHS (or, depending on when you were born: Nintendo vs Sega vs Sony).

The ‘do-own’ service industries focusing on these new areas would be easier to identify, although they will have less dramatic share-price reward than the innovator of the final winning technology/ies.

From the Infrastructure perspective, until Star Trek’s ‘beam me up Scotty’ is operational, physical goods still need to be moved, so airports, ports and distribution hubs are still integral to economic prosperity and are assets worth holding.

The crux is: when investing in infrastructure assets think beyond the next three years to make sure that you’re not buying a dinosaur.


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