Why Berkshire Hathaway Inc. (BRK.B) is a Top Pick for Momentum Investors
The emerging autonomous driving technology recently received a severe jolt after an Uber self-driving test car hit and killed a pedestrian in Tampe, AZ. The ride-hailing firm has reportedly halted self-driving car tests in all locations including San Francisco, Pittsburgh, Phoenix and Toronto.
Notably, Uber, Alphabet’s GOOGL Waymo and automakers like General Motors GM and Toyota have been lobbying hard with the U.S. government for speedy approval of regulations related to self-driving cars.
However, the incident may now delay the passing of a bill, which aims at speeding-up the test procedure of self-driving cars, per Reuters. The delay is likely to put a brake on the development as well as commercialization efforts of self-driving cars, at least in the near term.
Moreover, we expect the Uber incident to create safety concerns among users, which can seriously hurt adoption rate in the long haul.
Massive Investment Makes the Bet Risky
According to a research report from Brookings dated October 2017, at least $80 billion has been invested on different technologies related to the development of self-driving cars between 2014 and 2017 time frame.
The investment is anticipated to increase further in the long haul as software developers like Apple, Microsoft, Alibaba and Baidu invest on cognitive analysis, including natural language processing (NLP) and image processing.
Moreover, as tests of self-driving are now likely to be conducted in urban and suburban environments, where traffic is a concern, we believe real-time accurate processing of data generated by visual sensors, radars and LiDar systems becomes immensely important.
This calls for significant investment on research & development (R&D) from chip-makers like NVIDIA NVDA, Intel and Qualcomm.
Per the Boston Consulting Group’s (BCG) latest report, industry players will need to invest $900 billion by 2030 and $2.4 trillion by 2035 on developing new growth areas including autonomous vehicle technology.
Revenue Opportunities Abound
Self-driving cars are expected to be cheaper owing to the use electric-engines instead of gasoline-powered ones. Moreover, manufacturing costs related to complex dashboard and other sophistications are expected to significantly decline due to the absence of human intervention. Furthermore, self-driving cars are expected to be much safer.
Self-driving vehicle technology presents significant growth opportunity for automakers. BCG anticipates the autonomous car market to be worth $42 billion by 2025 and $77 billion by 2035. The research firm forecasts that by 2030, approximately one-tenth of new cars sold globally will be self-driving.
Per BI intelligence, 10 million self-driving cars will hit the roads by 2020. Statista states that the market for fully autonomous vehicles will grow to almost $6 billion, while partially autonomous vehicles market will reach $36 billion by 2025.
Moreover, according to Research & Markets data, global software market for autonomous cars is anticipated to grow at a CAGR of 76.1% between 2017 and 2021. This bodes well for the likes of Alphabet.
However, the slowdown in commercialization effort due to delayed regulation and safety concern can seriously hurt its growth prospects.
5 Stocks to Hurt Most
Tesla’s TSLA autonomous vehicles are already equipped with the required hardware for self-driving. The company is now working on the software part in order to make self driving a reality for its fleet of vehicles. Notably, the company has partnered with the likes of NVIDIA and AMD to develop AI chips for in-house autonomous electric cars.
CEO Elon Musk plans to incorporate self-driving technology in Tesla’s cars by 2019. However, we believe the uncertain regulatory environment certainly puts this plan at risk.
Currently, Tesla has a Zacks Rank #4 (Sell).
Tesla, Inc. Revenue (TTM)
Tesla, Inc. Revenue (TTM) | Tesla, Inc. Quote
Another automotive player Ford F plans to sell connected vehicles in the United States in 2019. The company reportedly has more than 700K connected vehicles on the road. Moreover, the company plans to start test its new self-driving vehicle technology next year. According to Investors.com, Ford is targeting “high volume” fully autonomous cars for ride-sharing services by 2021.
Currently, Ford carries a Zacks Rank #3 (Hold).
Ford Motor Company Revenue (TTM)
Ford Motor Company Revenue (TTM) | Ford Motor Company Quote
Automotive giant General Motors GM filed a petition to the federal government seeking approval for test driving of cars that have no steering wheel, pedals, or other driver controls in early 2018. The company hopes to commence self-driving car tests on public roads and highways starting in 2019.
Reportedly, GM has also planned to offer self-driving cars for ride-sharing services next year. However, the anticipated delay in regulation will now hurt GM’s efforts in our view.
Currently, GM carries a Zacks Rank #2 (Buy).
General Motors Company Revenue (TTM)
General Motors Company Revenue (TTM) | General Motors Company Quote
Alphabet’s Waymo reportedly spent at least $1.1 billion to develop the technology powering autonomous vehicles between 2009 and 2015. The company through Waymo has been accelerating its push in the self-driving vehicle space predominantly through partnerships with the likes of Intel.
Apart from its plans of deploying 600 vehicles from its existing partner, Fiat Chrysler Automobiles, Waymo is working on a self-driving vehicle partner program with Lyft. The company is also in talks with Honda Motors to include its vehicles in Waymo’s fleet.
Most recently, the company showed a video of people riding in its self-driving minivans. Per Bloomberg, though the clip the company wanted to show that “Driverless cars are so safe, they’re boring.” However, the Uber incident can now hurt its plans for providing a fully driverless taxi service in late 2018.
Alphabet carries a Zacks Rank #3.
Alphabet Inc. Revenue (TTM)
Alphabet Inc. Revenue (TTM) | Alphabet Inc. Quote
Graphics chip-maker NVIDIA has been a major supplier of AI chips. The company supports autonomous vehicle projects of Uber, Volkswagen and China’s Baidu through its new augmented reality, driverless car technology called DRIVE AR. The company also announced a partnership with Aurora to build a “Level 4 and Level 5 self-driving hardware platform”, which will integrate its Xavier processor.
Notably, NVIDIA is working with over 320 companies globally on automotive applications. Hence, a slowdown in commercialization doesn’t bode well for the company.
NVIDIA Corporation Revenue (TTM)
NVIDIA Corporation Revenue (TTM) | NVIDIA Corporation Quote
NVIDIA sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Ford Motor Company (F) : Free Stock Analysis Report
General Motors Company (GM) : Free Stock Analysis Report
Tesla, Inc. (TSLA) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research