Driverless cars are often considered a niche technology that looks good on Silicon Valley paper but might fail to win over mainstream consumers. However, a national survey by the Pew Research Center found last year that 48% of Americans would ride in driverless cars. The report also found that over half of urban and suburban residents were interested in driverless tech, and 59% of U.S. college graduates would give it a try. Combine this consumer interest with the speed of technological innovation, and perhaps everyday driverless cars will be more mainstream faster than you think.

Many major companies have claimed driverless vehicles could hit the roads within the next few years. Google (NASDAQ:GOOG) (NASDAQ:GOOGL), which launched a prototype driverless car last year, expects such vehicles to be used in public within two to three years. Mobileye (NYSE:MBLY), which makes crash avoidance systems that react to obstacles on the road, expects to launch an autonomous system by 2018. Daimler's (OTC:DDAI.F) Mercedes-Benz, which showcased a self-driving semitruck last year, has promised to deliver an autonomous car by 2020.

Mercedes-Benz's Future Truck 2020. Source: Daimler.

If those promises are to be believed, using the steering wheel could become a foreign concept within just a few decades. With that in mind, let's look at the advantages of driverless cars, the challenges they face, and opportunities interested investors should consider.

Advantages and challenges
First and foremost, driverless cars could greatly reduce the number of auto accidents, which claimed nearly 33,000 lives in the United States in 2013. The three leading causes of vehicle accidents in the country, according to the Centers for Disease Control and Prevention, are distracted driving, speeding, and drunk driving, in that order. Fully autonomous vehicles might eliminate all three.

However, driverless cars are today only legal in five states: California, Nevada, Iowa, Florida, and Michigan. If other states don't get on the same page, autonomous semitrucks can't make cross-country deliveries, and driverless vehicles couldn't be used for long road trips. Legislation could also be slowed by special interest groups and drivers' unions.

Another problem is hackability. As autonomous vehicles connect to the Internet of Things, they become more vulnerable to hackers. A recent Senate report revealed that up to 100% of new vehicles were vulnerable to hacks and data breaches as automakers collect data regarding our driving habits. Therefore, driverless vehicles could be remotely hijacked in the future. Those new dangers also open a can of worms regarding liability, which will force insurers to rewrite their plans.

Meet Google and Mobileye
The challenges above aren't stopping business from innovating, though. And interested investors should know that the two sides of the driverless revolution are clearly defined by Google and Mobileye's businesses in uniquely different ways.

Google's driverless car. Source: Google.

Google's driverless cars can't simply drive down any road on Google Maps. Instead, the roads have to be scanned again for driverless vehicles to account for road signs, obstacles, and curb heights. Google must scan roads this way, because the rotating laser on top of the car, which "reads" its surroundings in 3D, can't process all of that information in real time.

Google's process is painfully slow -- as of last year, the company had rescanned roughly 2,000 miles of roads, compared to 170,000 miles of public roads in California alone. Meanwhile, the early prototypes have a top speed of 25 mph and are outfitted with up to $250,000 in equipment. Speeds will eventually increase and costs will decline as the technology improves, but Google's autonomous car will likely remain a pricey ride.

Meanwhile, 90% of leading automakers have signed deals with Mobileye to install its "semi autonomous" crash avoidance systems in new vehicles. Unlike Google's strategy, Mobileye doesn't require roads to be scanned; it calibrates a mix of cameras and radars -- which spot pedestrians, traffic lights, and signs -- to the vehicle's braking system. Mobileye's system only costs about $1,000 to install, which makes it a more practical stepping stone toward driverless vehicles than Google's ambitious efforts. Mobileye is also developing a semi-autonomous system that can cruise in a single lane at freeway speeds, but requires the driver to manually change lanes.

Looking ahead
True, there are certain obstacles yet to clear, but companies are vying for a competitive advantage in driverless tech today. On one hand, Google is ambitiously trying to build a "smart grid" based on its technology for vehicles to travel across, which could allow it to mine data regarding users' traveling habits. On the other hand, Mobileye is providing automakers with cheaper and more practical solutions that don't corral drivers within digital borders.

It's unclear which approach will win the long game, but both companies must deal with tough questions about legality, security, and liability if driverless cars hit public roads within the next five years. And when that happens, you can expect plenty of interested people signing up for a ride.


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.