We think autonomous vehicles will be one of the most dramatic changes to humanity this century. The move to AVs will have many ramifications in and out of the automotive industry, as not only will vehicle interiors and design change, but so will the manner in which people use their new free time because they eventually will not have to watch the road. Over the next decade, we see the industry moving toward Level 4 autonomy, in which vehicles operate without a steering wheel or pedals within a geofenced area, most likely in dense city centers. We expect these vehicles will operate as part of fleets managed by ride-hailing firms such as Uber and Lyft, as well as by ride-hailing operations yet to be formed by automakers. We don't think automakers will want consumers buying an AV soon because of liability reasons, and we don't see consumers willing to embrace car-sharing in large volume because of the accelerated depreciation.
AVs are not a trend that will go away in a recession. In our view, there's too much brainpower in the technology and auto industries for AVs not to come to fruition. It's also an area where for once, the auto industry and U.S. regulators both want to bring AVs to market. Regulators want to curb fatalities, while automakers want to monetize AV services such as ride-hailing, deliveries for small businesses, and e-commerce. Also, if the auto industry does not change, we think Silicon Valley will steal the industry's pie, so automakers must adapt or die. The AV pie in the United States alone is too big for automakers to ignore. Sales of automobiles in the U.S., assuming 17 million annual sales at about $34,000 a unit on average, is a nearly $600 billion industry. However, if we assume that in 2030, U.S. passengers will travel about 5.1 trillion miles, with consumers paying $0.25 per mile, then mobility is a $1.3 trillion industry. The latter figure assumes no private vehicle ownership, so it's probably too large for 2030, but this possible market size expansion is one reason AVs are drawing so much interest from tech firms and should be a topic investors understand.
David Whiston, CFA, CPA, CFE does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.