Why the Next 3 Years Will Be Huge for the Auto Industry

Yesterday, in an essay titled “The Auto Industry’s $2 Trillion Breakthrough” I showed you how your car could be 90% driverless within the decade, according to what most of the big automakers say.

But if you buy from Tesla Motors, you could have it in 3 years. “We should be able to do 90% of miles driven within three years,” CEO Elon Musk said to The Financial Times. “It’s not speculation.”

“It’s incredibly hard to get the last few percent,” he says, doubting the feasibility at the moment. It takes about as much effort to get from 0% to 90% autonomy as it takes to get from 90% to 95%, 95% to 97% or 97% to 99% and so on.

…when cars are fully autonomous, we will then cut traffic accidents by 90%…

But when the day comes, a kind of “compound interest” of efficiencies will cascade across the industry. According to Google’s lead development team, when cars are fully autonomous, we will then cut traffic accidents by 90%, cut wasted commute time and energy by 90% and reduce the number of cars by 90%. All in all, $2 trillion is at stake. That’s enough money to trump Google’s search-related business.

Here is what we’ve seen from Big Auto so far that we know is feasible:

  • 2007 was the year when Lexus offered an automatic parallel-parking feature that helped drivers get out of tight spots. That same tech is now in the Toyota Prius, Ford Escape and VW Tiguan.
  • Nissan promised affordable autonomous cars to the public by 2020
  • Volvo promised injury-proofed cars with the help of automation by 2020
  • Mercedes has Stop & Go Pilot, an automatic lane-keeping feature that scouts for traffic and adjusts speed accordingly. They expect automated driving to be in their new S-Class. The company is working with Nokia, “whose mapping service digitally reconnoitered the path, actively pinging the world to form a reliable data map,” according to a recent Wall Street Journal article
  • GM has had plans to use autonomous tech for a long time, and is working with Carnegie Mellon plan to help reduce the number of car accidents.
  • Mega-supplier Continental is working with Google and IBM to develop autonomous driving systems for cars, shooting for “zero accidents” if possible.

So what does Google even know about the car business? Answer is: not much. But they didn’t initially know much about the mobile phone industry either. Now the Android operating system rules the roost. Remember: Your car is a powerful computer.

Google has shown that is willing to manufacture some hardware components before, like phones and laptops. But it’s more likely that they would commission a manufacturer to make the hardware for cars.

It’s the software they’re after. Google could be simply scaring Big Auto into following its lead. Then they will encourage those “hardware” companies to download their software. That is the most likely scenario, since Google already has streams of Big Data that could help guide the car, whether through Google maps or other satellite-enabled programs.

In the words of one attorney who is legally blind and eager to buy the first 90% driverless car:

“As soon as the general public realizes its potential, the driverless car will develop in the same manner that voice activation and audio output software developed for smartphones: What began as expensive, advanced adaptive technology to help the blind use computers will become an affordable and commonplace toy for the sighted.”

One question you might have come to your mind is: Why doesn’t Tesla Motors use it’s “hardware” and Google use its “software” or operating system to take over the car business?

That partnership makes the most sense to me, since both companies seem to be in “first place” in those respective areas. But as far as we can tell right now, Tesla is going to take yet another lesson from Apple Computers’ playbook. They’re going to tightly integrate their hardware and software. Musk has been tight-lipped about Tesla’s plans but said its driverless car technology was an “internal development,” rather than outsourced.

Oh yeah. Here’s why I say Tesla took another lesson from Apple Computers’ playbook…

Remember what happened back in June? If not, let me recount a tiny story for you…

Two bills were proposed in the New York legislature. They aimed to prevent car manufacturers from directly selling vehicles to the public. This sounded the alarm for Tesla Motors, the only carmaker operating in New York with a direct sales model.

This special interest-inspired mandate would have also likely made it more difficult to keep lower prices, higher quality and brand control. Here’s what happened…

Word got around through social media that these two “kill Tesla bills” were getting ready to fire:

“Just heard that NY auto dealers are sneaking through a bill to shut down Tesla in NY. Please call your state senator!”

— Elon Musk (@elonmusk), June 21, 2013

“NY auto dealers are trying to ram the bill thru quickly while no one is looking. Please call now nysenate.gov/senators.”

— Elon Musk (@elonmusk), June 21, 2013

And what became known as the “stealth bill” got the notoriety it was trying to avoid.

The state assembly’s lower chamber “adjourned its legislative session… without acting on the measure,” Auto News reported. That cleared Tesla at least through the rest of 2013:

“The kill Tesla bill in NY was stopped in the 11th hour due to public outcry. Am super grateful to everyone who helped.”

— Elon Musk (@elonmusk), June 23, 2013

[Ed. Note: Despite our recent caution on Twitter’s questionable success in its upcoming IPO, with alternative investments here and here, the service remains an empowering product.]

The entrepreneurial spirit of the market was in full force. And there is tremendous brand loyalty to Tesla Motors, as there was with Apple in its prime.

Tesla’s retail stores are very much like Apple’s. Imagine, then, by comparison, if Apple couldn’t sell their products through their own iconic retail stores, with Apple’s genius bar, displays and no-cash transactions. It would violate the culture of the business.

Bottom line: although Tesla Motors and Google could sew a powerful partnership that would likely accelerate the day we use driverless cars, they are more likely to become competitors in the next global industry war since smartphones.

Tesla Motors is focused on what no other company has done before: moving toward a greener renewable energy future — in style, of course. There is bound to be resistance.

But in the end, innovation will prevail.


Josh Grasmick
for The Daily Reckoning

P.S. Tomorrow, we’ll talk about cars as a new platform for apps, the future’s fleets of robotic taxis, and how you can profit from the coming boom in driverless cars. Get the full story before anyone else, complete with actionable investment opportunities, by signing up for Tomorrow in Review. It’s completely free to sign up and it comes with no obligation. So what do you have to lose? Sign up for free, right here.

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