Will the First Self-Driving Car Be a Truck?
Paul is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Google (NASDAQ:GOOG) has made headlines as it acheives greater and greater successes with its self-driving cars. However, one of the cars' main problems is that they currently cost more than a Ferrari. Google can easily afford that, but the general public cannot. As time goes forward, the costs should come down through economies of scale, but a self-driving car will at least be highly expensive in the short run. However, there is an industry that could very easily recoup that cost: trucking.
Self-driving trucks: the future of the industry?
Equipping a car with self-driving technology currently costs more than $100,000. However, doing so would eliminate the need for a sleeper cab in long-haul trucks, which itself can cost $50,000. A typical truck driver makes $53,000, so even on trucks that require only one driver and no sleeper cab, self-driving technology would have a payoff period of less than two years. In addition, as costs continue to fall, it's entirely possible we'll be looking at payoff periods of months in the near future.
According to Autoline Transport, the trucking industry is facing three main problems:
- A driver shortage.
- Implementation of increased restrictions on driving hours.
- Increased fuel costs.
Self-driving trucks helps solve all three of these problems. They very easily solve the first two, and, according to the BBC, they allow for convoys of trucks that let the following trucks benefit from the reduction in air resistance and get fuel savings of about 15%. In other words, once the technological and legal considerations of self-driving vehicles are solved, we will likely see rapid adoption throughout the trucking industry.
Should you invest in a software company?
So how do we invest in this coming change? Investing in a company such as Google gives you some exposure on the software side. But it might not be very profitable exposure if Google gives the software away, as it has in the past. Furthermore, this innovation won't directly drive consumers to use the internet more, so Google and its ad network won't get any direct benefit there. There might be indirect benefits, such as increased internet usage during a commute, but they shouldn't move Google's bottom line significantly.
You could also decide to invest in a company such as Toyota (NYSE: TM) or General Motors (NYSE: GM). Both of these companies are working on self-driving technology as well. Now, they don't produce tractor-trailers, but there is no reason why they couldn't licence the technology to companies that do.They would have to adjust somewhat as the business model isn't one that they are used to. However, companies such as IBM have managed to successfully transition from big manufacturing to services in the past. and they do already have experience in their services sector with their capital divisions. The nice thing about such a move is that licencing established technology tend to have very high margins. Now, they would have to continue to invest in continued improvement in the technology, and exactly how this would affect their bottom line is hard to predict at this time.
They also could enter the market of producing trucks, either through acquisition or by launching a new line. Exactly what they would decide to do would depend on the particulars of the case, and it's too far out to make a good prediction, but either way, their profits would increase, assuming they manage to successfully take advantage of their initial success.
Also, trucking is not confined to tractor trailers, but also applies to smaller trucks such as those used by UPS (NYSE: UPS). Competing in that sector would be even easier. Either way, a first-mover advantage in self-driving trucks might just allow General Motors and Toyota to essentially take this space entirely for themselves and reap the resulting profits.
What about a trucking company proper?
UPS and FedEx (NYSE: FDX) both have very large trucking businesses, and as the cost of their inputs goes down, they should become more profitable per shipment. Furthermore, this decrease in costs along with competition should drive a decrease in cost to the consumer, but that will result in more shipments. In other words, both their volume and margin should increase.
Also, these companies often have stringent deliver-by dates, so they often have to ship products by air. But self-driving trucks can remain on the road longer, because they wouldn't be subject to regulations regarding how long someone can remain at the wheel. Thus, these carriers wouldn't have to ship products by air, at high cost, nearly as often, again driving higher profits.
Wrapping things up
In conclusion, it's just a matter of time until self-driving trucks become a reality -- and create a massive investment opportunity. You can invest purely on the software side with Google, or you make a play that will lead to either pure software or production with Toyota and General Motors, or you can invest in a trucking company such as UPS or FedEx.
UPS and FedEx are the companies most certain to benefit from this change, because it affects essentially their entire business. Google, Toyota, and General Motors are complex companies with substantial other parts to their investment stories, but their exposure to self-driving is certainly worth taking into account.
Paul Sangrey has no position in any stocks mentioned. The Motley Fool recommends FedEx, General Motors, Google, and United Parcel Service. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!