Self-driving cars are shaping up to be the next big technological revolution. Companies from Alphabet (NASDAQ:GOOG) to Uber to Tesla Motors(NASDAQ:TSLA), as well as traditional automakers, are racing to bring autonomous vehicles to the masses.
Some experts believe there will be 10 million cars with at least some autonomous technology on the road by 2020, and most carmakers expect to have autonomous technology ready by then. There may be plenty of hurdles to overcome in the meantime before we're all being transported without actually driving -- from regulatory issues to consumer acceptance and safety standards -- but the business and societal case for such technology is strong.
Over 1 million people die each year in traffic accidents around the world, and there are more than 30,000 fatalities in the U.S. This alone is a strong reason to go driverless. Autonomous vehicles would also be a tremendous cost saver in many industries by eliminating the need for a driver, and It would change the nature of commuting, potentially taking cars off the road and greatly reducing traffic, allowing Americans to live even further from their workplaces. It's easy to see why a company like Uber is so intent on harnessing such technology. Currently, 80% of its revenue goes to paying its drivers.
For investors, the autonomous vehicle phenomenon presents a different kind of puzzle. Clearly, there's money to be made from this emerging technology, but what's the best way to do it?
Betting on new technology may not be as easy as it seems. In 1999, Warren Buffett explained why he was sitting out the internet boom, noting that past breakthrough technologies had led to only a handful of winners. Buffett noted that the number of automakers in the country had winnowed from 2,000 in its early days to just three, while in the first half of the 20th century, there were hundreds of airplane manufacturers but only a few left today. Similar patterns unfolded with radio and TV as the nature of new industries is to attract competition, but, like evolution, as the new technology matures, only the strongest companies survive. Buffett was vindicated a couple years later when the tech bubble went bust and the Nasdaq lost more than 75% of its value. A host of companies like Pets.com and Webvan famously imploded.
Back to the future
The nascent driverless car industry carries similar hallmarks to past emerging technologies. There will be winners and losers, but the latter will likely outnumber the former. It's too early to say what will happen, but if the history of emerging industries offers any lessons, it seems to be that betting on smart leadership may be the best way to profit.
Apple's (NASDAQ:AAPL) biggest asset at the time of the iPhone launch may have been Steve Jobs. The visionary leader knew how to create products that people didn't know they wanted, and his knack for design has been a staple of Apple brands throughout its history, separating it from the competition. The iPhone crushed rivals like Blackberry and Nokia, and today Apple takes home the majority of profits in the industry.
Similarly, Amazon.com (NASDAQ:AMZN) has prevailed as the e-commerce champion largely due to the principles Founder and CEO Jeff Bezos instilled in it: focusing on the customer instead of competition, inventing, and building for the long term.
Going all the way back to the first automobiles, perhaps it's no surprise that Henry Ford's company is still thriving today. One of the most highly regarded entrepreneurs of his time, Ford invented the assembly line, and paid a high wage to ensure productivity and help create a market for his cars.
In today's automotive world, no entrepreneur has been more revolutionary than Tesla's Elon Musk. Tesla has bucked long odds to become the first new American automaker in generations, and Musk's other big ideas like the Hyperloop, SolarCity, and SpaceX show his ability to think big.
But Tesla's more than just talk. Rave reviews for its vehicles have led to skyrocketing demand. Cast in point: nearly 400,000 orders have already been submitted for its new Model 3, which won't even be delivered until late next year. It takes a special kind of brand power to have customers lining up like that. In fact, it's similar to the release of early editions of the iPhone.
Tesla has already introduced autonomous functionality to its Model S, and though the recent fatality may be a setback, the company seems like a favorite in the emerging industry and is clearly the leader in customer enthusiasm, an important differentiator. Last year, Musk said he wanted Tesla to be the leader in autonomous vehicles, though he acknowledged challenges from both regulators and hackers.
Musk has pushed the envelope before by making the first high-performance electric vehicle, and has set lofty production goals for his company, promising to produce 500,000 vehicles in 2018 and 1 million in 2020. If he can make that happen and demand for Tesla cars continues to be off the charts, then bringing autonomous vehicles to the masses shouldn't be out of reach.
Like Bezos, Jobs, and Ford before him, Musk is a visionary, and Tesla's track record is a testament to its capability as a disruptor.