SAE International

SAE International (formerly the Society of Automotive Engineers) is a global professional association and standards-developing organization for engineering professionals in various industries. While it might sound like a club for car enthusiasts and rocket scientists, for the savvy investor, it's a critical source of intelligence. SAE sets the technical standards for everything from the bolts used in an airplane's wing to the charging plug for an Electric Vehicle (EV). These standards are the unspoken rules that govern how entire industries operate. Understanding the role of SAE is like having a peek at the architectural blueprints for the future of transportation and manufacturing. For a value investor focused on the long term, knowing which companies are shaping these standards—or are best positioned to meet them—can reveal deep competitive advantages and unlock insights into future market leaders long before they make headlines.

At first glance, technical standards seem boring. But in the world of investing, they are anything but. They are the bedrock of product quality, safety, and interoperability, and they have massive economic implications.

Think of SAE standards as the official rulebook for a very complex game. To even play in the big leagues—say, selling parts to Boeing or Ford—you must follow these rules to the letter. This isn't just a suggestion; it's a non-negotiable ticket to entry. For an established company, this creates a formidable Moat. Why?

• High Barriers to Entry: Achieving and maintaining compliance requires deep technical expertise, years of Research and Development (R&D), and significant capital investment. A newcomer can't just set up a factory and start producing critical aerospace components overnight. They have to climb a steep, expensive mountain of standards first.
• Switching Costs and Stickiness: Once a manufacturer like Airbus designs a plane around components that meet specific SAE standards, they are incredibly reluctant to switch suppliers. The cost and risk of re-validating a new part are immense, giving incumbent, high-quality companies a massive head start and durable pricing power.

For a value investor, identifying companies that are masters of these standards is like finding a castle with a very wide moat, protecting their profits from would-be invaders.

SAE is often at the forefront of technological shifts, developing the language and metrics that will define the future. By paying attention to the standards being debated and published, you can spot powerful, long-term trends. For example, the rise of EVs was accompanied by SAE's work on crucial standards like the J1772, which defined the standard connector for AC charging in North America. Companies that were early to design products around this standard gained a significant market advantage. Similarly, as the world moves toward Autonomous Driving, SAE's frameworks are essential reading.

You don't need an engineering degree to benefit from SAE's work. The key is to understand the strategic implications of the standards they set.

Perhaps the most famous example of SAE's influence on investors is the J3016 standard, which defines the “Levels of Driving Automation.” Before this standard, every company used its own marketing terms, creating a confusing mess for consumers and investors alike. SAE brought clarity by defining six distinct levels:

• Level 0: No automation.
• Level 1: Driver Assistance (e.g., adaptive cruise control).
• Level 2: Partial Driving Automation (steering and acceleration support, but the driver must monitor).
• Level 3: Conditional Driving Automation (the car can manage most aspects of driving, but the driver must be ready to intervene).
• Level 4: High Driving Automation (the car can operate without human input in certain defined areas or conditions).
• Level 5: Full Driving Automation (the car can operate on its own under all conditions).

This framework became an indispensable tool for investors. It allowed them to cut through the marketing hype from companies like Tesla, Waymo, and others. Instead of relying on vague promises, an investor could now ask a simple, powerful question: “What SAE level is your technology actually at?” This provided a clear yardstick to measure genuine progress and separate the true innovators from the storytellers. It helps investors assess technological risk and identify companies making tangible, verifiable progress toward a fully autonomous future.