SELF-DRIVE CARS: INVESTMENT REVOLUTION
Once futuristic, but now a reality, autonomous cars are fast-tracking their way forward with state-of-the-art technology, billions in funding and unbridled imagination. Jafri M gets into gear
Impending techno oblivion? Cyber terrorism? Or just acute anxiety? While the debate continues regarding the social, legal and environmental ramifications, the self-driving global wave surges forward in high gear. What really are self-driving cars? Essentially, they are self-driving vehicles which human drivers – theoretically – never need to take control of. These vehicles, also termed driverless or autonomous, seamlessly integrate sensors and software that control, help navigate, and drive them.
There are several layers of autonomy. At level zero, all major systems are operated by the driver, while one step up sees certain systems, such as cruise control and braking, controlled by the car. Level two indicates that the vehicle can operate at least two simultaneous automated functions, with human assistance, while level three entails automation of all safety-critical functions, although the driver has to be ready to take over when alerted.
Once deemed futuristic, the next two levels of self-driving vehicles are now reality: level four, where human intervention is unnecessary in most situations, and level five, whereby the car is in full self-drive mode in all situations.
THE REV UP
In the US, there are now partially-autonomous cars, which range from more mainstream models with road and brake aid to self- driving prototypes. Numerous self- driving technologies have been created by top automobile makers and technology companies, such as Amazon, Uber, Tesla, Ford and Google. In tandem, massive funding, data gathering and simulation tests are gathering pace.
Take Aurora, for instance. The much-hailed self- driving Silicon Valley start-up recently garnered over US$530 million in Series B funding, and is valued at over US$2.5 billion. Funding came from big names such as Amazon, Sequoia and Shell Ventures, the private equity and venture capital arm of energy heavyweight Royal Dutch Shell.
Just last year, it announced a collaboration with Volkswagen and Hyundai Motor Company to develop its own self- driving technology, and now, self- driving vw e- Golfs, with vehicle operators on board, are on the streets of Palo Alto, San Francisco and Pittsburgh.
Then there is ride-sharing company Uber’s Advanced Technologies Group, which has been deploying its self- drive cars along a short route in Pittsburgh since end-2018.
Another example is Ford, which has been working with Argo ai, a company with autonomous vehicles running in Miami, Pittsburgh, Washington and Michigan. It is aiming for a 2021 launch of an autonomous commercial service to transport passengers and goods in major cities such as Washington and Miami.
TAKING STOCK
Naturally, there are standout names in stocks that investors could explore in the self-drive arena. Nasdaq-listed Tesla easily leads the way, as it did in the electronic vehicle arena. Its acclaimed Navigate On Autopilot lets the car navigate highways, exits and lane changes, with driver supervision. It offers possibly the most progressive driver-assist system with complementary
GLOBAL CHINESE TECH GIANTS SUCH AS BAIDU, ALIBABA AND TENCENT HAVE JUMPED INTO THE SELF-DRIVING ARENA
software and upgrades. The stock is pricey, though, trading at about 30 times the 2019 profit estimates by analyst consensus.
General Motors’ is another stock worth looking at. Last year, the company and Cruise, its self-driving car division, pulled in more than US$5 billion in investments, pushing it ahead of rivals such as Uber and Lyft.
There is also Aptiv, a supplier of automotive parts, which is steadily focusing more on software and integration solutions. Aiming to have more automated vehicle content, it has a competitive edge with its high-speed central compute platforms. While it has a forward price-earnings ratio of 13.5, it has growth potential in the self-drive segment.
Nvidia is another Nasdaq stock worth a closer look. Looking beyond its less-exciting core business of graphics processing units, its automotive strength is noteworthy, with last year’s revenue achieving record highs. Its next-generation ai- based cockpit infotainment systems should also ensure a steady growth rate in tandem with the self-drive industry.
THE DRIVERLESS DYNASTY
Just two years ago, almost 30 million new vehicles were sold in China, already surpassing the sum total of new vehicles sold in the US, India and Japan. By 2025, assuming a modest 3 percent annual growth rate, that number would mushroom to some 37 million.
The Chinese government estimates that by that year, about 25 percent of new vehicles would be autonomous models categorised at level two and level three of the self-drive range. By then, level-four and level-five autonomous vehicles would also have started coming into the market.
But is China ready to soar further? kpmg, in its 2019 Autonomous Vehicles Readiness Index, ranks the Netherlands first in its level of preparedness, and Singapore second. China is ranked 20th out of the 25 countries listed.
kpmg points out that China scores lower on factors such as the availability of the latest technologies and consumer adoption of technology. But it also highlights that “China shows relative improvement in the technology, innovation and infrastructure pillars, and has the highest score on a new measure focused on online ride-hailing”.
And China could soar right to the top. A major point is the Chinese government’s strong support and protection of its domestic industry. Early last year, it declared stringent rules on foreign automobile companies’ operations in China, slated for 2020 for commercial vehicles, and 2022 for passenger vehicles. Essentially, it means foreign automakers have to partner with local companies to access the massive Chinese market.
Another significant point is that the Chinese market is very open to self-drive technology, as reported in Nielsen’s 2018 Autonomous Driving Syndicated Report. It found that among Chinese car owners in China’s first-tier and second-tier coastal cities, over 80 percent cited improved safety, hands-free convenience and less fatigue as some reasons to buy self-driving vehicles. Notably, that figure rose to 94 percent for those owning cars worth US$150,000 or more.
With China’s tremendous growth potential, global Chinese tech giants such as Baidu, Alibaba and Tencent have jumped into the self- driving arena.
Baidu, the first of the three to jump on the bandwagon, started developing self- driving cars in 2013. At present, it test-runs its cars both in Beijing and California. Together with Chinese carmaker faw Hongqi, it recently unveiled a level-four autonomous passenger car in Beijing, with mass production targeted by end-2019. While Baidu’s growth has slowed and is at present trading at 16 times this year’s profit target, its revenue is still brisk and it is on the cutting edge of just about everything, including self- driving automobiles.
Alibaba, which set up artificial intelligence labs in 2016, launched a level-four self- driving logistics vehicle late last year in Hangzhou, where there were road trials. It also had a great start this year, with its shares rising by more than 36 percent; analysts expect the optimism to continue, pacing the growth of the Chinese economy.
Tencent, which set up an autonomous driving lab in 2016, launched Tencent Autonomous Driving as an independent brand at the tail end of last year. Its level-three vehicles are road-tested in Beijing and Shenzen. Tencent shares climbed more than 10 percent this year compared to 2018, and analysts are bullish in the long term because of growth opportunities.