I believe a huge amount of money will be made due to self driving cars. Figuring out who will make that money is not easy.

The value of being able to use the time you are moving to your destination instead of concentrating on driving is huge. And the reduction in deaths, serious injuries, injuries, damages, frustration and waste of time caused by accidents will be a huge benefit to society. Many people attempting to focus on phone calls or whatever else instead of driving create lots of that damage due to accidents.

There will also be big restructuring in how the economy works. Car sharing (such as Zipcar) will greatly increase I think and Uber and Lyft will likely be big players in a move to driverless cars. It sure seems like fewer cars will be needed. Space wasted on parking cars should be greatly reduced. Deliveries will likely see big changes. The impact on the economy will be huge. Even the health care system may see billions in savings.

Toyota is an amazingly well managed company. They should capitalize on any important shifts in the auto industry. But will they do so for driverless cars? Will there be a decrease in demand for cars so large that Toyota losses more than it wins? My guess is the decrease in demand globally will not be huge for the next 10 years (of course I could be wrong). My guess is Toyota will do well, but may be caught a bit behind, but then will come back strongly.

For those that don’t think Toyota can innovate, remember the Prius. Also they have been big investors in robots. That they haven’t turned robots into a big business yet though may be a sign of weakness (related to turning innovation into business profits).

I think Toyota will do the best of the large traditional car companies at taking advantage of this opportunity. Honda would be my second pick.

Google has been at the forefront of the driverless car efforts; I first wrote about self driving cars in 2010 about Google’s efforts (on my Curious Cat Engineering Blog). They are willing to take big gambles. They have a very good engineering culture. They are very profitable. They haven’t done much at creating profitable businesses outside of search and ads though. Still I think they may be huge winners in this area. I would guess by licensing technology to others, but things are involving quickly we will see how it plays out.

Tesla has a great engineering culture with a priority given on innovation and customer focus. They are in the car industry though I don’t lump them with the “traditional car companies.” I give weight to the value Elon Musk will bring them. They have big potential to be one of the big winners in a self driving car future. But they have yet to create much profit. Will they be able to turn promising engineering and leadership into a huge business? I think the odds are good but that is still a difficult challenge. Others have much more money than Tesla. Apple has so much money they could even buy Tesla easily.

Elon Musk recently spoke about the current state and near term future:

Apple seems like a long shot to me. It doesn’t seem like the type of business Apple has gone into in the past. The argument for doing so is the huge pile of cash they have (over $170 billion which is an absolutely huge number – it is also a bit fake in that they have started borrowing tens of billions instead of spending that cash). The moves with the cash are based on 2 circumstances. First they would have to pay large amounts of taxes to use that cash in the USA (taxes are delayed as long as they hold it overseas). And second interest rates are so low, borrowing money hardly costs them anything.

If Apple were serious about this business I think the way to enter is by buying Tesla. Tessa’s market cap is $32 billion today. Tesla’s stock is not cheap; the price reflects potential and Elon Musk more than what has been accomplished so far. But with how much money Apple has paying extra isn’t a huge issue. I would imagine Elon Musk would be worried about such a buyout but from Apple he might find it to be acceptable. There are great uses for the huge amount of cash Apple could put to use. And Apple could add value to what Tesla can deliver.

If Apple doesn’t do that I would have trouble imagining Apple as a car manufacturer. But who knows, they have enough money to do it. They could potentially go into a partnership with Tesla, Toyota or Honda (those would be my 3 choice, maybe they could try someone else but those companies can match Apple’s devotion to engineering and customers most other car companies fail to come close to the standards I think Apple should have).

It is hard for me to imagine Apple in a very strong long term partnership. They seem to like to control everything. But who knows maybe they could.

Uber, Zipcar, Lyft and others in the car sharing and ride providing market will have huge gains from this opportunity. One issue I see is how any of them profit greatly from it when it seems like the advantages are going to be available to them (and anyone else that wants to enter the business). How they keep profit margins high is difficult for me to see.

Uber is the darling of investors today. I do think they do some things incredibly well. And one thing they do incredibly poorly driverless cars would solve. They do a horrible job of providing long term value to drivers. Getting rid of drivers gets rid of one of Uber’s huge management weaknesses. I think the gains to the economy in the areas these companies operate will be gigantic, huge and enormous. But whether these companies actually make huge profits I question. They may well have nice businesses but how big those profits will be I am far from optimistic.

My guess is companies that rely on deliveries (Amazon, Pizza…) will save a bunch of money as these new innovations play out. But it will likely mainly just be savings passed on to consumers as all competitors will have the same gains. It may well be well managed companies are quicker to get advantages so Amazon may have gains for awhile but soon others will catch up.

If driverless cars come about as quickly as some are predicting the economy will benefit tremendously and we personally will too. I look forward to it. From an investing perspective I just see it as a boost to some well managed huge companies now. I don’t see investment potential for directly benefiting from this innovation (those companies I know of are huge and the driverless car market is likely not to be a majority of their profits). I am sure there are small companies that will make huge amounts but I don’t know any of them and likely predicting which will succeed is very difficult.

This innovation also dramatically shifts markets in ways that are predictable but also in ways that are not. If many more cars are owned by large fleet operators then small repair shops (those that take advantage of ignorant customers especially) may well have difficulty as fleets are managed in ways that are less easy to rip off. And with far fewer accidents their won’t be so much business to do in the first place. Also ludicrous charges for things like a new key fob will not likely be tolerated by large fleet owners (they shouldn’t exist now, it is sad that companies like Toyota that do so many thins well do such a poor job of providing customer value in this way).

Basically, I think if driverless cars they will boost the stocks of some companies I already like a bit. Toyota, Google and Amazon are all in the Curious Cat sleepwell portfolio.

The gains made from driverless cars are also going to be huge in developing markets though the state of their transportation systems may make the transition take a bit longer in some locations.

There are also going to be losers from this innovation. Warren Buffett has said car insurance companies will suffer from the safer roads (it is still a good thing, but their business will suffer). Banks and credit unions will have fewer loans (assuming fewer cars are bought by individuals as they rely on shared cars). Car parks (which have been huge cash cows in large cities – as taxi medallions were) may well see a large drop in business, though I expect this may well take longer to play out in most places (maybe NYC, San Francisco and few others may have more dramatic changes).

Related: Is Amazon Using a Costco Strategy? – USA Health Care Spending 2013: $2.9 trillion $9,255 per person and 17.4% of GDP – Using Drones to Deliver Medical Supplies in Roadless Areas – Investment Options Are Much Less Comforting Than Normal These Days (2013) – Where are Profit Margins Headed? (2011)

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