Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why the Self-Driving Car Revolution Will Be Slower Than You Think

By Jeremy Bowman - Nov 17, 2016 at 10:56AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

While the autonomous vehicle is fast advancing, there remain several obstacles to this transformation of transportation fully taking shape.

Predictions about the coming self-driving car revolution have been bold and widespread. Lyft co-Founder John Zimmer said car ownership will "all but end" by 2025, insisting Americans will instead hail an autonomous vehicle from an app like Lyft or its rival, Uber

Image source: The Motley Fool. 

Others envision 10 million self-driving cars on the road by 2020. A recent New York Magazine cover story envisions a massive cultural shift -- millions of drivers will lose their jobs, children will become untethered from parents, the car itself will be redesigned so that the front seats face the back ones, parlor-style, and "smart highways" will adjust to traffic patterns rendering today's speed limits unnecessary. The list goes on and on.  

Indeed, the race to develop a self-driving car is well under way. Tesla ( TSLA -6.42% ) already includes autonomous components in its vehicles, and Uber recently launched a pilot program to test a fleet of self-driving vehicles in Pittsburgh. Don't forget Alphabet's ( GOOG -0.87% ) ( GOOGL -0.68% ) cars have already logged millions of miles on the road. 

Several other automakers have promised to unveil a self-driving vehicle in the near future. Ford ( F -3.67% ) has said it will be mass-producing self-driving cars by 2021, and the company recently said it was doubling its Silicon Valley team and campus to work on the new technology. The fully autonomous vehicles will not have steering wheels, brake pedals, or gas pedals. General Motors ( GM -2.15% ), which has invested in Lyft, has said its autonomous vehicle technology should be ready in 2020. Other major carmakers have announced timetables of five years or less until they're producing self-driving vehicles.

While the excitement over self-driving cars is clearly palpable, there are a number of reasons the autonomous vehicle revolution may not happen as soon as some think.

253 million reasons

There are 253 million cars on American roads today, nearly one for every person in this country. The average age of those vehicles is 11.4 years. While it's easy enough to envision an urban millennial foregoing car ownership and depending on apps like Uber and Lyft, as many already do, making that system work for the majority of Americans will be much more difficult and slower to take hold.

The average value of a used car is now close to $20,000. Though the average age of a used car sold is just around five years, it helps show the value of the cars on the road today. Even if we assume the average value of a used car is $10,000, that would put the value of all of the cars in the U.S. today at $25.3 billion. After real estate, there is no personal property Americans have more money tied up in than cars, and they aren't about to abandon that kind of money to take advantage of self-driving vehicles. The added cost of self-driving functionality may also dissuade potential buyers. The need to turn over all of that inventory means that once autonomous vehicles become widely available, it will still take about an additional 15 years for the fleet of cars on the road to turn over. So, even if self-driving cars are in mass production by 2020, the complete shift wouldn't take place until 2035.

Regulatory and safety concerns

The high-profile fatal accident this summer involving a self-driving Tesla underscored a problem with the transition to autonomous vehicles. Since most auto accidents are caused by human error, autonomous vehicles have the potential to make driving much safer than it it is today, but the technology just isn't there yet. Deploying it is likely to reveal similar faults to the one that caused that accident this summer, making the transition a tricky one for regulators and insurers.

The Obama administration endorsed autonomous vehicles and issued a set of guidelines surrounding the burgeoning industry, but toeing the line between ensuring public safety and allowing innovation may not be so easy. Though autonomous driving technology is expected to lower insurance rates, the question of who is at fault in an accident in such a vehicle remains an open one. Some have posited that automakers will offer their own insurance to cover the vehicle.

Plenty of questions still need to be answered in the regulatory environment, but an entrenched car culture and the bureaucracy surrounding the auto industry won't be undone overnight. In the self-driving revolution, the technology may only be the first step since consumer acceptance and inventory replacement will take several years to overcome before autonomous vehicles become mainstream.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$2,840.03 (-0.68%) $-19.29
Ford Motor Company Stock Quote
Ford Motor Company
F
$19.14 (-3.67%) $0.73
Toyota Motor Corporation Stock Quote
Toyota Motor Corporation
TM
$182.46 (-0.38%) $0.70
General Motors Company Stock Quote
General Motors Company
GM
$59.71 (-2.15%) $-1.31
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$1,014.97 (-6.42%) $-69.63
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$2,850.41 (-0.87%) $-25.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/05/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.