30 Years of Business
Rewind 30 years to 1989. It was a big year. The dawning of a new era. In November, the Berlin Wall fell, marking the end of the Cold War and signalling the imminent demise of communism in Europe. In January 1990, the first outlet of the West’s foremost fast food chain McDonald’s opened in Moscow. In December 1991, the Soviet Union was no more. Regan was in the White House. Thatcher was in number 10. Global capitalism had triumphed.
The world’s most significant corporations were household names with long histories: auto manufacturers such as North America’s General Motors (GM), Ford and Chrysler (now Fiat Chrysler Automobiles), Japan’s Toyota and Germany’s Volkswagen, and energy giants such as (GM) General Electric, Exxon Mobil and Shell Oil (now Royal Dutch Shell). People, even former communists, ate McDonald’s and slurped Coca-Cola.
Fast forward to 2019, and not one of the class of 1989 makes the grade in terms of market capitalisation (market cap). Why? The arrival of personal computers, the internet, e-commerce, the iPod, the iPhone, the iPad, social networks, apps, streaming – the rise of “big tech”. Thirty years ago, IBM was the eighth most valuable company in the world, with a market cap of US$55 billion – but it was the only technology company on the list. Now, Apple (market cap: US$839 billion), the world’s first trillion dollar company, Microsoft (market cap: US$810 billion), Alphabet (market cap: US$784 billion), Amazon (market cap: US$781 billion), Facebook (market cap: US$479 billion), Alibaba (market cap: US$428 billion) and Tencent (market cap: US$419 billion) rule the world. With IBM lagging behind with a relatively small market cap of US$123 billion.
Elon Musk’s Tesla – a brand that is synonymous with the electric and driverless vehicles that are tipped to be the future of the auto industry – was formed in 2003. Its Tesla Model 3 sedan became the best-selling luxury vehicle in the US in 2018, but just 245,000 Tesla vehicles were sold last year, compared to almost 11 million vehicles produced by Volkswagen and 10.5 million produced by Toyota, and almost nine million vehicles produced by GM. Yet Tesla’s market value is an impressive US$53 billion. It has already outstripped Fiat Chrysler Automobiles, with its market cap of US$22 billion, and Ford, with its market cap of US$33 billion, and is fast catching up with GM, with its market cap of US$54 billion. Volkswagen (market cap: US$81 billion) and Toyota (market cap: US$175) are sure to be next. Tesla is the future.
But will it be long before the old guard reinvent themselves? “General Motors believes in an all-electric future,” declared Mark Reuss, General Motors Executive Vice President of Global Product Development and Global Purchasing and Supply Chain, in 2017, before promising GM would launch 20 electric vehicles by 2023. With Electric vehicle (EV) sales projected to hit 30 million by 2030 and climb to 60 million – 55% of the global light-duty vehicle market – by 2040, GM, Ford, Fiat Chrysler Automobiles, Toyota and Volkswagen, will have to ramp up their EV efforts if they want to make it to 2049.
Energy is also still big business, and General Electric, Exxon Mobil and Royal Dutch Shell are all still among the world’s biggest companies in the sector. In 2015, fossil fuels accounted for 80 per cent of global energy consumption – in 1989 the figure was 78 per cent – but BP, one of the world’s biggest energy companies predicts strong growth in renewable energy over the next 20 years. “By 2040 oil, coal, natural gas and non-fossil fuels will each provide around 25% of the world’s energy,” according to BP’s Group Chief Economist Spencer Dale. “That’s by far and away the most diversified fuel mix the world will have ever seen.”
In this sector too, the class of 1989 are going to have to adapt to survive and are already showing signs of doing so. Earlier this month, Royal Dutch Shell invested an undisclosed sum in Alphabet’s wind power venture Makani Power – traditional “big energy” meets “big tech” and renewable energy. Is this the future?
People still eat McDonald’s and still drink Coca-Cola, but these companies too have faced competition. MacDonald’s, with a market cap of US$134 billion, is still the biggest fast food chain in the world, but it has had to fight off competition from the likes of Subway and adjust its product to cater to more health-conscious diners. Coca-Cola is still one of the world’s biggest soft drink companies, but sales of soda have declined as consumer’s have become more health-conscious, forcing the company to introduce healthier drinks and enter new markets, for example its recent purchase of Costa, Europe’s largest coffee chain, for £3.9 billion.
If the tech titans of 2019 want to remain at the top of the pile, they will also have to learn to adapt to survive the next 30 years.
This article is designed to throw an everyday lens on some of the issues being discussed and debated by investors across the world; it is not research, so please do not interpret it as a recommendation for your personal investments. If something has piqued your interest and you would like to find out more or discuss what investments might be suitable for you, please contact one of our Investment Managers on 020 7337 0777.