To stand in the present and look into the future is an exercise of vision and creativity. We take what we know today and extrapolate our thoughts forward into a world we imagine. In this decade the automotive world has changed greatly and so to has our vision of what tomorrow will bring. The two principal technologies influencing this vision of the future are electric engines* and autonomous driving* technologies. Both are frame breaking currents that are often discussed together when considering this new transportation paradigm. As we look forward into the success of investments in either technology, it is imperative that we realize that each technology has a distinct path to wide spread integration.
The Holy Grail of investment success can be found when a marginally accepted technology becomes a mainstream technology. In the previous decade Apple’s launch of the iPhone demonstrated this path to success. The initial demand, which seemed impressive at the time, eventually was dwarfed once the product was adopted by ‘regular’ consumers. Sparks became flames, which turned into an inferno of demand. Electric vehicles and autonomous driving both aim to follow a path where marginal acceptance turns into mainstream acceptance.
As I look to the future, I see a much more difficult path for the mainstream development of electric vehicles versus autonomous driving technologies. This difference stems from multiple structural changes needed in society to bring about mainstreaming electrical vehicles.
Battery technology is a cornerstone of the success of electric vehicles. Rapid growth in electric vehicle demand means that the production of lithium batteries must increase. Telsa, the world leader in electric vehicles, is in the process of creating a factory designed help address future demand for lithium batteries. Yet, when visionaries like Tesla’s owner Elon Musk and other electric car proponents talk growth in demand for electric vehicles, it often glosses over the major challenges faced in battery supply. This is no small issue. If battery supply growth lags electric vehicles growth, then prices for electric vehicles will ultimately stay elevated. This is a negative economic force, which will weigh in favor of the conventional combustion engine. Until price parity exists, the mainstream adoption of electric vehicles will face a headwind.
In addition, electric cars must overcome obvious drawbacks versus their combustion counterparts. Recharging is a much longer process than refueling at a gas pump. This is a major downfall for a significant portion of the population. In addition, charging stations require infrastructure development, which will require a significant amount of capital and labor to integrate on a widespread basis.
Conversely, autonomous driving technology is being led partially by the continual expansion of data processing power. For decades data processing growth has seen an exponential increase in power. In the 1990’s the mainstream adoption of the home personal computer has progressed to the smart phone of today. Size, speed and ability have radically changed. Such a progression in the growth and application of technology is now enabling vehicles to virtually render a three dimensional depiction of the world around them. This processing power is bringing forth a future where autonomous driving is a reality for regular driving applications.
In short, mainstreaming electric vehicles will require a larger structural shift within society’s current operations than the adoption of autonomous driving. As an investor you should look at both technologies as two tremendous growth plays in the decades ahead. While considering the possibilities, keep in mind that the path to mainstream integration is more direct for autonomous driving than electric vehicles. Therefore, I’d be more bullish on autonomous driving investment compared to electric vehicle investment.
*When speaking of electric engines or vehicles I am referring to plug-in vehicles, not hybrid systems, such as the Toyota Prius. When speaking of autonomous driving I am speaking of semi to full autonomous driving systems.