Self-driving cars – they’ve hogged a large portion of the news cycle lately.
Indeed, earlier this week, Gov. Gavin Newsom made headlines when he vetoed a bill that would have banned autonomous vehicles (AVs) from operating in the state of California. Then, just yesterday, Waymo started offering driverless rides to some folks in Austin, Texas. And that came after the firm made even more waves last week, when a car in its San Francisco fleet got confused, halting Kamala Harris’ campaign motorcade on Nob Hill.
Plus, many folks – myself included – are eagerly awaiting the launch of Tesla’s Robotaxi just a week from today, on Thursday, Oct. 10.
But at this point… some of you may be asking… so what?
So what if some cities are rolling out access to driverless cars? As we’ve mentioned before, the long-running joke has been that autonomous vehicles are ‘five years away from being five years away.’ Maybe the incident with Vice President Harris’ motorcade solidified that thinking for you.
But in our view, blunders like that are just par for the course – bumps along the road of progress. In fact, we’re more confident than ever that autonomous cars offer a trillion-dollar economic opportunity.
Let me explain.
We believe that three core pillars underpin a massive opportunity within the ‘Age of AVs’:
- Autonomous Passenger Vehicles: The sale of autonomous vehicles to consumers like you and me.
- Robotaxis: The creation of robotaxi services that operate like autonomous Uber or Lyft rides.
- Autonomous Logistics: The deployment of autonomous trucks, buses, etc. to automate the world’s logistics networks.
Each has the potential to become a multi-hundred-billion-dollar business.
Let’s start with autonomous passenger vehicles.
Reimagining the Auto Market
We think that, thanks to the Age of AVs, the way people buy cars will soon fundamentally change.
Today, we go to a dealership, take a few models for a test drive, make our purchase, and that’s that.
But autonomous vehicles are just as much software as they are hardware. (And if you missed our recent issue that delved into the underlying tech behind AVs, you can check it out here!) That’s why we think buying a self-driving vehicle will involve its initial purchase as well as recurring fees for access to the software that enables the car to drive.
In other words, when autonomous vehicles enter the passenger car market – which we think could start happening in earnest in 2025/26 – it’s likely to create an entirely new revenue stream for automakers: AV software-as-a-service.
That’s a huge deal. After all, the big problem for automakers is that they operate at notoriously low margins. General Motors, Ford, Stellantis – those firms typically cap out at 20% gross margins, limiting their overall profitability potential.
Software firms, however, tend to operate at 80% gross margins.
To that end, we believe that once AVs enter the market, automakers’ typical business model will center around selling a car once at ~20% gross margins, then raking in recurring software revenues at ~80% gross margins for the next 10 years or so (as Americans typically own a car for about 10 years).
Let’s walk through an example to see how this value creation adds up.
AVs Likely to Boost Revenue Streams for Automakers
Say a car costs $30,000 with a ~20% gross margin. Let’s also say the car is autonomous, the automaker sells the software to power those features at $5,000 per year, and the consumer owns the car for 10 years.
Under the traditional model, an automaker walks away with $6,000 in gross profit from the sale of that car. But in the new model, the automaker will walk home with $6,000 in gross profit from the initial sale of the car (unchanged) and $4,000 in gross profit per year for the next 10 years, for a total 10-year gross profit of $46,000 from just one car sale – more than 7X the gross profit made within the old model.
Of course, that is just a theoretical example. But the point is clear: Self-driving cars could well mean “big business” for automakers, potentially increasing their profits many times over.
And that is just one economic pillar of the AV Revolution.
Self-Driving Vehicles Will Transform Transportation
Another big economic pillar will come via the launch and scaling of robotaxi services across the globe.
We think that, in time, robotaxi services like Waymo will be available in every city in the world. If so, they will likely put human-powered ride-hailing services out of business.
But they will do so at meaningfully higher profit margins than that of current services.
For example, Uber has fetched a $150 billion valuation despite having to shell out about 75% of each ride’s fare price to its drivers. Now imagine if it didn’t have to do that – because there wasn’t a human driver ferrying its passengers.
Profits in a robotaxi service could be 4X what they are in a human-powered ride-hailing service.
So, if Uber’s human-powered service is currently valued at $150 billion, then theoretically, a robotaxi service of similar size with 4X bigger profits could be valued at $600 billion.
Again, we’re talking ‘big business’ here.
A Logistical Dream
And it’s the same when it comes to the potential for autonomous logistical systems.
Companies like Aurora and Kodiak Robotics are set to debut driverless delivery trucks on Texas roads later this year. That will mark the first step toward fully automating the nation’s logistics networks. I’m talking about autonomous trucks, buses, trains, ships, planes, etc.
Of course, that future – with an “automated everything” – is a long way off. But thanks to these latest developments, it appears the future of autonomous trucking has already arrived.
Now, in the U.S., trucks transport about 75% of total freight value and 65% of total freight weight. This is an industry valued at ~$200 billion in America and ~$2 trillion globally.
Autonomous trucks could disrupt that entire $2 trillion industry.
But why is their impact so potentially massive? Cost savings and efficiency gains.
According to the American Transportation Research Institute (ATRI), driver wages and benefits comprise about 40% of trucking companies’ overall operating costs. Therefore, self-driving technology could reduce companies’ expenses by about 40%. And that’s just the beginning.
Another game-changer – extended hours of service. While safety regulations limit human truckers to about 11 hours of driving per day, autonomous trucks don’t need to sleep. They can operate 24/7, drastically improving productivity and reshaping delivery timelines. Plus, automating long-haul routes could free up human drivers for shorter, local deliveries, optimizing the entire logistics chain.
Ultimately, self-driving trucks could reduce logistics costs across the board. Let’s say this revolutionary tech leads to 30% cost savings, conservatively. When you apply that to a $2 trillion global industry, it translates to potential savings of up to $600 billion.
That’s not just a transformation. It’s a seismic shift.
The Final Word on Self-Driving Cars
So, if you’re one of the folks asking, so what?, when it comes to the Age of AVs, we hope this article helps to answer your question.
At scale, autonomous vehicles could increase automakers’ profits by many multiples… enable the creation of a $600 billion robotaxi empire… and entirely disrupt the $2 trillion trucking industry.
We see AVs as a multi-trillion-dollar economic opportunity.
Of course, that means that if self-driving cars are successful, AV stocks could (and should) soar over the coming years.
That’s also why, next week – on Monday, Oct. 7 at 10 a.m. Eastern – I am hosting a special event to help prepare for this fast-approaching Autonomous Vehicle Revolution.
In that broadcast, I’ll detail all the recent groundbreaking developments in the autonomous vehicle industry, including how robotaxis are set to completely transform transportation, save millions of lives, and potentially put up to $30,000 a year in passive income in your pocket.
We’ll also dive headlong into the highly anticipated Robotaxi launch that could unlock a staggering $9 trillion in value – bigger than all of Elon Musk’s companies combined.
While Elon has been promising self-driving technology for years without success, I believe a tiny $3 company holds the key to unlocking his biggest, boldest promise. This upcoming Robotaxi event could send shares of this company skyrocketing, and I’ll unveil my playbook of what I believe are some of the best AV tech supplier stocks to buy right now.
This will be the “must-watch” event for the month of October.
It’s your chance to get ahead of the curve and potentially identify the next batch of superstar tech stocks before they explode.
Trust me. You do not want to miss this game-changing broadcast.
Reserve your seat for that event now.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.
