Longhorn Investment Team Autonomous Vehicle Snapshot (and more!) (4/28/19)

Howdy! We got a little carried away with ourselves when we discussed some key updates in the connected car and electric vehicle spaces. Today, we’re wrapping up with a look at autonomous vehicles. What is an autonomous vehicle (AV)? Well… there’s levels to them.

The 6 Levels of Autonomous Driving

Level 0, Dumb Cars: These cars have no autonomous features, meaning you actually have to drive the car completely by yourself. 😦

Level 1, Driver Assistance: Only some features are automated – and only to a small degree. For instance, your car will brake extra for you when it recognizes you’re about to run over Oprah. If only Drake and Josh lived in today’s time.

Level 2, Partial Automation: This level is already standard amongst most manufacturers, it assists the driver with tasks like steering and accelerating, but the driver still has to pay attention to the road and is responsible for all safety-critical driving functions.

Level 3, Conditional Automation: At this point, the car is now completely aware of its surrounding environment. The driver doesn’t have to pay attention at speeds under 35 mph.

Wired explains level 3 better than we ever could:

“If you’re on the highway and stuck in slow traffic, activate the system and feel free to look at your phone or even read a book. Just don’t fall asleep, get drunk, or cut off your hands.”

Audi’s new A8 is the first commercially available vehicle to hit level 3 – but it isn’t available in the US because of concerns that state laws could create regulatory burdens. This has heightened pressure on lawmakers to be more proactive in creating framework for governing AVs.

Level 4, High Automation: The car no-longer needs a human to get where it’s going, but only on certain road types (highway mergers and other complicated tasks get tricky). Ford claims to be investing in level 4, citing they don’t think level 3 vehicles offer enough value to consumers. Meanwhile, Waymo has already arrived at level 4 tech, but they still lack the car manufacturing component (the self-driving tech is more expensive than the car itself).

Level 5, Complete Automation: You just plug in your destination and your new whip does the rest! Ka-Chow!

So, who are the major players in the AV space?

First, we’ll look at traditional auto makers. Ford, GM, Audi, Nissan, Tesla and others are either already releasing various levels of AV or throwing billions at the tech. GM’s self-driving unit has already received billion-dollar investments from Honda and Softbank. It also leads the industry in fewest fender-benders.

Just before their depressing earnings report, Elon Musk promised to put one million self-driving cars on the streets next year. Nobody believes him. Read more about Tesla’s Q1 and Musk’s tom-foolery here.

Then there’s the tech giants. While Apple has been very wishy-washy on their path to AV, it recently showed interest in acquiring LIGMA LiDAR technology, which is basically a light sensor that allows cars to see their environment. Waymo, an autonomous vehicle maker owned by Alphabet, is widely considered the leader in the AV space.

Other tech companies are simply developing hardware and software to facilitate AV functions. For instance, NVIDIA recently developed a chip to enable level 5 AV, and Blackberry’s QNX platform is designed to prevent self-driving cars from being hacked. Intel also joined the race with their acquisition of sensor company, Mobileye.

Wait a minute, there’s another industry targeting the AV space: ride-sharing services. That’s right, Lyft and Uber are aggressively working on their own fleet of AVs because it’s cheaper to give people rides when you don’t have to pay drivers. Ride-sharing firms have the same vision as Waymo: driverless cars will make widespread vehicle ownership obsolete. People will just hitch rides with robots to get where they’re going!

What will the Future of Driving Look Like?

While some industry leaders view future vehicles as completely driverless, others think that a human element will always be necessary given the countless “edge scenarios” such as complicated lane mergers or anything associated with Austin traffic. However, machine learning could plausibly enable vehicles to learn from all of the different edge cases over time.

What the AV market will actually look like is still very speculative, so we won’t make any bets on who is going to lead the industry. What we can tell you; however, is that certain metrics for AV effectiveness already exist. One is known as a “disengagement rate,” which measures how often per mile the person in a driverless car must disengage autopilot and take the wheel. So far, Waymo leads in this respect (although data is self-reported and could be distorted by confounding variables).

Some scholars believe that AVs will either incur slow adoption rates or have a negative impact on society for a laundry list of reasons:

• “Self-driving taxis will just be slower Ubers.”

• “Self-driving cars will encourage suburbanization and urban sprawl, which is bad for the environment.”

• “Self-driving cars will get hacked, and the threat of cyberattacks at least slows adoption.”

• “We can’t prove AVs are safe because their code continuously changes due to machine learning algorithms.”

We didn’t put those in quotes because we don’t take those concerns seriously. They’re just things that other people said.

Generic Stock Update:

It’s been a while since we’ve discussed anything other than cars or kush, which is a bad habit. Here’s that wholesome market news you’ve been waiting for.

The S&P 500 is up 17% this year. Indexes propelled to record highs this week thanks to GDP data and outstanding Q1 earnings from tech companies and other industry leaders.

Some big winners: Microsoft, Twitter, Facebook, SAP, Amazon, Lockheed Martin

Some big losers: Tesla, Intel, UPS, AT&T

GDP Data boosted stocks on Friday, as the US economy grew 3.2% yoy compared to an expected 2.5%. GDP increases were driven by higher military spending and private sector investments in inventory. Some economists see this inventory investment as a short-term boost to GDP with consequences down the road. If companies are building up their inventories now, they’ll spend less on building up inventories later, which could slow GDP growth in Q2.

At the very least, we can take a sigh of relief because people were getting pretty nervous about an impeding recession. Now investors are much more confident in the stock market relative to last Thursday. Inflation data from February and March will be released this Monday, which should refresh people’s takes on future interest rate raises that always seem to drag down bull runs.

Other News:

Disney announced their new streaming service, Disney+ at $6.99 per month. Their stock popped as a result. We were going to expound on this event but a) this was two weeks ago and b) Ben Thompson from Stratechery already wrote a great piece about the strategic implications of this service. Check it out here.

More good news for Bob Iger: Avengers Endgame grossed a record breaking $1 Billion in its box-office debut.

Boeing keeps getting exposed. Investigators found over the weekend that Boeing did not inform major airliners or the FAA that their 737 MAX planes (the model that crashed) had a deactivated safety feature. The safety feature would let pilots know if the auto-pilot sensors malfunctioned (which is what happened in the crash). Nobody knows why Boeing deactivated the feature. In their Q1 earnings, Boeing posted a $1 billion loss to represent business disruptions from the groundings. For context, that’s 1/13 of their 2018 cash flow.