An Update On The Autonomous Vehicle Sector And On My AV Stock Picks

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Includes: AAPL, AMZN, APTV, AUDVF, AXP, BABA, BIDU, BMWYY, BSWQY, BYDDF, BYDDY, F, FB, GM, GOOG, GOOGL, HACK, INTC, MA, MU, NFLX, NSANY, NVDA, NXPI, PCRFY, QCOM, RNSDF, S, SFTBF, SFTBY, SNE, SSNLF, STM, T, TCEHY, TSLA, V, VLEEY, VOLVY, VZ
by: Matt Bohlsen
Summary

The global autonomous vehicles market is forecast to grow at a CAGR of 41.61% from 2018-2022.

Autonomous vehicles already operating publicly and coming soon. Autonomous vehicle stocks to play the AV boom.

Recent developments in the autonomous vehicle sector.

This article first appeared on Trend Investing on May 2, 2019; therefore, all data is as of that date.

Autonomous Drive - Just press this button to begin

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For a background on my Autonomous Vehicle [AV] articles you can read:

In the last article listed above I had Alphabet/Google (GOOG) (GOOGL) as my number one autonomous vehicle stock when it was at USD 1,051 (on a 2020 PE of 19.1), and I still view it as my top AV stock today even it is a bit more expensive at USD 1,188 (now on a 2020 PE of 22.3). Current analyst's consensus price target is USD 1,346, representing 13% upside.

Note: Autonomous vehicles are only a very small side bet for Alphabet as most earnings come from online earnings from their search engine Google. The stock fell 7.7% recently after earnings due to a slight slowing of revenue growth (revenue missed estimates) despite record profits. EPS forecasts for Q2 were trimmed so this also contributed. You can view the Q1 earnings call transcript here.

The future of travel - Autonomous vehicles of all types

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The Autonomous Vehicle sector forecast growth

  • ResearchAndMarkets.com - From 2018-2022 the global autonomous vehicles market to grow at a CAGR of 41.61%.
  • The global autonomous vehicle market is forecast to grow very significantly with forecasts of US$127b by 2027, and US$173b by 2030.
  • By 2035 - Strategy Analytics - Self-driving AVs vehicles will be widely deployed around the world.

Projected size of the global market for autonomous driving features from 2016 to 2025 (in billion U.S. dollars)

Statista research forecasts USD 26 billion in global AV revenue by 2025.

Source: Statista

Note: This statistic represents the projected size of the global market for autonomous driving and assistive safety and comfort features from 2016 to 2025.

Autonomous vehicles already operating publicly and coming soon

  • July 2018 - China's Baidu (NASDAQ:BIDU) rolls out self-driving buses. Baidu's AV Apollo platform has 130 global partners, and has been used by over 12,000 developers and partners worldwide.
  • December 2018 - Alphabet/Google's Waymo One launches self-driving cars in Phoenix. In March 2018, Jaguar Land Rover (NYSE:TTM) announced that Waymo had ordered up to 20,000 of its planned electric I-Pace electric cars. Waymo uses Intel (INTC) chips. You can read more here.
  • General Motors (GM) plan a rollout of AVs in 2019, Ford (F) plan their initial rollout of 100 AVs in late 2019 and a bigger rollout by 2021. Tesla (TSLA) plan their robo-taxi fleet to roll out in 2020.

Note: For now, most self-driving cars are still using a driver to monitor the car.

Tesla Robo Taxi

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Baidu's street cleaning AVs and autonomous electric mini-bus (below)

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AVs are progressing well in China

  • Tencent Holdings Ltd. [HK:0700] (OTCPK:TCEHY) received their first self-driving license from the Shenzhen government in May 2018, and are a potential powerful contender due to their social platform WeChat.
  • BYD Co. [HK:1211] (OTCPK:BYDDF) (OTCPK:BYDDY) is working on self-driving technologies in cooperation with Baidu.
  • SAIC [CH:600104] has signed a deal with Intel to develop self-driving cars.

Tencent Autonomous Driving lab

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Autonomous vehicle stocks to play the AV boom

  • The leading AV companies - Alphabet, Baidu, General Motors, Tesla, Ford. Others close behind include BMW (OTCPK:BMWYY), Volvo (OTCPK:VOLVY), Volkswagen (OTCPK:VLKAY), Nissan (OTCPK:NSANY)/Renault (OTC:RNSDF), and Audi (OTCPK:AUDVF).
  • The ride-sharing apps - Uber (UBER), Lyft (LYFT), Didi Chuxing (DIDI), Grab Taxi, Ola (OLAC), Gett, Mytaxi, and DriveNow.
  • The electric vehicle [EV] car makers as most AV companies choose electric due to the large cost savings over a long driving life (~1 million kilometers per vehicle is possible). BYD, Tesla, SAIC, BAIC, and BMW are the current top 5 electric car sellers. Volkswagen has the largest spending plans so will soon be a major contender as well.
  • The lithium-ion battery manufacturers and the EV metal miners - Lithium, cobalt, graphite, nickel, rare earths.
  • The on-board entertainment and data providers - Apple (AAPL), Google, Netflix (NFLX), Amazon (AMZN), Facebook (FB), Tencent; as well as the systems providers to connect cars to the internet (optional) - 5G providers Verizon (VZ) and AT&T (T), Sprint (S); mapping companies (Google, Baidu, Alibaba (BABA)); payment services companies (Visa (V), Mastercard (MA), American Express (AXP), Samsung Pay, Apple Pay, Alipay (BABA); cyber security companies (HACK).
  • The onboard computer and software providers that run the AV - Aptiv (APTV), Bosch (OTC:BSWQY), STMicroelectronics (STM), Nvidia (NASDAQ:NVDA), Intel (INTC), Samsung Electronics (OTC:SSNLF), NXP Semiconductors (NXPI), Qualcomm (QCOM), Oxbotica.
  • The data storage providers - Micron technology (MU), Samsung Electronics. You can read more here.
  • Optical cameras and sensors companies - Sony Corp. [JP:6758] (SNE), Panasonic Corp. [JP:6752] (OTCPK:PCRFY), Valeo [FR:FP] (OTCPK:VLEEY).

