Driverless Cars Or Electric Vehicles, Which Will Dominate The Future?

In the wake of the public presentation of Tesla’s (TSLA) new Model 3, it’s worth rethinking what the future of automotive transportation might look like. Two precepts that have been widely held by many experts are now worth calling into question.

First, it had been assumed all along that electric vehicles were going to take decades to become mainstream, especially since total EV sales in the U.S. last year were only around 115K vehicles. In the first 36 hours after the Model 3 was announced, Tesla took reservations with a $1,000 deposit for more than a quarter of a million Model 3s. Tesla has plenty of critics and plenty of fans, and there is no reason to argue over the company’s value or prospects at this juncture.

What is clear and indisputable at this point is that there is a significant demand for mass market EVs even with gas prices low and no actual mass market EV models available from a popular automaker. If EVs do take off, it will be unambiguously bad for oil demand and hence prices over the next few decades.

That fact might be partially offset by another reality that is becoming increasingly clear; the future driver of the automobile is not a human being. Tesla’s self-driving cars technology is very impressive, and it only costs a few thousand dollars to install. Just as importantly, Tesla is far from the only company working on this tech. From small start-ups to behemoths like Google (GOOG, GOOGL), almost everyone is working on self-driving vehicles and there are measurable indications that huge progress is being made. Self-driving cars appear set to debut in numerous car models over the next decade, and Tesla’s Model 3 announcement shows that the technology will not be isolated simply to high end vehicles.

This is a major technological advancement that will revolutionize the way Americans travel. There has been a lot of chatter in some quarters about a lack of significant technology breakthroughs in recent years, but advances like self-driving cars call that thesis into serious doubt. Self-driving cars and presumably tractor trailers are likely to fundamentally change the way goods are shipped and the way people travel.

In particular, to the extent that self-driving tech allows truck drivers to be replaced, it should lower the cost of shipping goods, which in turn should mean shipping things is more efficient and hence the amount of goods being shipped increases. Similarly, if people no longer have to do the work of driving themselves, but instead can sit back and relax while a computer drives them from place to place, then people are likely to be willing to travel and commute more often and further. This is simple economics – as costs fall, quantities of a good or service used (demanded) rise.

As the price of driving gets cheaper, more driving will be done. This in turn could lead to more oil consumption – assuming the driving in question is being done in a conventional car rather than an EV. So the tension for investors really comes down to which trend will dominate; the adoption of EVs or the advance of driverless technology?

Now of course it’s worth noting that even if gasoline use in vehicles does fall as conventional cars are phased out, EVs still have to get electrical energy from somewhere. That means that much larger amounts of electrical generation capacity will be needed, especially as the amount of traveling increases thanks to driverless cars. Fundamentally, economic principles are suggesting that either a lot more oil or a lot more electrical power will be needed in the future to meet transportation needs. Investors have to decide which scenario they envision occurring first.

This article was originally published on

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.