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Auto companies scrambling to catch up with Tesla and tech firms, Morgan Stanley analyst says

Key Points
  • Traditional automakers are rushing toward "Auto 2.0."
  • The longer-term picture for carmakers looks challenging, says one analyst.
A magical time for autos: Morgan Stanley's Adam Jonas

It is a "magical time" for autos, but maybe not so much for traditional automakers, says one analyst.

Traditional automakers such as Ford and General Motors are rushing to bolster investments in technologies such as autonomy and electric powertrains to fend off a growing threat that seems to be coming from all sides, said Morgan Stanley analyst Adam Jonas.

"I would describe the current environment for autos as a magical, magical time," Jonas said on CNBC's Power Lunch on Wednesday. He added that traditional carmakers are recasting their business models as tech-heavy firms focusing on areas such as artificial intelligence and supercomputing.

In particular car companies are creating new standalone entities to focus on what Jonas and some other analysts call "Auto 2.0" — the term that generally describes the cluster of new transportation trends such as autonomous driving technology, electric powertrains and ride-sharing.

They are doing all this largely in response to efforts by Silicon Valley firms that have gone from looking like moonshots to actual products and services that could completely change transportation.

"We don't think it is a coincidence that all the car companies are, let's say, not discouraging the market view [that] everyone is going to carve out and become a tech firm at a time when Elon Musk has launched the Model 3, but it hasn't yet ramped up. What if that market demand radically exceeds supply for that model?"

Tesla is not the only one disrupting the market. Companies as different as Google and Dyson, which is mostly known for vacuum cleaners and hair dryers, are working on electric and autonomous driving technology.

This could prove a challenge too great for incumbents, despite their efforts, Jonas said. "But they see the competition coming from all sides, and I think this window's open for them to do something now, and it's got the market a bit excited."

Both Ford and GM shares were up slightly on Wednesday. GM shares were up less than 1 percent, trading at about $43, and Ford shares were up a half a percent, trading at $12.

"I think longer term they are in a very difficult place, frankly," he said. "Don't count them out, but very difficult."