This Industry is Ripe for Disruption - Vivek Kaul's Diary
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This Industry is Ripe for Disruption

Dec 20, 2016


Think of Christopher Columbus sailing across the Atlantic and linking the New World with the Old. Or the first journey of Stephenson's Rocket, the steam train between Liverpool and Manchester. Or Charles Lindbergh, the first man to fly an aeroplane solo and nonstop from the US to Europe.

These kinds of journeys are about more than just geography. They're symbols of what new technology can achieve. They act as signals to the rest of the world - showing us what's possible and what's coming.

I think another of those journeys happened last week. It didn't have the magnificence of flying across an ocean... or discovering a continent. But I think it's no less significant. It happened in Austin, Texas. And it involved a blind man travelling alone in a car. He didn't need to see. The car drove itself.

It's journeys like this that become part of history. They show us what technology is capable of. This wasn't a case of a "supervised" driverless car, where the car drives but there's a driver in the seat just in case. It was a blind man and a car. No safety net. It's another data point - a key one - in the idea we were discussing last week: the revolutionary move towards driverless vehicles.

Thank you if you wrote to me, by the way. It's fascinating to hear your views on new technology like this. And you raised several interesting points I thought worth discussing.

Like this one, for instance:

  • Why should driverless cars lead to substantially lower car ownership? 

    Everyone tends to want their car at the same time of day so roughly the same number of cars required?

    Where will all the "hire" cars be stored ? Requirement for a vastly increased underground storage capacity in cities? No bad thing as it will unclog the roads and should be done anyway.

    Driverless trucks more attractive as they are expensive bits of kit and, without the restriction of driver's hours, could be utilised around the clock.

    Surely the biggest disruption would come to Uber and the taxi trade? It is very inefficient both environmentally and in terms of cost to have cars cruising round the streets looking for business.

To answer your first point: because they'll be cheaper. If it is half the cost to do the same number of miles per year... economics dictate that large numbers of people won't bother buying a car.

And I would suggest there will be far fewer cars on the road. I met some people from a driverless car firm called Autonomy (based in Singapore) earlier in the year. Its figures suggested that the 900,000 daily journeys in Singapore could be serviced by 300,000 vehicles, once you factor in ridesharing and the fact that most cars would be in motion the entire time.

Let's assume that's optimistic. Not everyone wants to share. Though again, if it is vastly cheaper, lots of people will do it. But even if those journeys required 500,000 driverless cars, that's a huge drop from the number on the road now.

In a sense, the whole idea of car storage would change. Yes, you'd have busier times and quieter times. But the idea is ultimately there'll be far fewer cars operating far more of the time, which is more efficient. They'd be managed by a centralised network that conducts vehicles around the grid.

That doesn't mean everyone will find themselves in a driverless car. That's not my point. As another note put it:

  • Hi Nick,

    I have just read the Exponential email this morning and although I can see the vision happening in the future, I have one or two questions in general and one or two personal concerns.

    1) Whereas it may be true that the average car is on the road for only 3 or 4% of the time, the point is that, that time is the same for all people who need to get to and from work which causes the recognised "rush hours". So a 90% reduction in the numbers of cars on the roads just isn't going to happen.

    2) There will be a disparity in the level of safety afforded between largely urban drivers and rural drivers. The data network between all the driverless vehicles and street furniture might work well in the urban environment but will be less effective on the rural roads where the AI car is on its own and the human driver might spot the horse rider or cyclist around the corner over the hedge.

    3) You quote $1 per mile as being the cost per mile. I am not materialistic when it comes to cars, and living and working in the country means that I use a car more than most both for personal transport and as a "metallic beast of burden". So I always buy a £1,000 banger and run it for a couple of years until it falls to bits. My overall car costs are kept considerably less than $1 per mile and therefore I am able to cover more miles than most. A necessity for the reasons described above.

On point #1 I'd agree. A 90% reduction seems unlikely. As I said though... there's plenty of room for a revolution based on a 40%-50% change in efficiency.

