19 hours ago
This car is the next big thing in driving — and you can invest in it right now
Move over AI. The next big tech-investing trend is AV. The market for autonomous vehicles (AV) is expected to grow ninefold to almost $700 billion by 2040, up from $78 billion last year. That's the ambitious forecast in a comprehensive AV investing report recently published by Bank of America called 'AV you can drive my car — Autonomous Vehicle Primer.'
Emerging tech-sector growth estimates like these can be notoriously wrong. But even if these estimates are off by half, they still suggest phenomenal growth. In short, AVs look like one of the best secular tech trends to invest in.
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Here are the two main factors that will drive this growth, and some of the best ways to invest in this trend, according to Bank of America and three money managers I recently spoke with.
1. Consumers will get more comfortable with AV safety: People aren't fully sold on AVs. Just 13% of U.S. adults trust AV technology, according to a recent poll from AAA. About half believe that safety concerns will stall widespread AV adoption. But as robotaxi operators including Alphabet's GOOGL GOOG Waymo and Tesla TSLA rack up more miles, they're building out convincing safety data.
As of last April, robotaxis had travelled 186 million miles — equivalent to a round trip to Venus. Waymo's paid rides jumped almost 60-fold in the past 18 months to more than 1 million a month in April. Waymo says its robotaxis have 92% fewer injury claims compared to human-driven cars.
Waymo currently offers full commercial service in five cities: Austin, Texas; Los Angeles; San Francisco; Phoenix; and Atlanta. Rollouts to new cities will continue, getting consumers even more comfortable with AV over time. Tesla, meanwhile, is operating in Austin on a limited basis. Its San Francisco Bay Area ride-hailing effort is underway, but isn't fully autonomous.
2. Robotaxi rides are getting cheaper: Eliminating drivers will cut the cost-per-mile for taxi service by half, Bank of America analysts predict. Tesla's AV cost per mile could be $1.58 compared to $3.41 for ride-hail services, a result of less expensive sensors, computing power and equipment, BofA says. In China, for example, AV providers Baidu BIDU and Pony AI PONY recently said costs of their latest-generation robotaxis are 50% to 70% lower than prior models due to declines in the same costs.
Tesla: Tesla's AVs are far cheaper than the ones used by Waymo, giving it a competitive advantage, says Joe Dennison, a growth-fund manager at Zevenbergen Capital.
Waymo buys Jaguars and adds sensors and other hardware to make them into AVs, at a cost of more than $200,000 per car, he says. In contrast, Tesla's Model Y costs Telsa $30,000 to build. 'Tesla has the best chance to win. They can undercut on price,' Dennison said in a recent interview.
Another plus is that Tesla's Model Y has been designed as an autonomous vehicle. That means it works better than converted cars offered by General Motors GM and Ford F. 'You need vertical integration to make sure all the parts talk to each other,' Dennison says. Beyond the Model Y, Tesla has plans to roll out a dedicated robotaxi car in 2026 called the Cybercab. At some point Tesla may also generate AV revenue by licensing its AV technology to other car makers.
Tesla critics say the stock looks rich and could be volatile near term. But that's the wrong time frame to consider, Dennison says. 'You're buying it for the next five years, not the next five months.' Dennison is worth listening to because the Virtus Zevenbergen Innovative Growth Stock Fund SCATX and Virtus Zevenbergen Technology fund DRGTX he co-manages have both outperformed their Morningstar mutual-fund category by 6.5-7.5 percentage points annualized over the past three years.
Meanwhile, Waymo contributes relatively little revenue to its giant parent company Alphabet, so it is tough to get meaningful exposure here.
Uber Technologies: Uber UBER is positioning itself as the tech platform that supports the rollout of AV robotaxis. Uber is also getting into the robotaxi business itself — partnering with autonomous-driving company Nuro and EV-maker Lucid Group LCID to launch a service in a 'major U.S. city' later this year.
Uber offers robotaxi providers broad access to customers so they can scale rapidly. 'The fastest way for an AV company to get to profitability is to have the cars working most of the time, and the best way to do that is by listing their cars on Uber,' Dennison says.
Waymo partners with Uber in Austin and Atlanta. Bidu partners with Uber in Asia and the Middle East. Lyft LYFT is ramping up its own robotaxi effort, beginning in Atlanta and Dallas, but currently does not have a sizeable global footprint — making Uber a better robotaxi play.
China's EV and AV sales are growing rapidly and that will continue. By 2030, 80% of cars in China could have some form of self-driving capability, and by 2034 the country will have twice as many robotaxis as the U.S., Bank of America's report predicts.
Pony AI provides a way to invest in China's AV growth, says William Blair Investment Management global equity research analyst Pierre Horvilleur. Pony offers robotaxis and robotrucks. Horvilleur says Pony currently has around 1,000 robotaxis in China, and the company is expanding into Europe. Bank of America predicts that Pony's robotaxi fleet will rise to 138,000 vehicles by the end of 2030. That growth supports BofA's $21 price target for the stock.
Next, consider BYD CN:002594 BYDDY. 'They are democratizing autonomous driving for the masses,' Horvilleur says. 'They are making it standard on all their vehicles.' BYD is also a low-cost producer. It sells a car with autonomous driving capabilities for as little as $10,000. 'They offer extremely compelling value. That is what wins in emerging markets which is their primary target,' Horvilleur says. The company is expanding into Europe, but currently has no plans to enter the U.S. market.
Another portfolio candidate is Xiaomi HK:1810 XIACF — an emerging AV play in China. Xiaomi is a smartphone maker, with cars bringing in about a quarter of its revenue. Its SU7 EV, launched last year, is a popular vehicle in China. The SU7 is not fully autonomous, but the company is investing heavily to get there. A potential catalyst is the near-term launch of a new model called YU7.
AVs are literally supercomputers on wheels. But well over half of AV driving happens in data centers, which assist with learning and decision-making. As AV driving expands, the cars will require bigger AI models and data storage. Bank of America estimates AV-related AI infrastructure could grow 10 times and data-storage needs will grow nearly 20-fold over the next three years as AV usage picks up.
'The processing power in data centers needs to grow equivalently to efficiently train and run the models,' says Bank of America. This will drive demand for chips and software provided by Nvidia NVDA, Qualcomm QCOM and NXP Semiconductors NXPI.
Rather than attempting to pick a robotaxi winner, Gabelli Funds portfolio manager and auto-sector expert Brian Sponheimer prefers to go with the picks-and-shovel plays. For that, he likes Aptiv APTV, which provides the sensor and radar technology and software that helps AVs by collecting data, which is processed to help the cars drive. Bank of America analysts recommend Infineon IFNNY, which sells chips and microcontrollers that support AV sensors and driver assistance systems. If you agree that AVs will take off over the next several years, you should also consider these two stocks.
Also read: This Tesla rival's stock soars as Uber plans big investment, launch of robotaxi service
More: The strange reason that EVs are more likely to cause motion sickness
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