In any race, there are winners and losers. But when it comes to emerging industries like driverless cars, there can sometimes be so many opportunities that every participant walks away with a win. Here are three reasons all autonomous vehicle stocks might soar.
1. Self-driving cars are competitive products
Income statement analyses, annual reports, and other documentation are essential to forming a grounded investment thesis. But a critical question every investor should ask before putting his money into an business is: "Does this company make a competitive product that is better than the status quo?" If the answer is "yes," then there's a good chance that customers and markets will reward that company (and your stock investment).
There is strong evidence to suggest that self-driving cars will be better products than anything currently on the market. There are a variety of economic, environmental, and social angles from which to make this assertion, but let's focus on arguably the most important one: safety. When Tesla Motors (TSLA 8.22%) tragically became the first company to have a self-driving car involved in a fatal collision, its stock dropped 4% as shock waves worked their way through short-term investors. But by the end of the day, Tesla Motors stock bounced back to close up 2% as objective analysis and long-term thinking returned.
Source: Tesla Motors
In the U.S. alone, around 32,000 people are killed every year in crashes, 90% of which are caused by human error. In a McKinsey analysis of what self-driving cars could do for road safety, researchers estimated that, by mid-century, driverless car technology could cause car crashes to drop from second place to tenth place among accident types. Self-driving cars will never be 100% safe, but it is increasingly clear that autonomous driving technology will help automakers make vehicles that are substantially less likely to be involved in fatal accidents than those being driven by error-prone human drivers.
2. Self-driving cars expand the customer base
The automotive world has, in many ways, always been a zero-sum investment game. Its customers are people who have licenses and, if anything, new sharing-economy entrants like Uber are threatening to shrink even that dwindling pool. (Young adults are now 11% less likely to get a license than in 1983.) But self-driving cars by their nature expand the market beyond those with driver's licenses. Alphabet's (GOOGL 1.25%) (GOOG 1.31%) self-driving subsidiary Waymo made this astonishingly clear when, last December, it let an unaccompanied non-Google employee take one of their vehicles for a spin -- a "driver" who was legally blind (see video below):
Source: Alphabet
Alphabet and Waymo want to expand the automotive market to anyone who can afford to buy a self-driving car, including those who cannot or should not (think stubborn grandparents) drive. Instead of competing just for a share of licensed drivers, Alphabet and others are interested in meeting the transportation needs of a large new set of potential customers. When customer bases expand, that means more demand. In this case, every self-driving car company from Alphabet to Tesla Motors can enjoy a slice of a growing profit pie -- and that's a good thing for their investors.
3. The regulatory drift is on self-driving cars' side
New inventions or innovations are often hampered by regulatory barriers. When Tesla Motors first ramped up its national offerings, it faced an uphill battle to even secure the right to sell its cars directly to consumers, rather than through independent car dealerships.
But so far, at least, policymakers are paving the way for self-driving cars. While some companies like General Motors (GM 0.78%) have attempted to promote policies that would favor traditional automakers over others, the proactive advocacy work of lobbying group Self-Driving Coalition for Safer Streets and its members (which include Alphabet) has pushed policymakers to embrace the overall autonomous vehicle movement. The coalition wants to ensure an open, fair, and safe environment in which innovative companies can make self-driving cars a reality, and it seems that it's working. From San Francisco to Pittsburgh, autonomous test vehicles from all types of companies are logging more miles on the road toward bringing the technology mainstream.
Where should you park your money?
If all self-driving stocks are headed for success, which investment is best? There is no perfect answer. The technology is rapidly improving; every investment opportunity in the space also has business arms that have nothing to do with driverless cars; and the overall landscape is shifting by the month. But in this area, you do not have to find losers to know who the winners are. Instead, invest in what you believe will be the best self-driving stocks, monitor the ever-evolving field, and look forward to a race full of winners.
