Self-driving cars are just around the corner. Portfolio manager Mark Casey reveals what they can already do, how soon we’ll begin to see them and what companies are doing to secure a piece of the action.
Matt Miller: Let’s talk about the self-driving cars for a second, because again, we hear a lot about where that may go. Where do you think we are in the trajectory of when is this is going to happen? What are the regulatory or psychological hurdles for people to get over? Have you been to these test sites where they do this stuff, and what’s that like?
Mark Casey: I have a lot of thoughts on self-driving cars. This is kind of an interesting one. In 2008, I think — it was the recession, the global financial crisis — and I was driving to work. And they were talking about what sorts of jobs were never going to go away. And that was a time when everybody cared about what sorts of jobs were never going to go away. And one of the jobs that got mentioned on this radio program was bus drivers. “A robot will never be able to drive a bus. The safety demands of driving a school bus full of kids are so high, you’re always going to have a trained human.”
And that was in 2008. And kind of ironically, Google started its self-driving car project in 2009. And here we are, not even 10 years after I heard that on the radio, and already these self-driving cars are really quite good. And I think almost everybody who’s working on developing them, if you said, “Hey, your thing is never going to be safer than a human bus driver,” they’d laugh at you and say, “Are you kidding? It’s already almost as safe as a human bus driver. And in three or four years, it’s going to be a ton safer.”
So there’s been a tremendous amount of progress in self-driving cars. The Google ones, for example, they make decisions 200 times a second, right? So they have lidar [Light Detection and Ranging] and radar and other sensing devices, including cameras. They’re watching the world in a 360-degree sphere that goes 200 yards around the car. These systems never look down to check their text messages. They never reach down to change the knob on the radio. They never have a sip from their Big Gulp and block their vision. They never have to reach around and like, get their kid to put down … you know. They’re just always alert. They’re making decisions 200 times a second, and they’re turning out to be —
Matt Miller: You’re saying that’s a better capacity than you or I –?
Mark Casey: It’s turning out to be quite safe. They can see in the dark. They can see thermal images. So those cars, if they’re driving down a highway in the middle of the night and there’s a deer approaching the highway — your eye could never see it, but they can tell through their infrared sensor that there’s a warm object moving very close to the highway, and they’ll slow down and let that deer run by. And then some of the things that self-driving cars do are just common sense. Like for example, when they’re in fog, they slow down a lot, because they say, “Hey, we can’t see as far. We should drive more slowly.” Well, I drive on a very foggy highway to get to work, and nobody slows down at all. People hit these fog banks — they’re going 80 miles an hour; they slow down to 70. The Google car would slow down to 50 or something like that.
And so they have better sensors, and then they have very good judgment. So to me, it’s just a question of when the cars are so much safer than humans that they start to achieve regulatory approval for certain use cases. It’s not a question of if they’ll get there. It’s not like we’re going to have one day where there are no self-driving cars on the road, and then the next day, self-driving cars will have free license to roam wherever they want.
Matt Miller: Right.
Mark Casey: I think we’ll see a staged rollout where, for example, they’ll start maybe in one city or even just in a suburban area. And the cars will be geofenced in, and it will kind of be, “Here’s a self-driving car zone. The town of Redwood City, California, is going to be a self-driving car zone.” And the cars are allowed to go here but not there, right? And people will watch.
Matt Miller: And they’ll coexist with human-driven cars?
Mark Casey: And they’ll coexist with regular people. And then they’ll get a slightly bigger area, then maybe they’ll be allowed on the highways and so forth. Phoenix, Arizona — a very orderly, sunny, western city — they’re going to get there a lot faster than they’re going to get to Calcutta, where you have to contend with water buffaloes on the road —
Matt Miller: Right.
Mark Casey: Or other sorts of chaotic elements. But I think, over a period of years — maybe it’s many years — we’ll see them spread out and be adopted more and more broadly. But the beginning of it — I wouldn’t be surprised if it’s by the end of 2017 or 2018 — I wouldn’t be surprised if you have a Google-powered Uber-type of service in a certain area, maybe at an Olympic village or that equivalent or some part of the city. I wouldn’t be surprised if you have that by the end of the year.
Matt Miller: When you think about this from an investment point of view, as you’re thinking about how to help our clients benefit from partnering with firms that are doing this, how do you think about that now?
Mark Casey: I think, broadly speaking, I want to avoid owning things where the market is assuming that self-driving cars won’t have an impact. So, for example, I feel like the need for parking garages is going to go down a lot — a ton — in the world of self-driving cars, because you don’t need to park your self-driving car. Your car can drop you off at the office, and then it can go drive out to the cheap part of town and park itself. Now, I don’t know how many publicly traded companies there are that are involved with parking garages. But I know the whole nature of the parking garage business is you charge a ton more to be in a very desirable location.
Matt Miller: Right.
Mark Casey: I think right now we’re at a period of very high confusion as to what investors should be doing. There was a big announcement, actually just yesterday. Intel is spending $15 billion to buy this company called Mobileye, which is located in Israel. If you happen to have a Tesla Model S, the chip and camera that enable that thing to stay in its lane on the highway and not hit the car in front of it is made by Mobileye. I think there’s going to be a lot of that. I think there’s a little bit of a musical chairs game going on.
Matt Miller: In terms of the components or supply chain for the autonomous-driving world?
Mark Casey: Yes. If you add up the number of big profitable companies who are having boardroom discussions right now, saying, “What’s our plan for self-driving cars?” — the chairman of the board asks that question, and the CEO says, “We don’t really have a very good plan” — there’s a ton of companies like that. Most of the automakers, for example, are in that situation.
And so I think there’s a real scarcity value on anybody who’s got self-driving-car talent. They’re all being acquired like crazy. So I’m looking for companies that will get acquired.
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