How will driverless vehicles shape our future?
If you live in London, you may well have seen Waymo’s driverless taxis manoeuvring their way through the traffic. At the time of writing, these test vehicles are an odd sight as they have drivers straining at the steering wheel to avoid delivery vans and rental bikes. The presence of ‘autonomous vehicle specialists’ behind the wheel will soon be a thing of the past, as testing is completed, and driverless taxis will become commonplace wherever we live. They already operate commercially in San Francisco, Los Angeles, Beijing, Shenzhen and a few other places. The economics of driverless vehicles are compelling, and in time this could lead to a radical change in how we think about mass transport, and the opportunities in our investment portfolios to boot.
The first thing to note is that there will be teething issues, and we should expect plenty of headlines whenever one is involved in a crash. The press love to dwell on the accidents that driverless or ‘robotaxis’ suffer (the recent prang in LA being a good example), but the truth of it is that driverless taxis do not get tired, drunk, or suffer from overdoses of testosterone. Consequently, data from the US and China suggests that driverless cars are far safer than human drivers as the following chart shows.
According to Forbes, Waymo has driven over 100 million fully autonomous miles and Tesla has accumulated 7 billion miles, albeit with a human supervisor. Given that AI improves when it is given more training data, then it is logical to assume that the crash data could marginally improve, although it will probably never reach zero, so long as some humans remain on the road performing handbrake turns and donuts in their old-world Ferraris.
After safety, the next issue is economics. What will a ride in a robotaxi cost? At the outset, while robotaxis are rare on the road, the cost will be relatively high, but over time costs will quickly fall as economies of scale and competition kick in. We think that Uber taxis are cheap, but robotaxis could be much cheaper. There will intuitively be lower labour costs, but other costs like insurance should be a good deal cheaper (fewer accidents), alongside more efficient use of fuel, tyres, and the maintenance of electric powertrains (no oil changes). An estimate of the cost per mile is shown below.
The cost of travel per mile for a robotaxi shown above is 16 cents per passenger mile. This excludes the cost of maintaining the road and charging infrastructure, but it compares very favourably with the British railway network, which has an operating cost per passenger mile of about 40 cents, or, including the cost of maintaining the track, signalling, stations and other infrastructure, about 85 cents per passenger mile.
With such compelling numbers, it is quite easy to see how we could all adopt driverless vehicles, but unfortunately there is not enough room on the roads for us all to give up the existing public transport network if we all commute at the same time. The cost differential however could pressure government to bite the political bullet and confront the powerful transport unions. If we can have robotaxis, why do we need overpaid train drivers? If AI can successfully navigate the traffic of our most congested roads then driverless trains should be simple to implement.
The economics of robotaxis also brings into further doubt large-scale, politically motivated infrastructure projects, such as the 10-mile, £2.5bn Leeds-to-Bradford tramline, or the 500-mile California High-Speed Rail (CAHSR) project connecting San Francisco and Los Angeles, whose original cost was forecast to be $33bn, but where estimates have now climbed to around $140bn. The CAHSR was scheduled to be completed by the mid-2020s but is now optimistically expected to be completed by 2038.
Driverless taxis, cars, lorries and trains are coming, there is little doubt about that, but how might this impact investment portfolios? The potential for growth is already present in some of the US tech companies, although we do not know whether their share prices have correctly anticipated this future growth or not. We said competition and scale will bring down costs, and the productivity benefits may be enormous, but it could also undermine profitability.
ARGA, who produced the charts above, believe the lower cost of driverless will encourage us to travel many more miles in much the same way as budget airlines significantly boosted air travel. It may also be that driverless transport will lead to the emergence of entirely new business segments, in much the same way as the original railways led to the rise of mass tourism and the rise of companies like Thomas Cook.
Thomas Cook was listed on the London Stock Exchange and had its day in the sun, but it did not adapt to the digital world and went bust in 2019, illustrating the “creative destruction” present in equity markets. Despite the very real risks posed by driverless transport and AI more generally to many companies, and perhaps entire sectors of the stock market, equities remain the best place for long-term capital. Human creativity manifests itself in the stock market, making it dynamic and constantly evolving. Indeed, it would hardly be surprising if Waymo were not among the leading names in autonomous vehicles in 20 years’ time. The future is unknowable, but this technology is likely to make a very real impact — staying invested can help you capture the creativity of the future.
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