A Gold Rush Strategy for the Self-Driving Car Revolution
Today, we are happy to share the next essay in a series on the growth opportunity in autonomous vehicles from our colleague Matt McCall, editor of Investment Opportunities . As you know, Matt's been covering one of the most significant trends and investment opportunities of our lifetime - electric and autonomous vehicles.
Investors can take advantage of this investing trend in so many ways, and today Matt explains how you can profit from this trend without investing in any car companies at all.
We will be sharing the other essays in this series with you in a special send of the Digest , and I know you'll find them informative and entertaining.
How the Gold Rush Strategy Can Make You a Fortune In the Transportation Transformation
By Matt McCall
I believe the incredible tailwinds blowing at the autonomous vehicle industry's back make it so the opportunity here is much like the one internet stocks offered in 1994 … or the one smartphones offered in 2009.
If you missed the opportunity to make at least 20 times your money in internet stocks … or if you missed out on the opportunity to make 20 times your money in the smartphone boom, you're going to want to know what's happening with autonomous vehicles.
Like any industry, there are a variety of ways to invest in autonomous vehicles, each with their own potential risks and rewards. I have a clear preference of one over all the others.
How to Make Money From Every Autonomous Vehicle Maker
Most investors are familiar with the "picks and shovels" approach to investing in a business or commodity boom for good reason. The right picks and shovels investment offers big upside, yet limited downside.
The most famous example of someone getting rich with the picks and shovels approach comes from the 1850s California gold rush. After gold was discovered at Sutter's Mill, thousands and thousands of people from all over the world rushed to California. They risked everything trying to strike it rich. Most of these people found no gold and lost everything.
Instead of taking the risky "all or nothing" approach of looking for a big strike, a smart German named Levi Strauss sold basic goods to the miners. It was a much safer, surer way to acquire wealth than trying to hit the motherlode.
Eventually, Strauss started producing a new kind of durable pants for the miners. They became a huge hit and Strauss got rich. Again, Strauss didn't risk it all on trying to find a big strike; he simply sold goods to everyone who was looking for the big strike.
This business model - selling picks and shovels to a booming industry - is extremely powerful. You get paid by all players, big and small. Any time I invest in a sector, I immediately look around for good "picks and shovels" plays.
Below, I describe what kinds of "picks and shovels" the autonomous vehicle industry will need…
The "Picks and Shovels" of AVs
With the race to autonomous vehicles (AVs) in its early stages, it is too early and too risky to try to pick the one auto manufacturer that will become the leader.
Instead, you can make money on the companies that make the parts that go inside the vehicles. In other words… the picks and shovels of the auto industry.
There will be many big winners as the multi-trillion dollar transportation industry gets turned on its head. You can diversify across a few of those potential big winners and lower your risk at the same time.
As we talked about in an earlier essay , most auto parts makers will supply all the big names in the industry and become big winners regardless of which manufacturer wins the race. Let's look at some of the parts in the cars of the future.
You may not be used to thinking about semiconductors when it comes to cars. The cars of the future will be chock full of semis that will gather data, process it, share it, and connect to the rest of the world.
For example, Waymo's driverless car gathers nearly one gigabyte (GB) of sensor data per second . That is about 100 times faster than a typical computer can download a file. Intel predicts an AV will use 4,000 GB of data over the course of a day. Just imagine the power and speed required for this to occur.
You can see in the Intel image below how data is king in AVs.
Without a human driver, an AV needs sensors to be the eyes for the vehicle and safely navigate the environment around it. There could be up to 30 different sensors on each AV to accurately gain a 360-degree view. Even now, most cars have sensors for changing lanes and backing out of parking spots, and there are a number of companies that supply the auto industry with those sensors. In the future, sensors will be more powerful.
There will also be cameras around the outside as well as inside the AVs. One of the most important camera technologies is called LiDAR.
LiDAR is short for "Light Detection And Ranging." It is similar to radar but uses light from a laser pulse instead of radio waves. Check out the picture below. The funny looking circle object on top of the AV is the LiDAR system.
LiDAR measures how long it takes for lasers to come back after hitting an object. The continuous pulses help the car create a 3-D map of what is around the vehicle.
The current global leader in LiDAR is Velodyne Lidar. It is a privately held company that has received investments from Ford and Chinese company Baidu.
In 2017, the automotive LiDAR market was estimated to be $325 million. By 2023, a mere five years from now, the same market is expected to balloon to $5.2 billion. That's a compound annual growth rate (CAGR) of 59%. And it will not stop there, as continued annual 20%+ growth will push the automotive LiDAR market to $28 billion by 2032.
That equates to an 86-bagger for automotive LiDAR growth in less than 15 years.
Alphabet and its Waymo division have a big lead in mapping , which could provide a treasure trove of information for the company in the future.
There are also a number companies developing software and hardware for AVs. I've recommend one of the major players to my Investment Opportunities readers. Others include Intel, Nvidia, NXP Semiconductors, Samsung, and Bosch.
Your iPhone Moment
Many of the world's richest, most powerful companies are competing in this historic race to get to autonomous vehicles first.
The stakes could hardly be higher. They're well into the trillions of dollars. And there's no question this race will completely reshape the way we work and live.
Investing now in the inevitable disruption of the transportation industry is similar to investing in anything Apple-related 10 years ago. Those who broke down the iPhone and invested in the suppliers made fortunes.
The same will be said in 10 years for investors who break down the AV industry, buy suppliers, and hold for big games over the long term.
Next time, we'll look at how investors can still get rich through autonomous vehicles even if ordinary people like you and me never buy a single one.
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