F

Ford Motor Company

15.88
USD
-1.67%
15.88
USD
-1.67%
10.61 25.87
52 weeks
52 weeks

Mkt Cap 62.31B

Shares Out 3.92B

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Driverless Taxis Are Here. How Should Investors Play It?

Yesterday was a massive day in the world of self-driving cars or autonomous vehicles (AVs). Cruise, a subsidiary of GM (GM), gave rides in their completely driverless AVs to fare-paying customers in San Francisco, marking the first time that has happened in the U.S. Alphabet (GOOG, GOOGL) subsidiary Waymo has been offering an autonomous ride-hailing service since 2020 with a “safety driver” behind the wheel, but this still marks a big step forward. If some of the fearmongers are to be believed, we should brace ourselves for a series of horror stories about fiery crashes killing those foolish enough to get in a car without a human in charge. So far, however, in the first day of operation, that hasn’t been the case. Given the massive number of accidents caused every day by human error, and the fact that there have been only 18 reported accidents involving Waymo in the past 20 months, that is a pretty good start for AVs. For investors, however, safety isn’t the issue. The biggest problem that the industry faces at this point, of course, is not logic, but feelings. Logically, having a computer drive your car, which unlike a human being, cannot be drunk, overly tired, distracted by its phone, in a bad mood or be the cause of a crash for whatever reason, is inherently the safer option. That, however, doesn’t matter to a lot of people. They simply cannot get their heads around the fact that the car doesn’t have a person at the wheel and feel that it simply must be dangerous. That sentiment will fade eventually, just as resistance to every revolutionary technology does. This means that there will be some huge opportunities for companies in the space, and therefore for investors in those companies. The problems for investors, though, are somewhat more complex and harder to overcome. First and foremost, as you may have noticed, both of the operational AV ride-hailing services at this point are operated by subsidiaries of much larger companies. You can buy stock in Alphabet or GM to play on their success, but even with rapid expansion, Waymo and Cruise will represent only a tiny part of those two companies’ operations for years to come. The same argument applies to other car makers who have a strong commitment to AVs, such as Ford (F), Volkswagen (VWAGY) and Tesla (TSLA). It can also be said of chip makers who have committed to the space, such as Nvidia (NVDA) and Intel (INTC), but that still may be a good way for long-term investors to play the coming boom. They have developed specialized chips for AVs, demand for which can be expected to grow exponentially over the next decade, whether the most successful AV maker during that time is one, some, or all of the above, or even if it turns out to be a name not yet known. In cases where there is a bright future for an industry, but uncertainty about who will dominate it, an ETF that spreads your single-company risk can often be the best answer for investors. But with AVs, it isn’t that easy. There are several offerings that incorporate AVs, but almost all of them also hold stock in electric vehicle companies that may or may not be fully committed to AV technology. The closest ETF to an AV only play is probably the SPDR Kensho Smart Mobility ETF (HAIL), but even that has holdings in things like airlines that aren’t directly tied to self-driving cars. In short, the problem for investors is that there is very little out there that acts as a “pure play” investment in autonomous vehicles. This is a case, though, where we shouldn’t allow perfect to be the enemy of good. The auto industry is being transformed and that will lead to a boom with huge potential profits. So, dedicating a small percentage of your portfolio to a few relevant stocks such as chip makers, car companies committed to the technology, and something like HAIL will probably pay off in the long run. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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