Self-driving cars have the potential to revolutionise transportation as we know it and established businesses and startups alike are working to make this a reality. In this article, we share some background information about this industry and the companies that are leaders in the “self-driving car race”, according to Bloomberg. We also discuss how you are able to invest in these companies and their stock performances.
Potential benefits of autonomous vehicles
If driverless cars can safely hit the streets, some of the potential benefits include fewer accidents, more access to mobility, reductions in traffic congestion and less pollution. From an economic point of view, Intel has predicted that self-driving cars could be a $7 trillion economy by 2050.
Complexity and capital involved
The potential benefits are, in some ways, hypothetical, but profound enough that companies are investing billions of dollars to make self-driving vehicles come to life. Making this happen, however, is not easy. The complexity of this feat has been compared to putting someone on the moon. Many companies had initially promised to have autonomous cars available by 2020 but have since pushed back those timelines. Aside from the vast complexity, required capital can pose issues. The self-driving car industry is one of the most capital-intensive startup businesses. Companies that have been working on this endeavor since 2009 have reported investments of at least $14 billion.
Impact of COVID-19
The COVID-19 pandemic has also created new challenges for companies involved in this space. Some have pushed timelines back even further with development being put on pause in efforts to curb the spread of the virus. Additionally, due to the high expenditures required, less-capitalised companies may struggle if they have been financially impacted by the pandemic. At the same time, COVID-19 has highlighted the economic case for self-driving vehicles. Since more people have shifted to buying online, more deliveries are being made. General Motors estimates that self-driving vehicles could cut costs from trucking freight in half.
Leaders in the self-driving car industry
According to Bloomberg, Waymo is the forerunner in the driverless car competition. Waymo started as Google’s self-driving car project in 2009. It spun off in 2016 as a subsidiary of Alphabet, Google’s parent company, under the name Waymo, standing for ‘a new way forward in mobility’.
Unlike its competitors, Waymo already has driverless cars on the road and riders can use them with its ride-hailing Waymo One service. However, it is currently only available in Phoenix, Arizona. The company has plans to make this service available in more cities.
The cars that are in use in Phoenix are Chrysler Pacifica Hybrid minivans, but the company isn’t limiting itself to a single supplier of vehicles. Its fleet of cars also includes modified Toyota Priuses, Lexus SUVs, Jaguar SUVs and a prototype vehicle called ‘Firefly’. Waymo is also working on integrating its self-driving technology into Class 8 trucks.
In March 2020, Waymo raised $2.25 billion from private equity investors, which was the first time that it had received financing from outside of Alphabet. It did not announce a valuation based on the round of funding. The company currently falls under Alphabet’s ‘Other Bets’ segment, but Waymo CEO John Krafcik said recently that spinning off from Alphabet is a possibility in the future.
As Waymo is currently a subsidiary under Alphabet, you are able to invest in the company indirectly by buying shares of Alphabet, which trades on the NASDAQ under the tickers GOOG and GOOGL. Shares that trade under the ticker GOOGL are categorised as Class A and GOOG shares are categorised as Class C. More information about the different classes can be found here.
Cruise is also a leader in getting self-driving cars on the road. The startup was acquired by General Motors in 2016 for over $1 billion. Cruise also has some other investors, including Honda and SoftBank.
The company is based in San Francisco, California, where it is currently developing a ride-hailing service with modified Chevrolet Bolt electric cars. In January 2020, Cruise also unveiled an electric self-driving shuttle called Origin that it has been developing together with Honda. Compared to some other autonomous vehicles, the Origin does not include pedals or a steering wheel in order to free up room for ride sharing. The cost to make the Origin is allegedly half of the cost it is to make a conventional sport utility vehicle. The launch dates of its ride-hailing service and the Origin have not been announced.
Last year, General Motors set up an incentive plan for Cruise CEO Dan Ammann. In the event of an IPO or a sale of the company within ten years, Ammann will be granted around $25 million in stock units. This suggests that an IPO could be possible in the future. In 2019, the estimated value of Cruise was $19 billion.
Since Cruise is mainly owned by General Motors, you are able to invest in the company by investing in General Motors. General Motors trades on the New York Stock Exchange under the ticker GM.
