There's lots of buzz around driverless cars right now, and plenty of technology companies and automakers are positioning themselves to benefit. That's because in the coming years, the autonomous vehicle market will transform the transportation industry and create new revenue streams for many companies.
But before it does that, it's going to take some time for this market to fully materialize. To help investors better understand the autonomous vehicle market, let's take a quick look at its potential, what a few key players are doing, and why investors will need to be patient with this burgeoning market.
Understand how big this opportunity will be
Let's start with the potential upside for investors. The driverless car market is expected to be worth $77 billion by 2035, according to data from Boston Consulting Group. That's a decent-sized market but it doesn't encompass all of the possibilities for driverless car tech.
For example, chipmaker NVIDIA Corporation (NASDAQ:NVDA) believes that its total addressable market in artificial intelligence computing for driverless cars will be worth $4 billion alone, by 2025. That's not even sales of cars or services, but just the tech that runs the vehicles.
If that weren't enough, Intel (NASDAQ:INTC) released a joint report with Canalys in 2017 that showed that driverless cars will eventually create a $7 trillion "passenger economy." Nearly half of that amount will come from business-to-business services and the rest from new consumer services.
Know some of the key players
I already mentioned NVIDIA and Intel, so let's talk about both of them for just a moment. NVIDIA makes most of its money from selling graphics processing units (GPUs) for the gaming market, but over the past few years the company has expanded into driverless cars with its Drive PX supercomputer.
Drive PX is now on its third version, called Pegasus, and NVIDIA said just a few months ago that its hardware and software will be able to bring Level 5 autonomy (no need for any human driving) by 2021. NVIDIA's GPUs are a powerful part of the success of driverless cars because they can process vast amounts of visual data quickly and help give vehicles a sense of what they're looking at.
Intel, for its part, purchased a company called Mobileye in 2016 and that's given the chipmaker a headstart in the Advanced Driver Assistance Systems (ADAS) space. ADAS -- which includes things like automatic braking and lane departure systems -- is the backbone of semi-autonomous vehicles tech and Mobileye held 60% of the ADAS market in 2017. The Mobileye purchase should help Intel eventually sell driverless car technology to automakers, but Intel is also looking to autonomous vehicles to boost chip sales as well.
Alphabet announced in late 2017 that its self-driving car company, Waymo, was using Intel's processors to power its vehicles. If Intel can continue building out its driverless car vehicle chip customers then the company could replace falling chip sales in the PC market with growing potential in the driverless car market.
There are plenty of other companies making big moves in driverless cars, of course, and not all of them are tech companies. Ford (NYSE:F) already has a fleet of about 90 driverless cars right now and the company said recently that it will have vehicles capable of Level 4 automation (driving a pre-set, mapped route on some highways) by 2021. The company says it initially plans to use the vehicles for ride-hailing services, as opposed to selling them directly to customers.
Ford is in the midst of spending $1 billion on autonomous driving technologies over the next five years through its Argo AI driverless car company and says that it will bring autonomous vehicles to a test market sometime in 2018.
Play the long game
It's easy to get excited about the advancements of driverless car technology, but investors should temper some of their enthusiasm with the understanding that many of these companies don't earn much from driverless cars at this time. For example, NVIDIA earns just 5% of its top line from its autonomous vehicle technology right now.
In mid-2017, the CEO of the Alliance of Automobile Manufacturers (which represents General Motors, Toyota, Volkswagen, BMW, Ford, Fiat Chrysler, and other automakers) spoke to a Senate committee and said:
Level 4 geo-fenced self-driving vehicles that can only be operated by an Automated Driving System will probably begin around 2021. But, retail sales to consumers of so-called Level 5 vehicles that can operate anywhere a person can drive a conventional vehicle today is unlikely to happen until around 2025 or after. ... Ubiquity is not projected to occur for at least four decades largely due to the fact that over 260 million light duty vehicles are registered in the U.S.
All of this means that while investors should take advantage of investing in companies that are betting on driverless cars, they should also remember that it's going to take years before this market comes into its own. That's not a warning to stay away from these companies, but rather a reminder to be patient.