Back in December 2017, I made a list of predictions for 2018. I didn't do it again for December 2918 because I learned my lesson (I like all bipeds don't like to make a habit out of looking like the fool). The advent of flying cars was one of them. I was thinking that enough announcements in 2018 would tip off the investing public to a huge disruptive trend and it was not going to be driverless cars. I am not a believer in driverless cars, not because it's an impossibility, but that the economic value will be constrained by the current infrastructure, bureaucracy, and even folkways of first-world human beings. I have news for Ford (F), General Motors (GM), all the Euro car companies and everyone. The billions being spent on automated driving will not give much of a return for cars. Why? Because no one is going to buy a BMW because their autopilot is conceivably better than Cadillac's supercruise. To add insult to injury, because of the network effect, the crappiest autopilot will be as good as the best one. Why? Because like the "herd effect" of vaccinations we are hearing about, once you have a significant amount of good autopilots out there and they are all going to be connected by 5G (but even if they aren't), all those cars will be looking out for each other. The only thing you need to worry about is the pedestrian and the deer in the headlights which no one really cares about anyway (kidding). A pedestrian jumping out in between two cars is likely to get hit whether there is a driver paying attention or the robot. Eventually, automated driving will be like Anti-Lock-Breaks. Everyone has them and no one makes a buying decision based on one ABS over another. The only winner in my mind is a Waymo where the physical conveyance is more bus-like. This is another discussion for another day.
All is not lost, because the real beneficiary is the "flying car," the eVTOL. Notice I am not saying the driverless flying car. Also, notice that I am not saying helicopter or airplane, I am saying flying car. I am bringing this up today because of an interesting article in Aviation Week announcing a new prototype that is going to use Hydrogen Fuel cells instead of batteries. Most efforts on eVTOL are being developed with lithium batteries, which just don't have the energy density to really work. The lack of noise of ICE engines (unreliability, heat, cost of jet-turbine) does make sense but this Skai vehicle is the real deal. Why? Because Hydrogen Fuel cells have plenty of energy density and they are much more light-weight than batteries. The reason why all the software and compute power being developed for autopilot cars will not be wasted is because of flying cars. Here's why; right now piloting an aircraft requires highly skilled, highly trained professionals, they need to understand flying dynamics and constantly need to train and develop their skills. It's VERY expensive to train pilots, and the relatively low number of pilots is a constraint on flying. But a flying car with all that compute power and also the whole new satellite network of Iridium (IRDM) and ORBCOMM (ORBC), will automate almost all that skill requirement away. Making someone with the skill level of a truck driver (not an actual truck driver), meaning 7 weeks maybe less to be a flying car driver. With a fuel-cell and electric motor the downtime cost is minimal. Electric motors just don't break down. The prototype is called the Skai, but there is plenty of eVTOL development out there. So what is the economics and what is the big deal, so first there will be plenty of people able to drive these things, they will be easy to maintain, and the cost to operate at 1/8 the cost of a helicopter. So with a flight time per the article of 4 hours and a good helicopter speed above 200kts, we are talking about a commute time of less than an hour between DC and NYC. No traffic jams because you have the whole sky, no accidents for the same reason, no deer in the headlights or humans. How about living in the Hamptons and commuting to Wall Street in less than 40 minutes? The flight will cost will be minimal split among 4 passengers. No noise, no superheated exhaust to fry life and limb. The cost should be in the low 6 figures, Honda already has a Hydrogen-Fuel cell car, the problem is, there are no gas stations and there never will be gas stations for Hydrogen, but you can have flying car landing areas to fill up on Hydrogen. This will not remain a curiosity, and I think it will open up a whole new economic sector built around the flying cars in ways I can't completely imagine. Just like the car as the cost came down, created demand for the superhighway system and motels a huge change in the way we live our lives is about to happen. So who are the winners? I don't think it will be the Boeings of the world but it could be the GMs, Toyotas, BMWs of the world, maybe Paccar too. Why? Because Boeing (BA) manufacturing as good as it is, is about turning our 70-100 planes a month. The demand for this vehicle will be in the tens of thousands, maybe in the 100s of thousands. You need a mass manufacturer. So what companies can benefit? Well, Garmin (GRMN) makes a low-cost flight control system, Iridium, ORBCOMM, Nvidia (NVDA) for the compute power, likely all the RF and 5G Modem chips so Qualcomm (QCOM), Skyworks (SWKS), Qorvo (QRVO), Hexcel (HXL) for carbon fiber structures, and Maybe GM, or Ford get into this. Certainly, it's early enough that a new player makes a splash here. Uber is doing work in this area. My point is, this is going to be real and maybe the first 5G application that will justify that whole investment (another concept I am skeptical of). Also, Iridium can have a huge part, they are already tracking jetliners across the ocean and one of my predictions is that IRDM automates the entire air traffic control sector. So flying cars could be the way that happens. I am not writing about this so that you go out and invest in these companies. What I want you, my dear readers, to do is to train your mind to work scenarios of emerging narratives. This is one of the most important ideas about investing. The market operates on narratives, good outcomes, and bad outcomes. If you can surf a narrative that takes hold early on, that is a great way to build wealth. Right now this notion sounds completely laughable. IT IS NOT. It might not happen tomorrow, but the talk can very well start tomorrow and that is what I want you to be on the lookout for. It might be the trillion dollar narrative that no one is talking about.
The nascent bounce that would have continued from this past Thursday was snuffed out by the unexpected threat of tariff. It would make a lot of sense, barring any further headline risk to happen in earnest this week. The S&P rested just above the 2,750 level, which should surprise no one. Whether it's the tail wagging the dog or there is something to the voodoo known as charting, everyone knows that 2,750 is a major support level. It would, therefore, make a lot of sense for a bounce to form at the beginning of the week. I still feel we are vulnerable to testing a lower support level soon, but if you put on a trade on Thursday only to be sideswiped on Friday, Monday and Tuesday should offer relief. Also for the fast money traders out there, you may want to try and scalp some points. I would look at Okta (OKTA), Splunk (SPLK), Soliton (SOLY), ServiceNow (NOW), Intuitive Surgical (ISRG), The Trade Desk (TTD), and Domo (DOMO). The point is there are a bunch of high-beta names that if you got stuck in, you could wait out this #$%&-storm in and it won't be the worst place. So get ready to take advantage of that bounce Monday morning. Then again, the FCC has announced that it's going after Alphabet (GOOGL) (GOOG) and that should rock that name at least at the beginning of the week. I am calling BS on this move. It's politically motivated. That said, if GOOGL drops to 3 digits, I would buy it, even you long-term investors out there should buy a little. You can justify it by thinking that eventually, they will have to give a dividend.
I think the Trump admin starts to walk back some of the belligerence toward China this week, working up to the late June meeting. Again, that bodes well for a bounce this week. I think the June 28 meeting does not go well and we have the final whoosh down for the summer. Trump needs to play nice at least until the meeting.
Let's see how Monday shapes up, but I am a bit more positive going in.
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