Autonomous vehicles: winners and losers

Exponential Investor has discussed the forthcoming revolution in transport on many occasions. However, most of this analysis has been focused on the industry itself, and not on the knock-on effects on the wider economy.

We’re going to look at some of the industries which will be affected most strongly by pending changes to transportation. Once you start analysing the full impact of this disruption, you’ll see there are some real surprises.

Firstly, we’ll will look at the winners:

Primary industries

Agricultural and extractive industries are going to experience a boom from autonomous vehicles. Much of the work done in mining, farming and forestry is highly automatable. This is going to be reflected in the prices that these industries pay for their inputs. If you don’t have so many people driving trucks, or cutting down trees, then you can sell your outputs much more cheaply. For secondary industries keen to make use of such products, the resulting price drops can make a world of difference to their economics.

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As such, a revolution in automation may lead to a significant expansion of customer industries (ie, manufacturing). With input costs falling and demand rising (due to reduced prices), mining and logging operators will see a boom. That’s great news for the industry – but not such good news for sustainability. Expect increased pressure on forests, and an acceleration of profligate use of non-renewable minerals. Meanwhile, land prices in these sectors will likely rise.

Taxis/Uber

One of the most unusual things about autonomous and electric vehicles is that consumers will be relatively unlikely to own them. The idea that we all need a car parked outside our houses is going to seem as alien as having a horse tied up there does. As cars become autonomous, the price of taxi rides falls below private motoring – because capital is more efficiently used by occasional rental, than by full-time ownership. Accordingly, it’s going to be boom time for taxi and minicab firms – although that’s currently an industry concentrating in the hands of major players, such as Uber.

Logistics

Just like mining and farming, the whole logistics supply chain is going to become enormously cheaper. If you don’t have to pay people to drive lorries, you can drive stuff further, and still keep your economics the same. Even with today’s technology, we already see bizarre logistics operations – like sending British sprouts to Poland for trimming, before they’re sold in UK supermarkets. This modern world of snaking supply chains is only going to get snakier. What’s more, this revolution in logistics is not going to be limited to roads. In the same way as you can automate a tractor, you can also automate much of the internal transport, within warehouses. Industry leaders, like Amazon, are already handing over much of their internal operations to robots – and this trend won’t peter out anytime soon. The economics of logistics are about to be completely shaken up. We’ll all have to get used to a world where there will be many more lorries, and more (or bigger) warehouses.

E-commerce

E-commerce is so inextricably linked to logistics that the two sectors almost act as one. The economics of selling online will be revolutionised by autonomous vehicles – as distribution and delivery operations will get enormously cheaper. These new efficiencies will put ongoing pressure on bricks-and-mortar retailers, as the e-commerce sector expands. This disruption won’t all be about conventional transport, however. There will be a lightweight revolution – because you don’t need a human in a three-tonne van to deliver a burger. Accordingly, we’ve also got to consider both flying and pavements drones as big winners from the on-demand economy.

Construction

The construction industry is going to receive a huge boost from the knock-on effects of automation and electric transport. While internal costs will change on a permanent basis, we’ll see a huge temporary building boom, as the country is reconfigured around autonomous electric transport. We’ve built our urban environment around private car ownership for half a century. That’s going to get ripped up in coming decades – and an awful lot of construction is going to be needed.

There will be new patterns of development: in cities, we’ll build over almost all the parking spaces; while new suburbs and towns will spring up, well beyond the conventional commuter belt. No more manual driving means people will be happy to commute further, and will be far less fussy about living far from amenities. While town centres will become even more compact, and even more accessible, peripheral suburbs and unfashionable towns will see a resurgence. People will be happy to browse their phones, sleep or eat on long commutes – travelling many miles to reach inexpensive, pleasant houses. These changes will mean a large increase in demand for both road space and for new suburban and commuter-belt homes. Also, as we’ve seen above, there will be a lot more logistics capacity required – so it’ll be a busy time for people building warehouses, and the roads to reach them.

Pubs

Let’s face it, the drink-driving laws haven’t exactly been kind to pubs. I’m lucky enough to be able to pop out for a pint without my car – but many people live inconveniently far from their local boozer. Accordingly, many of us are now drinking at home. In future, living in the suburbs will no longer mean you’re cut off from the fun – and ultra-cheap autonomous taxis mean you will be able to enjoy drinking and driving once more.

Property by main roads

If you’d prefer to keep tight control of your investment cash, then buying property near a main road will be a good long-term bet. You’ll have to put up with a decade or two of noise, grime, danger and pollution. But once it’s all over, your house will see a nice pop in value. You’ll be able to enjoy a quieter, safer, cleaner house – and know that you’ve been paid handsomely to do so.

