Investing in Driverless Vehicle Technology: Part 1 General Introduction
Many of our clients have been asking what is the best investment vehicle (pun intended) to profit from this revolutionary societal change. And, make no mistake, it will be a major change in the way we live our lives. We believe that when the technology is viable in operational and economic terms the change will happen very quickly. Commercial vehicles (taxis, delivery services, trucks and buses) will lead the way but the real push will come from the Insurance Industry. Once it becomes indisputable (and it will) that it is a safer way to move goods and people around, the cost reductions for Insurance will be the major force. Government regulations will evolve rapidly.
As with all things related to investing: timing is everything. What time frames are we looking at here? What makes this issue so compelling is that the key technology already exists. We are not dependent on some probable scientific breakthrough. LIDAR is short for Light Detection and Ranging. These sensors use near infrared light to determine the shape and distances of all objects around them. It is the same technology used in the aviation industry for mapping and police forces for speed detection. Tens of $ Billions are being spent to get these sensors smaller and into a solid state for mass production. Once the cost gets down to less than $ 500 per sensor (with the assumption that a vehicle will use 4 to 6 of this type of sensor) then mass production and implementation will proceed. We believe it is only 5 years away.
This list of companies involved in this race is extensive. Think about all auto producers, all major auto parts producers not to mention the likes of Alphabet(Google), Uber,Amazon, Apple and a wide range other large industrial and technology companies. Patent disputes, claims of industrial espionage and all sorts of indecipherable technology news await us. In fact it has already started with a major case between Google and Uber underway. All of this begs the question for investors "Is there a pure play?" In other words is there a company where the revenue generated will be a significant enough portion of overall sales to make it a true investment in this sector. The quick answer is yes and no. Obviously for companies like Ford and Amazon there will be potential bottom line improvements but not on a percentage scale we are looking for.
There are start ups of varying credibility and there will be takeovers like the recent Intel/Mobileye takeover but to prospective investors there are two ways to participate.
1. Identify established companies where the revenue in this sector alone will be large enough to move the stock price significantly enough over the longer term.
2. Identify the credible start ups or early stage companies that will win the battle or at least be taken over.
In part two of this report we will try and identify some of these companies.
Devon Winters, Director of Technology Research, International Trading