Kicking the tires on driverless tech

E*TRADE Securities2

04/25/17

On Friday, April 14, the California Department of Motor Vehicles issued permits to Apple Inc. that allow the tech giant to test autonomous driving technology as part of a plan known internally as Project Titan.1 It’s safe to assume that CEO Tim Cook didn’t spend an afternoon waiting at the DMV for these permits.

What Project Titan entails exactly is unclear, which is in line with driverless players’ tendency to keep their progress fairly secretive. But what is known is that Apple’s step is one of the latest developments in a crowded race to make the steering wheel obsolete.

Perhaps no emerging technology better captures the Internet of Things (IoT) concept—the smartening of everyday devices via an interconnected network that collects and exchanges data to create a more efficient way to live and work—than driverless technology. What once seemed beyond futuristic now seems capable of disrupting not just an industry, but a way of everyday life.

This week, we look at how several sectors, from traditional automakers, to major tech companies, to even insurance providers, could be affected by mass implementation of autonomous car technology. But first, a quick primer.

Race is on

The National Highway Traffic Safety Administration defines six levels of autonomous driving technology, 0 to 5.2 Level 0 is what drivers are accustomed to currently, i.e., full control of the vehicle. Levels 1, 2, and 3 see the driver gradually relinquish responsibilities to the vehicle; by Level 3, the vehicle can handle safety-critical functions amid certain traffic and environmental conditions, with the driver able to intervene, if necessary.

Level 4 is where it gets really interesting; and where driverless tech players are racing to get to now. This level is considered “fully autonomous,” with the vehicle responsible for all safety-critical functions; it does not account for all potential driving scenarios, however. That’s Level  5, which is defined as a “driverless” vehicle capable of navigating all driving environments.       

Industries prep for turn

Some firmly believe that widespread introduction of autonomous driving systems is inevitable, and that such an outcome will likely reverberate across the many sectors that put cars on the road.3 Assuming that occurs, those companies that can get to Level 4 and Level 5 quickly and efficiently, and align production with changing consumer preferences, could stand out from the competition as the auto industry evolves.

Bottom line: With driverless tech in its infancy and widespread adoption uncertain, investments in this sector are highly speculative. There are, however, a few areas interested investors may want to remain focused to stay abreast of progress:

  • Detroit and beyond. To start with the obvious: Traditional automakers would seem to be in line for the most significant changes to their businesses. Notable will be how quickly these companies can develop the technology and transition their existing vehicle fleets to those increasingly equipped with driverless technology. Those market participants that can adapt to new industry dynamics could be well-positioned for industry changes.     
  • Silicon Valley powerhouses. Electric vehicle maker Tesla, Inc., which actually surpassed Ford Motor Company in market cap recently, and some of the newer entrants in the car market, are pushing the auto mainstays and are a dominant voice in how driverless technology advances. Outfits like Alphabet Inc.’s car segment, Waymo, as well as Apple’s formal participation, extend the reach of the tech sector into the auto industry and could present investment opportunities. 
  • Chipmakers. Semiconductor companies are at the core of driverless technology, and several have been looking to increase their presence in advanced driver assistance systems recently. If introduced on a broad scale, those players that can capitalize on this shift in the auto industry may stand to benefit.
  • Auto insurers. The insurance industry could be ready to see big changes in its business model.4 Level 4 and Level 5 technology would likely shift vehicle-operating liability to the manufacturers. However, navigating the liability landscape for Level 2 and Level 3 vehicles, where the driver can still intervene, may be difficult. Also, premium cost structures for personal auto insurance could be upended if driverless technology turns out to be safer than human-operated vehicles. Insurers that can move with the industry, perhaps by seeking partnerships with carmakers, could see benefits.5    

Tapping the breaks

Every indication is that the technology needed for mass implementation of driverless vehicles is available. But the rules of the driverless road are still to be defined, including federal safety and transportation regulations, infrastructure, insurance, and consumer access and adoption.5 As with all opportunities, especially those broad in scope, it’s important for investors to keep their hands on the wheel and consider the investment risks relative to their long-term goals, time horizon, and risk tolerance. This is an exciting technology, but the road to mass adoption may prove winding.   


1. Goel, Vindu. “Apple Gets Permit to Test Self-Driving Cars in California,” The New York Times, 14 Apr. 2017. https://www.nytimes.com/2017/04/14/technology/apple-self-driving-car-permit.html?_r=0

2. National Highway Traffic Safety Administration, Federal Automated Vehicles Policy, “Accelerating the Next Revolution in Roadway Safety.” https://one.nhtsa.gov/nhtsa/av/av-policy.html

3. Gao, P., Kaas, H., Mohr, D., & Wee, D. “Disruptive trends that will transforms the auto industry,” McKinsey & Company, Jan. 2016. http://www.mckinsey.com/industries/high-tech/our-insights/disruptive-trends-that-will-transform-the-auto-industry  

4. Muoio, Danielle. “Tesla is already showing how the insurance industry will be disrupted by self-driving cars,” Business Insider, 26 Feb. 2017. http://www.businessinsider.com/driverless-cars-could-negatively-affect-insurance-industry-2017-2

5. Muoio, Danielle. “Tesla wants to sell future cars with insurance and maintenance included in the price,” Business Insider, 23 Feb. 2016. http://www.businessinsider.com/tesla-cars-could-come-with-insurance-maintenance-included-2017-2

6. Beene, Ryan. “Talking-Car Safety Mandate Hits Unexpected Pothole of Opposition,” Bloomberg, 17 Apr. 2017. https://www.bloomberg.com/news/articles/2017-04-17/talking-car-safety-mandate-hits-unexpected-pothole-of-opposition