Who do you think will win, from the autonomous, electric vehicle revolution? Please let us know in the comments below.

Now that we’ve looked at the winners from the forthcoming transport revolution – the switch to autonomous, electric vehicles, we see that a wide range of sectors stands to benefit – and there are some real surprises.

But it’s not all good news – and a wide range of industries will take an absolute battering.

Let’s talk about the losers:

Petrol stations

This is actually a very mixed story, but we’ll start with the bad. Many small towns have a tiny petrol station, often selling little more than Diet Coke and diesel. These fuel-heavy retailers are going to get wiped out. But overall, petrol stations will be disrupted, not destroyed. This is counter-intuitive – as robots driving electric cars have no need to buy petrol. But those cars will still need charging – be that with electricity, hydrogen or whatever.

If electric cars with lithium-ion batteries become the technology of choice, then longer and more frequent stops will become the norm – and that’s fantastic news for gas-less petrol stations. Furthermore, with motoring that’s cheaper and more accessible, we’ll see more people driving further. On top of this, lots of the reasons why society tries to persuade us all to drive less will fade with electric cars: pollution, safety, and global warming.

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These are all strong arguments against expanded road transport, and all are weakened by a transition to autonomous electric cars. Accordingly, we’ll likely see much more road transport, not much less. All these new travellers will still need to buy coffee, sandwiches and use the restroom. As such, petrol stations will look more and more like mini motorway services, and much less like the “two pumps and a cashier” businesses that are doomed to die.

Vehicle repair

Let’s be honest, electric cars are an absolute catastrophe for the vehicle repair industry. Other than swapping a battery once a decade, they almost never go wrong. All garages will be left to do is changing the odd tyre and wiper blade. Even brakes will hardly need servicing, as electric motors can do most of the stopping. So, if you’ve got shares in Kwik Fit, FastFit Station and the like – then it’s a great time to get out. Very soon it will be obvious that the writing is on the wall for this industry, and there will be no buyers left for your stock.

Road safety

The road safety industry is vast, and sprawling. It encompasses everything from motorway lighting, to speed cameras and fire engines. Even a substantial fraction of the criminal justice system is tied up with bad driving. Autonomous cars will deal a deadly blow to this sector – as they’ll remove the need for everything from back-street body shops, to police stingers and driver re-education courses. That’s because autonomous cars will hardly ever crash: they don’t drive drunk, nod off at the wheel, get distracted by children, or flee from police. Dying in a car crash will soon seem as alien as dying from smallpox.

Car manufacturers

Despite us seeing a boom in total miles travelled, car manufacturers are going to have a hard time. Firstly, we will we see a move away from private car ownership, towards ultra-high mileage 24hr taxi fleets. As our cars stand idle around 95% of the time, we can expect the new car market to contract by a comparable amount – less adjustments for overlapping times of use, and an increase in overall mileage travelled. Additionally, a near-total absence of accidents will take away a major driver of new vehicle sales. Not only will sales drop, but margins will also be cut.

The business model for the industry is often to cover costs with volume vehicles, and cream off profits with high-end variants. That’s why we see utility brands (like Skoda) in the same groups as premium brands (like Audi); they’re basically the same cars, with different trim. But, when almost all vehicles sold are generic taxis, it’s hard to see how the luxury sector can hold up. The failing high-end sector will take down many manufacturers, and remove much of the profit for those that remain. Of course, some people will still own their own vehicles, for various reasons (such as needing to carry tools) but the majority of us will carry on our daily lives using robot taxis. If you think this is an odd idea, try and remember when you last used your house phone…

Brick-and-mortar retail

As if traditional retailers didn’t have enough to contend with already, the revolutionary impact on haulage and warehouse costs from automation will be the death knell for many of them. When delivery costs are near-zero, there’s really no reason for anybody to come to your shop – unless it’s fun. Therefore, the future for physical retail is extending the trends we’ve seen to date – and that’s mostly been downwards. Utility retail will increasingly fade away, and experience retail will take up a larger proportion of the remainder of the sector. We’ll see more service-driven shops like Starbucks and Build-A-Bear, and far fewer dull stores, such as Wilko.

Parking garages

Parking garages are going to take as much of a battering as are vehicle repair garages. Without a need to own a car, you’ve no need to park a car. Furthermore, the last place a taxi owner wants their vehicle to be is sat in a parking garage. Surface parking will also be affected, and we’ll see tiny taxi ranks replacing huge car parks. This will unlock a lot of land for redevelopment.

Who do you think will win, from the autonomous, electric vehicle revolution? Please let us know your views in the comments below.

Best,

Andrew Lockley
Exponential Investor

Category: Technology

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