DRIVING profits in a driverless WORLD
FROM ALE TO CHICKEN WINGS, ANALYSTS LOOK AT POTENTIAL WINNERS IN AUTONOMOUS ERA
When analysts at Morgan Stanley were trying to handicap the driverless car race, their thoughts kept turning to chicken wings. And the Disney film Frozen. And beer.
Strange? Actually, it makes a certain kind of sense. The analysts concluded that it’s a fool’s errand to try to call at this point which tech outfits or automakers are on the road to building the best, most profitable autonomous models. Better to focus on the activities — and the companies selling them — that will fill our time when we’re hanging out in cars with no steering wheels to grip. Which is where the bank’s investment picks on snacking (Buffalo Wild Wings Inc.), moviewatching ( Walt Disney Co.) and brews ( Constellation Brands Inc.) come in.
“If you never had to drive again, how much more would you drink?” said Adam Jonas, Morgan Stanley’s automotive analyst. “It’s all about the adjacencies. If you invest in that, you’re less likely to be buying an over-hyped situation.”
As for the brands of the vehicles we won’t be driving, it’s not only the Morgan Stanley analysts who aren’t ready to definitively make that bet. Jonas and his crew like Tesla Inc. at the moment for its Autopilot feature, which has racked up millions of miles of real- world testing. Still, Jonas said, “it’s too early to call a winner.”
Instead, as the bank said in a recent report, it’s smart right now to look at products and services that will benefit from a technology “that liberates hundreds of billions of consumer hours for monetization.”
With so many companies, from General Motors Co. to Daimler AG to Volvo Cars, promising to have fully loaded selfdrivers on the road within four years, it can seem like the competition is entering the homestretch. But none of the contenders has really broken from the pack. The finished product hasn’t hit the streets. Many players tend to be long on hype and short on details about their designs. And it’s a really crowded field.
“There are at least 46 different companies building software to control autonomous vehicles, including automakers,” said Mike Ramsey, an analyst for researcher Gartner Inc. “There’s no way to actually assess the capabilities of the companies. People are doing it by marketing, employment numbers and how many vehicles they have on the road — which are not very good metrics.”
It’ ll be a while before better ones emerge. Autonomous autos will arrive timidly, in fits and starts, with a few robo- taxis here, some airport shuttles there, a smattering of buses on college campuses. “There’s no clear way to tell who is going to be the winner right now for something we’re not going to have full clarity on for a long period of time,” said Barclays analyst Dan Levy.
Investors love a horse race, though, which explains all the speculation about the winning robot- ride strategy and the response when there’s a new development. Last week, fusty old car- rental companies Avis Budget Group Inc. and Hertz Global Holdings Inc. became Wall Street darlings after they did deals to manage driverless fleets for Alphabet Inc.’s Waymo and Apple Inc.
The thing is, early leaders in any emerging technology often fade away when rivals improve on their innovation. Just ask BlackBerry, once the most prominent smartphone vendor, or Netscape, the web browsing pioneer that went from dominance to decline in less than a decade.
“The history of technological innovation is littered with these stories,” said Mark Wakefield, managing director and head of the automotive practice at consultant AlixPartners LLP. “When a new thing comes in, it’s pretty difficult up front to predict who is going to be the winner.”
Brian Johnson, Barclays’ auto analyst, compares it to trying to pick the next miracle drug. “You could have a promising early lead, and then realize it can’t get through testing.”
That’s why the safest plays now may be on the margins. Johnson advises clients to look at suppliers, such as Delphi Automotive PLC. Besides beer and wings, Morgan Stanley recommends electric utilities that will support battery- powered driverless cars and chipmakers like Intel Corp. and Nvidia Corp. that provide super-computing power and artificial intelligence.
The bank also suggests Facebook Inc. and Amazon. com Inc., figuring we’ll be busier with social media and shopping when we have a whole bunch of new time on our hands — by some estimates, 600 billion hours of it a year.
Morningstar Inc. analyst David Whiston sees gold in abandoned lots on the outskirts of big cities. Autonomous cars are expected to be battery powered and will need places to recharge and recuperate after rush hours, so unsightly real estate on the edge of town could end up a good investment as future car parks and charge stations.
“People think it’s just very black and white, ‘ Do I buy Google or do I buy the automakers?’ ” Whiston said. “That may seem sexy, but it’s not that simple.”
Ultimately, many tech companies will pair up with vehicle manufacturers when they realize how costly and complex carmaking is, automotive executives say. Waymo and Apple have already said they don’t plan to build cars themselves.
“There’ s a little bit of an underestimation of what it takes to build a car,” said Swamy Kotagiri, chief technology officer of auto supplier Magna International Inc. “There’ll be some consolidation in terms of people deciding whether they want to be a service provider or actually a carmaker.”
If there’s an autonomous favourite among prognosticators, it would be Waymo, formerly known as Google’s self- driving car project. It appears to have the most experience developing the algorithms for the sensors that allow the car to “see” its surroundings.
But in the Darwinian driverless race, today’s killer app could be tomorrow’s roadkill. Waymo’s expertise could be overtaken as systems are perfected to allow vehicles to communicate with each other and roadway infrastructure.
“The technology is changing so fast,” Wakefield said. “In 10 years, there will be nothing left of that algorithm people are spending tons of money on today.”
It’s hard to keep up. In April, researcher Navigant crowned Ford Motor Co. No. 1 on its autonomous Leaderboard for having the most advanced approach. A month later? Ford’s board of directors ousted chief executive officer Mark Fields for not moving fast enough.
IF YOU NEVER HAD TO DRIVE AGAIN, HOW MUCH MORE WOULD YOU DRINK? IT’S ALL ABOUT THE ADJACENCIES. IF YOU INVEST IN THAT, YOU’RE LESS LIKELY TO BE BUYING AN OVER-HYPED SITUATION. — ADAM JONAS, AUTOMOTIVE ANALYST, MORGAN STANLEY