Thinking about an Autonomous Future
Autonomous vehicles and the evolution of Transport as a Service (TaaS) are topics that we have spent a significant amount of time thinking (and writing) about in the past year or so. We see these developments as having a profound impact in many industries and have begun to remove from our portfolios businesses that we see as being on the wrong side of them.
To quickly recap, we think that the arrival of cost effective electric vehicles (EVs) and autonomous vehicle (AV) technology will drive a shift away from private vehicle ownership and towards fleets of autonomous EVs. We think that the low cost per kilometre of EVs and the much greater vehicle utilisation possible through shared AVs gives rise to a TaaS model that provides dramatically lower cost to consumers, significantly increased safety, and elimination of the time and effort required of a driver.
These changes may take some time to play out, but the fact that Alphabet’s Waymo has announced plans to launch the world’s first autonomous car service in Arizona later this year tells you it may be closer than many people think.
This presents investors with a fascinating set of challenges in thinking through the possible implications and the potential winners and losers. The list of possible impacts is long, and the second and third order effects in particular are difficult to foresee, but some of the possibilities that come to mind include:
- Improved safety and fewer accidents will reduce the need for car insurance, accident repair, parts suppliers and even medical trauma care;
- Fossil fuels and their suppliers will lose some of their relevance;
- Shopping will change. Lower delivery costs will reduce the need for people to travel to shopping centres, but may increase travel for services like restaurants and holiday destinations;
- Property markets may change, as long commutes become cheaper and the commuter’s time is freed up to do things other than drive;
- Road use patterns will change. The need for carparks will almost certainly decline substantially, but roads may well become more congested as lower travel costs drives increasing demand;
- Many existing jobs will decline (taxi/bus/truck drivers, mechanics, traffic police, driving instructors, RTA clerks, etc.), with difficult-to-foresee flow on effects to other parts of the economy; and
- The owners of the networks, technology, software and data needed to run vehicle fleets efficiently will likely gain in importance and value.
Being able to properly understand the potential changes ahead of others will no doubt provide some astute investors and entrepreneurs with extraordinary opportunities, so it makes sense for investors to focus some time and effort on this.
We’d love to hear your thoughts in the comments section on how you see these developments unfolding.
The arrival of autonomous vehicles and the evolution of Transport as a Service will have profound impacts on many industries and therefore present investors with a fascinating set of challenges. Share on X
Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.
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Robert Stevenson
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Interesting piece Tim. I also came across Tony Seba’s Clean Disruption Keynote presentation at the Swedbank Nordic Energy Summit in Oslo which highlights the rapid pace of advancement.
Ricky
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There is a common perception that self driving cars will solve traffic jams in busy cities. Self driving cars can travel closer together, predict when traffic lights will change and won’t need to circle the block in search of parking.
But the challenge is that each lane of asphalt can only carry around 2300 cars per hour. And when you’re stuck in traffic, it really doesn’t matter whether or not a human or computer is driving. Self driving cars will also increase the number of cars on the road – rather than standing on a crowded train some commuters sleep in their cars. Rather than live close to home people will live further away where land is cheaper. And the number of deliveries will increase exponentially.
From an investment perspective, what will change? Firstly, I expect car ownership will shift from an owner model to a Uber on-demand model. Vehicle manufacturers will face low margins as fleet sales expand. Similarly, fuel retailers (CTX, VVR) will also experience lower margins as self-driving cars will automatically shop around and won’t buy in-store snacks.
People will rent rather than buy cars, which will impact both car dealerships and secondary sales (CAR, AHG). Aftermarket accessories will also be in less demand (ARB, BAP).
Self driving cars will increase delivery speed while massively reducing the cost. The traditional distribution model (i.e manufacturer-warehouse-store-consumer) may be increasingly replaced with an Amazon-style direct-to-consumer model.
There will also be massive unemployment as human drivers are replaced by machines. Just last week, Brazilian truck drivers organised a strike via WhatsApp with massive economic fallout.
Who will win? Transurban will profit from increasing urban congestion. Self driving cars send massive amounts of data which may benefit telcos. However, I expect many of the main beneficiaries don’t exist yet.
Dilan Waduge
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I think people make an assumption that we have fully AVs available today. I dont think its in near future that we will be able to see AVs on the road. In my opinion they have a long way to go. We will need lot of changes to transport and road systems after we have develop a proper AV. Regarding EVs, they have been around for a long time but still we dont have a reliable EV with a good milage. So comparing that with AVs, as long as technology go I think we gonna have to wait for a long time before we can see them in the road. Thanks.
James Chappell
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Autonomous cars as described are a pipe dream – there are so many issues with the technology there isn’t even an ideal place to start describing how far away they are if they ever happen at all.
Don’t bank on an autonomous future as described.
Greg Scott
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Hi Tim
As you say, the autonomous vehicle revolution may take a while to materialise. The humans that I know (baby boomers) are mostly very reluctant to either give up driving or to cede control to a “computer”.
Could it be that, in the interim period, dedicated traffic lanes will be required to separate the autonomous vehicles from the existing fleet of human drivers? Maybe this could play into the hands of road infrastructure companies (e.g. transurban), while also reducing the possible congestion you have discussed.
David
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Congestion will reduce. With autonomous vehicles moving in platoons the distance between cars will reduce and the lag between starting and stopping eliminated.
Also intersections where all the vehicles are autonomous will not need traffic lights. See this article…
https://www.digitaltrends.com/cars/self-driving-car-traffic-light/
Even if all cars only have one passenger they will act more like carriages on a train. It is a mistake to think of autonomous vehicles as zero cost chauffeurs – they are a whole different mode of transport.
Tim Kelley
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I don’t disagree, but I do think some of these benefits may take a while to materialise. Eliminating traffic lights, for example, might not be an option while there are still some human drivers on the road. Induced demand, on the other hand, could increase congestion from day 1.
John
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Good work Tim
Couple of points…
Congestion will most likely decrease not increase – Tony Seba – (look him up on youtube) discusses this. In fact it is totally possible that vehicles will be able to be run at very high speeds and even in what where previously congested locations. Imagine a city with no parked cars and no cars needlessly circling for a place to park – that will free up huge amounts of space.
Also – your comment ‘Property markets may change, as long commutes become cheaper and the commuter’s time is freed up to do things other than drive’
For me this is the game changer – if you can like is a nice say seaside location and commute to a central location – a city – faster and in a more relaxed way the need to live in urban locations ceases. In fact you may well be able to sleep on the journey in – in a bed in the vehicle.
Tim Kelley
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Thanks, John. I for one look forward to catching some extra z’s en route!
Jason Squire
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Under this scenario demand for Electricity will surely rise. This will impact power utilities and put extra pressure on our aging generation network in Australia.
One would also imagine that more economical forms of power generation (eg. renewables, solar and wind) would be in higher demand.
brian lovelock
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Great article Tim. Only thing I would disagree with is that I think autonomous cars have the potential to greatly reduce congestion on the roads. I believe it is accepted that cars with only 1 person ie the driver travelling into the city is one of the main reasons for peak hour congestion. If a software system could be developed to pick up 2 or more passengers from the same area this would greatly reduce congestion ,and the cost. You could book a car ,an SMS sent back with a code to enter the car. If you were late or didn’t turn up an accounting fee would be charged.
Tim Kelley
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This is an interesting one, Brian. I suspect that dramatically lower cost per km may reduce the incentive to ride share, and would also stimulate additional car trips, including a shift from public transport and a lot more courier/delivery type trips. A congestion charge may be the way this gets solved.