Alcoa’s lightweighting initiatives
During its investor’s day in 2014, Alcoa (AA) chairman Klaus Kleinfeld noted that if he had an elevator speech regarding his plans for the company, he would say, “We’re building these two gigantic engines. And the one engine of Alcoa is the lightweight, multi-material innovation powerhouse. And the other one is, we are creating a globally competitive commodity business.”
As part of improving economic sustainability, lightweighting involves analyzing and changing the types of materials and processes used in manufacturing. The automotive and aerospace industries drive Alcoa’s lightweighting initiatives. Although government emission standards drive vehicle lightweighting, it is more of a business strategy for aerospace companies like Boeing (BA). Boeing is a part of the Fidelity MSCI Industrials ETF (FIDU), which provides investors with exposure to a number of companies rather than single stocks.
The above chart shows the increasing aluminum intensity in vehicles. The share price of Constellium NV (CSTM) recently rallied on news that the company will supply aluminum for Ford’s (F) best-selling F-150 pickup truck.
In Alcoa’s 4Q14 earnings call on January 12, 2015, chairman Klaus Kleinfeld highlighted the importance of Alcoa’s vehicle lightweighting needs: “OEMs need it and the consumers like it.” So, what should we take from this statement?
US government standards mandate that by 2025, automakers must increase the CAFE rating (or corporate average fuel economy) to 54.5 miles per gallon. By increasing the aluminum content of a vehicle, auto manufacturers can reduce a vehicle’s weight by ~30% and increase the vehicle’s fuel economy.
Consumers prefer fuel-efficient vehicles, which cost less to fill up. However, the recent fall in crude oil prices could subdue Alcoa’s lightweighting initiatives, which we’ll explore in the next section.