Recent (2019) developments in the autonomous vehicle sector

On January 27, Clean Technica reported:

Amazon Scout enters the autonomous delivery market — Several others currently being tested. Rather than using a box truck or a carrier on foot, the world’s largest Internet company by revenue is testing an autonomous delivery device the size of a small cooler that rolls along sidewalks at a walking pace. The new, fully electric delivery system – Amazon Scout – has been designed to get packages to customers safely using autonomous delivery. Customers in a neighborhood in Snohomish County, Washington, were the first to see the service.

Amazon Scout - Autonomous fully-electric delivery

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On March 12, Endgaget reported:

GM is doubling the staff for its self-driving car business. General Motors is ramping up its autonomous vehicle business. According to Reuters, the company is planning to hire 1,000 people over the next nine months to work on Cruise, a GM subsidiary that develops self-driving car technology. The hiring spree would double the amount of staff currently under the Cruise umbrella and would mark a major investment in autonomous efforts.....Despite troubles getting up to speed, GM has some lofty ambitions for Cruise and wants to get a self-driving taxi service up and running before the end of the year. The company has already partnered up with Lyft to offer rides from its autonomous fleet and just recently Cruise announced plans with DoorDash to make deliveries with self-driving cars.

GM Cruise's autonomous vehicle

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On March 19, 2019, Tech Crunch reported:

Waymo is gearing up to put alot more self-driving cars on the road. Waymo’s global fleet is about 600 cars, the large majority of which are in the Phoenix area. This latest announcement signals that Waymo is still committed to its initial plan to eventually cover a large portion of the sprawling metropolis of Phoenix, which is about 600 square miles. Waymo currently operates in Chandler, Tempe, Gilbert and Mesa.

A Waymo autonomous vehicle

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On April 2, Independent.co.uk reported:

Autonomous vehicles to drive round London's streets in major driverless car test. Autonomous technology firm FiveAI has started testing five self-driving cars in Bromley and Croydon as the latest step in its plans to eventually roll out an autonomous, car-sharing service in London. The company hopes to begin passenger trials in 2020.

On April 22, Engadget reported:

Tesla promises ‘one million robo-taxis’ in 2020. The company says self-driving cars will be on the road this year. The company (Tesla) shared that it had built its very own computer for self-driving cars. The neural network chip was built from the ground up; the project started back in 2016. Each computer (which is stored behind the glove box) has redundancy so that if one chip fails, the second chip can take over. This is the company's first time building its own silicon. CEO Elon Musk was quick to boast that Tesla "which has never designed a chip, designed the best chip in the world."

On May 2, Engadget reported:

Delivery robots will soon be allowed on Washington sidewalks. It's the eighth state in the US to approve the technology.

Starship Technologies specializes in autonomous last-mile and local deliveries using electric delivery robots

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Risks

  • Technology risk - It appears the industry is now steadily getting on top of this.
  • Litigation risk - The risk of AV companies being sued for accidents, etc. Insurance companies will have a say in this also. Uber did suspend their AV program in 2018 after a fatality. It has since resumed.
  • Regulation risk - Governments are still deciding if AVs are safe for public roads and hence AVs are not always allowed on public roads.
  • Public acceptance issues and driver job losses.

Further reading

Conclusion

The autonomous vehicle revolution is not without some teething problems as Tesla and others have discovered. Despite this, the payoff for the winners will be access to a new industry forecast to be worth US$173b by 2030.

For now, I continue to favor the big names of Alphabet and Baidu which have led the way. I also like Tesla as they can more easily supply the fully-electric cars which may be a limiting factor for other companies. Competition will be fierce with many others such as GM, Ford, BMW, Volvo, Volkswagen, Audi, and Tencent, etc., looking to catch up. The big prize comes with running robo taxi fleets and delivery services with no need to pay drivers. Regarding delivery, companies such as Amazon stand to gain a cost savings benefit, and probably a boost in business due to super low delivery costs.

The ride-sharing app providers such as Uber, Lyft, Didi Chuxing, Grab Taxi, Ola, Gett, Mytaxi, and DriveNow are all in on the action. To access some of these app providers another way is via SoftBank (OTCPK:SFTBY) (OTCPK:SFTBF) as they were early investors into several ride-sharing apps as was Alibaba. Both Uber and Lyft recently IPO'ed.

Electric vehicle [EV] and EV metal mining companies stand to be indirect winners as most AVs will soon be electric.

Apart from via Alphabet/Google and Baidu, my favorite way to play the AV theme for now is via the AV software leaders. My top pick here is Nvidia as they have the best products and partnerships (320 using the Nvidia Drive computing platform as of January 2018). My second pick would be Intel. For the internet connected cars and 5G, I prefer Qualcomm.

As usual all comments are welcome.

Disclosure: I am/we are long ALPHABET GOOGLE (GOOG), BAIDU (BIDU), NVIDIA (NVDA), TENCENT (TCEHY), BYD CO [HK:1211], TESLA (TSLA), SAMSUNG ELECTRONICS (XLON:SMSN), BABA, FB, QCOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information in this article is general in nature and should not be relied upon as personal financial advice.