Season 3, Post 4: The autonomous car is still just around the corner
Many seem to think that 2021 will be the year of the autonomous vehicle. Capital is certainly flowing into the sector: Cruise is now apparently worth $30bn, following a $2bn capital raise by the subsidiary of General Motors (GM) last week. Meanwhile Rivian (a private player within the field) garnered even more, raising $2.65bn of new capital. Elsewhere, investors have pushed up DRIV, an ETF that invests in global autonomous and electric vehicles, by ~16% year-to-date.
We don’t disagree with the impassioned observation of Mary Barra, GM’s Chief Executive, that auto’s future can be about “zero emissions, zero congestion and zero crashes” in a world where the electric and autonomous vehicle is pervasive. However, it’s important to remember that this is not a new world view. Such a future remains – tantalisingly – still just around the corner.
Electrification will likely come ahead of autonomy in our view. Sure, many self-driving trials are underway such as those of Waymo in Phoenix, Cruise in San Francisco and Motional (a joint venture between Hyundai and Aptiv) in Las Vegas, but they remain just that. Ask these companies, however, when commercialisation (itself a hazy term) might start and answers range from 2022 in a best case scenario to as far out as 2025. However, like the traffic that all drivers hate, congestion is building within the autonomous space. Businesses as diverse as Mobileye (now owned by Intel), NVIDIA, Baidu and even Apple want a slice of the pie. In the latter’s case, this is hardly a surprise given that the value of the addressable market for intelligent auto hardware/software can be substantially bigger than that of the smartphone.
What conclusions might readers want to draw from the above? First, be patient and next consider where value might truly accrue. As we have noted both elsewhere and with some regularity, not only are hype and reality are two very different things, but also, crucially, that software will likely continue to eat the world. Even today, a typical vehicle will contain at least 200m lines of code (per Aptiv, an auto systems integrator). Expect this to grow. Given that 1.35m deaths annually are as a result of road traffic accidents, and some 95% of these are the result of human error (per the World Health Organisation and the US National Highway Traffic Safety Administration respectively), we may want to rely on some technologies and underlying code just a little bit more.
27 January 2021
The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.
Alex Gunz, Fund Manager
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