Point #2 is spot on. It's something I wanted to clarify. It comes down to this: gains from technology are not equally distributed. There will always be certain locations and demographics that adopt technology at highly different rates. That doesn't mean this isn't a huge opportunity, though.

Think about the transition from the horse to the car. There were plenty of people for whom travelling by horse and cart was preferable. Geography would be one. Cost another. Personal taste and circumstance would also play a role. But ultimately it became a cheaper, faster and more efficient way to travel. That changed the world, albeit not in an even way.

The same principle is true with driverless cars. There will be plenty of people who prefer to own and operate their own car. But over time the economics of the situation will change things.

Clearly in cities, where lots of people don't own a car (I never owned one when I lived in London, but needed to buy one when we moved out) there'll be less resistance. Rural areas will take longer.

You'll also see an uneven adoption by time. One strategy Autonomy has is to start with the "last mile". That means the mile between the underground station or bus stop and your house at 3am. There are very few cars or people around them. As a society it'll be easier for us to accept driverless cars on the road then. It's a lower barrier to entry. But it's a beachhead. That's likely where we'll see first adoption, moving from quiet roads at off-peak times, to busier roads at rush hour over time.

  • Interesting article about driverless vehicles...

    However there's one big sticking point to them:

    No-one wants them. People like driving cars. To compare the driverless car paradigm to the home computing revolution of the 80s is utterly ridiculous TBH; people really, really wanted home computers - they largely do not want driverless cars.

    I would suggest then the only way that the driverless car is going to gain any traction is if:

    a) special lanes are constructed for them to entice people into freer flowing traffic [impossible - no funds available even if physical space was] b) legislation is introduced compelling their use [political suicide].

    What say you?

I'm afraid I don't know everyone. So I don't feel confident making a claim about seven billion people's wants and needs without asking them all first. I'll let the market judge that one. If no one wants them, they'll fail. All those car and technology firms sinking millions into the next industry will have wasted their money.

But I will say this. Of all the replies I received last week, the vast majority were positive. I'd say 98%. So I wouldn't assume no one wants them. And, as a rule, people like things that are cheaper, faster and more efficient. Again, take the example of the horse to the car. Some people liked riding horses. Some didn't. In the end, people did what they felt was in their own interests.

I think the economics alone will compel people to change the way they see transport. Then of course you have safety. The vast majority of accidents are caused by human error. Roughly one million people die in road accidents every year. Driverless cars will have to be an order of magnitude safer than that to be accepted. But when the technology is there... people will do what they think is best.

The idea of special driverless car lanes is interesting. It's already happening. It was proposed earlier in the year between Vancouver and Seattle.

I would also offer a word of advice. Don't let your own biases get in the way of your investment decisions. You don't have to want a driverless car yourself to see the opportunity. You don't have to shop at Amazon (cheaper and more efficient than the high street) to understand why it's soared in the last 15 years. I'd rather count my feet than go on Facebook, but that doesn't stop billions of other people.

One final note, just to end today's letter and because it raises an interesting point: driverless cars could just be the first step in a much bigger change...

  • Hi Nick,

    I absolutely agree with you about the coming transport revolution. I think another sector ripe for disruption is the rail transport system.

    This is also massively underutilised if you think about how empty the train tracks really are largely due to the need for a "command" approach of signalling and switching. If you applied autonomous driving technology and moved rail switching from the track to the vehicle there could be all sorts of vehicle types such as shared, private pods, express, bespoke route etc sharing the network and making far more use of it.

    You could imagine a world where you hail a cab to take you to the station which then transfers you to a pod that takes you directly to your closest station or another cab in the city. The vehicle could even be adapted to travel on both road and rail. Potentially this does away with the need for roads into cities.

    Very exciting times - bring it on!

Please note: This article was first published in Capital and Conflict on December 19, 2016.

Nick O'Connor is a writer and editor at Moneyweek. He is also the publisher of Exponential Investor.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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