Self-driving cars have enormous ramifications for all investors

JACK HOUGH
May 30, 2017
The Australian

Self-driving vehicles could hit showrooms within five years — and begin to dominate the roads in as few as 15. They will bring more networking, electrification and ride-hailing, along with some predictable long-term changes.

Among these are a plunge in accidents, emissions and private car ownership, and a freeing up of commuter time. There are many follow-on effects to consider, too. Among them:

• Entire professions could become obsolete. Beyond professional drivers for cars, trucks and buses, there are salespeople, insurance workers, fuel-station owners, parking attendants, car-wash workers and more.
• Power distribution could change. A sharp increase in electric-car usage could make decentralised power generation more cost-­effective, and all of those plugged-in batteries could be used to feed electricity on to the grid in the event of a shortage.
• Reduced need for parking spaces will free up large amounts of prime city space for development. Real estate investors who have bet on steady long-term cash flows from parking facilities could one day face waning demand.
• No more speeding or parking tickets, and no more meter fees. Cities will have to make up the revenue, perhaps by taxing ­mobility services.
• Programmers will be forced to make life-and-death decisions in advance, until regulators create guidelines. For example, if a pedestrian darts out in front of a passenger-carrying robo-car, should the computer prioritise the life of the passenger or the pedestrian? Does it matter if there are two pedestrians and one passenger? Will consumers embrace self-driving cars that don’t give their lives, and their lives of their families, top ­priority in all cases?
• Waiting lists for organ donations will grow longer, as car accidents, especially fatal ones, become rarer.
• Rental car companies, already struggling with competition from Uber and a slide in used-car prices, will have to adjust their business models or perish.
• Electric vehicles could set off a long-term decline in oil demand, beginning in 2030.
• Dense cities will see the fastest rise of autonomous ride-hailing and its various benefits. That could widen the already gaping wealth divide between cities and rural areas. Yet as commutes grow more pleasant, and congestion eases, workers could stretch their view of which suburbs are close enough to the city for comfort.
• Homes get a boost in living space, as all those two-car garages are freed up for renovation.
• Robo-taxis can take on side jobs, like delivering food and packages.
• Some things that won’t be mourned: road rage, haggling over used cars, running out of petrol.

Ford chief fast-tracked

Investors seem divided on whether Jim Hackett’s appointment as chief executive of Ford Motor last week was an act of panic or window dressing. Hackett, a former furniture executive, spent the past year running Ford Smart ­Mobility, a new venture designed to prepare for a future of empty driveways and bustling, pay-as-you-go robo-cars.

Does his sudden promotion mean the machines are taking over faster than expected, and that Ford must change direction in a hurry, or is the carmaker just playing for some Silicon Valley buzz, now that it has been passed in market value by profitless Tesla?

Consider a third possibility: that Ford has run the numbers on the future of mobility-as-a-­service, and likes what it sees.

A recent analysis by Goldman Sachs finds that even as ride-hailing expands, private car ownership is likely to continue growing, albeit slowly, through to 2030; that the Ubers of tomorrow are likely to turn to today’s veteran carmakers to produce and manage vast fleets of self-driving vehicles; and that the fleet-management business could be more profitable for companies like Ford than carmaking is today.

As Hackett lays out his case to Wall Street in the months ahead, look for Ford stock to recover from a recent slide. Shareholders could make 30 per cent in a year, including dividends. Over the next five years, Ford stock has an excellent chance of outperforming Tesla.

It’s too late for scepticism on robo-cars. Alphabet’s Waymo division has already logged three million autonomous miles. Eight companies have plans to bring fully self-driving cars to market within the next five years.

IHS Markit, a research group, predicts 32 per cent market penetration of highly autonomous cars by 2035.

Ride-hailing services are already testing driverless taxis, including Uber and Lyft in the US and GrabTaxi in Singapore.

In coming years, they could roll out services costing $US1 a mile, which compares favourably with the cost of car ownership. As the technology ­matures, costs could be pushed lower.

Meanwhile, ride-hailing services are gaining traction without the help of robots.

The transition is unlikely to be seamless. Self-driving cars will disrupt a $US7 trillion market in vehicle sales, supplies and services, render some professions obsolete, and have knock-on effects for oil, real estate, ethics and more.

There will be accidents, including deadly ones, with no drunk or reckless drivers to blame, just programming bugs, and an already robo-phobic public will recoil from the coverage on cable news.

Yet the cold calculus of those deaths is perhaps the main ­reason that self-driving cars are inevitable.

Barron’s