More automakers have recently jumped into the race to perfect driverless cars. Ford will begin testing its prototypes on California roads later this year. Image source: Ford Motor Company
This article was originally published on August 26, 2015. It was updated on January 14, 2016.
Self-driving cars are coming soon, automakers and technology experts say.
But who will benefit?
Nearly everyone agrees that the average commuter will benefit. About 90% of auto accidents are caused by human error, according to a report by management consultants McKinsey & Company. Once most of the cars on the road are being driven by computers -- computers that can talk to one another -- accident (and injury) rates should drop dramatically.
That one fact makes it easy to see some of the types of businesses that won't benefit -- auto-body shops, for example, or makers of radar guns for traffic cops. But what kinds of businesses will benefit? Or put another way, how do we invest in this impending transformation?
Who will profit from self-driving cars?
The technology to allow cars to drive themselves is coming, as is the technology that will enable cars to automatically communicate with each other and with certain points of infrastructure. (Yes, infrastructure. Think of an automated system on the highway that warned your car's electronic brain of a traffic jam ahead, or a traffic light that "saw" a fire truck coming and warned your car that it was about to stop traffic to let it through.)
It'll roll out gradually, following the pattern typical for new technologies in the auto business: It'll show up first in expensive luxury cars, moving to the mainstream as costs drop. It'll also show up in commercial vehicles, probably sooner rather than later: Imagine the potential for automated long-haul tractor-trailers or package-delivery vehicles.
So who profits? For starters ... individuals who don't have to focus on driving during their commutes, companies that can improve their services and lower costs with automated vehicles, and (perhaps) car-sharing services that replace the idea of car ownership (for some people, in some places) with always-available robot taxi rides.
Put another way, Uber might be a great stock to own a decade from now, if and when it ever goes public. But how do we invest in self-driving cars right now?
In the near term, look at companies driving the technology
For starters, we can invest in the companies making the technology possible. The challenge is that most of the key players are big multinational firms with other lines of business: An investment in (for instance) Google isn't going to be especially focused on self-driving cars.
There aren't many "pure plays," companies that will rise or fall on the success (or not) of self-driving cars. The best known is probably Mobileye (NYSE: MBLY), which sells a camera-based system that allows a car to "see" things like obstacles and lane markings. It's already being used by several automakers in "smart" features like lane-departure warning systems and adaptive cruise controls.
Mobileye's stock is expensive, but the company's products will almost certainly be part of the first self-driving systems to come from the major automakers. General Motors and Tesla Motors, among others, are known to be incorporating Mobileye components into their driverless-car systems.
It's also a good bet that giant auto-industry supplier Delphi Automotive (NYSE: DLPH) will be supplying a lot of components and even entire systems. Delphi is emerging as a leader in advanced automotive safety systems (including, by the way, vehicle-to-vehicle communications systems.) Some of Delphi's self-driving offerings, including the system that Audi will be using in its first models with self-driving capabilities, incorporate Mobileye's technology.
Autoliv (NYSE: ALV) is another big auto-industry supplier that's worth a closer look. Autoliv focuses on "safety systems," which include everything from airbags to cutting-edge automotive night-vision systems. It already offers assisted-driving systems like adaptive cruise control, and it's making big investments in related technologies that will be key parts of the first self-driving cars.
The upshot: The future remains murky, but the near-term is becoming clearer
It's hard to see from here exactly how this technology will play out over the next 15 or so years. It's possible that the cars we buy in 2030 won't be all that different from the cars we have now, just "enhanced" with self-driving systems that can be switched on when we need them. It's also possible that the idea of car ownership itself will be starting to fade by then, replaced by subscriptions to automated car-sharing services.
But in the near term, if you want to invest in the cars of the future, take a closer look at the three companies I named. If and when self-driving cars arrive, they're likely to be supplying some of the key pieces.