Another big player trying to commercialise autonomous driving is Argo AI. Argo AI was founded in 2016 by Bryan Salesky, who formerly worked at what is now Waymo, and Pete Rander, a founder of Uber’s self-driving program. Ford Motors currently has $1 billion invested in the company and in 2019, Volkswagen announced that it would be investing $2.6 billion, which is subject to regulatory approval. The two companies remain competitors in this space but they believe that teaming up will allow them to “deliver unmatched capability, scale and geographic reach”, as per Ford CEO Jim Hackett.
Argo does not have plans to launch a ride-hailing or goods delivery service as its main focus is on the self-driving system. The company works with automakers and integrates its systems into their vehicles. It is currently testing robo-taxis and driverless delivery pilot programs in a handful of cities in the US. Due to the partnership with Volkswagen, Argo also has a European headquarters in Munich and it plans to start testing in Europe as soon as this year. The company’s valuation was over $7 billion in 2019.
Argo is currently a privately held company, meaning that you are unable to directly invest in it at this time.
With a strong team of experts behind Aurora Innovation, the company making pioneering efforts in creating self-driving technology. It was founded in 2016 by Chris Urmson, Sterling Anderson and Drew Bagnell. Urmson was one of the leaders of Google’s self-driving car project for nearly eight years and left before it launched into Waymo. Anderson led teams that developed Tesla’s Model X and Autopilot. Bagnell is a former robotics teacher at Carnegie Mellon and was Uber’s autonomy and perception lead. Therefore, it is safe to say that these three are experienced in this field.
Aside from some big-name founders, Aurora also has some big-name investors. Some of them include Sequoia Capital, T. Rowe Price and Amazon. The company also has partnerships with Hyundai, Volkswagen and Byton, but wants its technology to be made available for a broad range of automakers. In 2019, its estimated worth was $2.5 billion.
Aurora is also currently privately held, so you currently cannot directly invest in the company.
In addition to the aforementioned, Aptiv is considered a leader in commercialising self-driving cars. Aptiv was formerly a part of a company called Delphi Automotive. In 2017, Delphi Automotive spun off into two separate publicly-traded companies called Delphi Technologies and Aptiv. Aptiv not only focuses on technology for autonomous vehicles but also advanced safety systems, signal and power solutions, user experience solutions and more.
Aptiv’s self-driving technology is currently on the road and in use. In 2018, it launched a fleet of self-driving BMW sedans in Las Vegas that can be used to hail rides with the Lyft app. The company announced in February 2020 that a milestone of 100,000 commercial robo-taxi rides had been given in Las Vegas. Compared to Waymo, Aptiv’s self-driving cars that are in use still have a safety driver in them.
To further its efforts in making autonomous vehicles mainstream, Aptiv announced a 50/50 joint venture in 2019 with Hyundai that recently completed in March 2020. The announcement said the two together plan to have its autonomous driving platform available for robo-taxi providers, fleet operators and auto manufacturers in 2022.
Since Aptiv is publicly traded on the New York Stock Exchange, the company is required to publish its financial reports, which can be found on its website. As of the end of May 2020, the company was worth around $19.2 billion.
Out of the three companies that you can invest in, Aptiv, Alphabet (Waymo) and General Motors (Cruise), Alphabet had the best performance during the first five months of the year. At the end of May 2020, stock prices for Alphabet were up around 7%. Big tech companies like Alphabet generally haven’t been hit as hard as other sectors, such as the automotive sector, which includes Aptiv and General Motors. According to ING, vehicle sales contracted by a record-breaking 79% in February 2020. During the same time period, prices for Aptiv and General Motors decreased by 30% and 20% respectively.
Investing via DEGIRO
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The information in this article is not written for advisory purposes, nor does it intend to recommend any investments. Please be aware that facts may have changed since the article was originally written. Investing involves risks. You can lose (a part of) your deposit. We advise you to only invest in financial products that match your knowledge and experience.
Sources: Bloomberg, Reuters, Waymo, Cruise, Argo AI, Aurora Innovation, Aptiv, Business Insider, Forbes, Business Insider, Investopedia, ING