What Are the Less Obvious Ways to Invest in the Self-Driving Cars Trend?

Listener Bryant is looking for alternatives to buying the biggest names in the space.

Motley Fool Staff
Motley Fool Staff
Aug 7, 2018 at 8:49AM
Energy, Materials, and Utilities

In this segment of the Motley Fool Money podcast, host Chris Hill and Fool senior analysts Matt Argersinger, David Kretzmann, and Aaron Bush take a listener question on the subject of the autonomous vehicle industry and consider where the best investor options are.

While Alphabet's Waymo is a clear leader, shares in that company are anything but a pure play. Uber and Lyft have big plans, but they aren't even public yet. So what's an investor to do? The Fools have some suggestions.

A full transcript follows the video.

This video was recorded on July 27, 2018.

Chris Hill: We got a question from Bryant Conger, who writes, "When it comes to self-driving cars, who are the market leaders, and are there alternative ways to play this industry? You guys rock." Thank you, Bryant! You rock for listening.

Self-driving cars, where are we now? I'm the old man at the table, and I just look at self-driving cars and I think, "Nah, probably not for me in my lifetime."

Matt Argersinger: Oh, I think certainly in your lifetime. We mentioned Alphabet and Waymo. Uber is doing a lot. For self-driving years, at least in the next five to ten years, I think you have to look outside the U.S. I'd say you particularly want to look at China. You want to look at things that Baidu is doing, or a company called BYD, which is a big electric car manufacturer in China. I say that only because China is going to be a lot more open to experimenting, testing, and ultimately rolling out autonomous vehicles, much faster than we're going to be able to do that here in the U.S.

Aaron Bush: I think it's going to take a long time for this to fully catch hold. But, I do think that there's an in-between zone. It's not like this is a light switch, where you suddenly turn it on and all the cars start driving themselves. I think there will be a ramp-up period, or maybe, in certain areas you can have self-driving cars can do certain things. And that slowly starts to build.

Waymo has a good start right now, and they'll probably do a good job partnering with a lot of others. Tesla's working on it. GM acquired Cruise and is working on it. Ford recently consolidated some efforts there, too. Everyone is thinking about it.

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David Kretzmann: I'd say Waymo, at this point, in the U.S., has the biggest head start. It just came out recently that their Waymo self-driving cars have now logged 8 million miles on public roads. By far, that's most of any company out there. Tesla is also supposedly dabbling a little bit with autopilot or autodrive, whatever they call it.

Nvidia is also one of those suppliers with their general processing units -- essentially, the back-end chips or technology that can be used to power these self-driving vehicles. Still a small part of their overall business, but it is continuing to grow.

But, I agree, I think this will be further out than a lot of people expect. If you go back a year or two ago, there was so much hype and excitement about self-driving cars. I think we're still looking at at least a decade before it's common to step into a self-driving car.

Hill: I'm glad you mentioned Nvidia. That was one of my thoughts -- maybe, for investors, the better way to invest into this trend is not with the manufacturers themselves, but more with the suppliers. There's going to have to be so much testing, and the companies that are producing these vehicles are going to continue to buy these parts and technology long before they're actually selling stuff on the road, right?

Kretzmann: Yeah. I think it's also important to remember that, at this point, you're not going to have any small, pure-play companies only focused on self-driving cars that are publicly traded. You might have some private companies dabbling in it. Uber has been doing a lot with self-driving cars. They're allegedly going public at some point at the end of 2019. That'll be something to keep an eye on. At this point, I'd say, focus on Alphabet, Nvidia, some of those companies that already have a dominant core business and just happen to have some promising technology or starts.

Hill: In the case of Alphabet, they also have $100 billion on the side.

Kretzmann: Can't hurt.

Bush: Yeah, it definitely doesn't hurt. I wanted to underline the Uber part, also Lyft, too. Both of those companies will probably go public in the next couple of years or so.

I do think, probably, at the end of the day, 20 years from now or whenever this happens, the two big winners will be those who own the technology that makes it possible and those who own the networks of fleets. All of the pieces of the value chain are worth thinking about here. This market is probably going to be worth a trillion dollars at some point, [laughs] so it's not too soon to start thinking about it.