Autonomous Vehicles: Coming Faster Than You Think

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Alternative Energy

At the Consumer Electronics Show last week in Vegas, car manufacturers were showing off their latest moves toward autonomous driving.

It was an impressive showing. Automatic cruise control that speeds up and slows down, speed limit detection, parallel parking, lane departure warnings, emergency braking…

And those are only the features available now. Just imagine what the 2018 models will have.

For investors, taking advantage of many of today’s autonomous driving opportunities is like buying Microsoft Corp. (Nasdaq: MSFT) before anyone had personal computers.

Translation: It seems like all you have to do is buy companies involved in autonomous driving and sit on them.

But it’s still early days for autonomous vehicles. The CEO of the Toyota Research Institute, Gill Pratt, said he has no idea when Toyota or any other manufacturer will reach full autonomous driving. He claims, “It will take many more years and miles before we have enough testing required for Level 5 autonomy.”

However, I humbly disagree with Pratt. Fessler’s second law of technology states, “When it comes to technology, changes happen much faster than you expect they will.”

Just look how fast electric vehicle sales are increasing. The number of plug-in EVs sold in the first half of 2016 was 312,000, a year-over-year increase of 49%.

Today, nearly every major car manufacturer has one or more models in showrooms or arriving there shortly. Ford (NYSE: F) will pump $4.5 billion into EV development by 2020.

And Ford isn’t introducing just one EV. It expects to have no fewer than 13 available by 2020.

My wife and I own a Tesla (Nasdaq: TSLA) Model X SUV. On more than one occasion, the car’s “forward collision warning” system has issued audible alerts regarding a vehicle in front that’s rapidly slowing.

Elon Musk claims that Tesla will be testing full autonomous driving by the end of this year. Musk believes having viable autonomous vehicles will help boost the company’s safety rating even further.

This past December, a Tesla Model X operating in Denmark potentially saved the lives of its occupants. Its forward collision warning system audibly warned the driver and braked the car far in advance of the driver’s reaction time, avoiding a potential accident.

You can watch the dash cam video from the Tesla owner here.

It certainly looks like the Tesla could have been involved in the accident were it not for its forward collision warning system.

The point is there are plenty of pieces of autonomous driving available today. Full autonomous driving is at least several years away for most manufacturers.

But for insurance companies, it can’t get here fast enough. When full autonomous driving arrives, they will know exactly who was at fault in an accident.

Most cars will be equipped with a “black box” similar to those in airplanes. Think of it as a driving data recorder.

Your speed, direction, and whether or not you put your foot on the brake or had your turn signal on will all be a matter of record. There will even be a video record of the accident from several different cameras.

You can bet what you were or were not doing at the time of your accident will limit what the insurance company will pay for.

The Best Way to Play the Coming Autonomous Boom

Autonomous vehicles require lots of technology. Radar, sonar, LIDAR (light detection and ranging), video cameras and other sensors allow the car to “see” and react to things happening around it.

Every autonomous vehicle needs some, if not all, of the above-mentioned sensors. But the one thing that makes them all work seamlessly is a powerful graphics processor.

Just a few years ago, you could have counted chip companies focused on autonomous driving processors on one hand. Now you’ll need both hands and at least one foot. Mobileye NV (NYSE: MBLY) and Intel Corp. (Nasdaq: INTC) are two of them.

Mobileye is one of the few pure plays in the autonomous driving space, but it trades at a pricey P/E ratio of 104. Even so, all it needs is one or two of the major carmakers as regular customers and it will do just fine.

Most of the other players are large, diversified chipmakers.

Autonomous vehicles are going to be a big focus of semiconductor chipmakers for the next several years. You definitely should have one or more of them in your technology portfolio.

And as car manufacturers get closer and closer to creating fully autonomous vehicles, the profit potential for this industry will continue to grow.

Good investing,

Dave