Three big names are involved in the Holy Grail of driverless cars — Apple (AAPL), Alphabet (GOOGL, GOOG), and Tesla Motors (TSLA).
The technology exists, and prototypes are out there driving every day. But just how close are they to making this technology a reality? And which of these high-tech companies makes the most sense to consider investing in?
I found several experts, and talked to them about driverless cars and who seemed to be leading the pack. There were plenty of great insights about the space and how it’s evolving, yet there was no firm consensus on who was actually out in front.
Here’s a rundown of each of the leaders and where that company stands in the race to give cars over to the computers.
Driverless Cars: Alphabet (GOOGL)
Matthew Granski, financial analyst at Los Angeles-based Miracle Mile Advisors said, “Google is head-and-shoulders above its competitors, having already logged over 1 million miles on public roads.”
Fred Ledley, director of the Center for Integration of Science and Industry at Bentley University in Waltham, Massachusetts, added that it isn’t the actual car itself that seems to interest GOOGL. “The company appears to be betting that information technologies will become the most valuable part of the automobile, and that manufacturing will become a commodity.”
Jon Phillips, Editor-in-Chief of PCWorld, Macworld, Greenbot & TechHive, has a background in performance driving. He says, “Google needs a diversified portfolio as a hedge against the future, so it makes perfect sense to spend a portion of its considerable war chest on solving the world’s biggest problems — including the sheer drudgery of driving.”
But the company has another advantage, according to Phillips. “Besides capital, GOOGL has engineering talent. The algorithms and machine-learning routines for autonomous driving and search are certainly different. But there’s an institutional expertise at Google that applies to both.”
From an investment standpoint, Alphabet is wise to have its hands in many different things. Right now, it is essentially one big advertising business. By creating a portfolio of venture capital-style investments, it helps to diversify its business model going forward.
Should the economy crater, advertisers will pull back and hurt the company’s near-term results. Alphabet has more than enough cash to survive, but investors seeking growth had better hope that its driverless car — or something else — takes off.
Driverless Cars: Apple (AAPL)
Over at AAPL, Granski points out, “autonomous vehicles require millions of ‘test miles’ on real roads and until Apple puts a vehicle on the road for test use, it will be unable to improve its car to real-world situations, like Google is currently doing.”
Ledley sees through the secrecy on driverless cars. “Like Google, Apple appears to be moving towards commercializing these vehicles the way they have commercialized other products; Apple by outsourcing production to contract manufacturers such as Foxcom; Google by providing their propriety software for products produced by companies such as Samsung.”
Phillips actually sees parallels between GOOGL and AAPL. “Apple is the most successful company in history, but there are no guarantees that the iPhone will continue to be such a massive hit. Neither iPad or watch sales will carry the company. It’s taking baby steps into home entertainment.”
So Phillips thinks Apple has turned to automotive, seeing it as a wide-open playing field the Google does — and Apple has a massive war chest as well. But Apple needs to answer a few questions about its foray. “Is automotive just a back-room experiment? Are they going into autonomous, into electric, or both?” The wider the scale, the bigger the challenge — but the bigger the potential for AAPL stock.
Of the companies discussed, Apple is on the firmest ground with respect to its core business. Driverless car technology is not going to make or break the company. It has plenty of avenues of growth as it is, and this endeavor is just another potential area for growth. AAPL stock is also the safest bet as far as investing in driverless cars because if the initiative fails, there’s a real business to fall back on.
Driverless Cars: Tesla (TSLA)
Speaking of electric driverless cars, that takes us to Tesla. Granski reports that the TSLA Model S has an autopilot mode, where the reviews have been positive. “As Tesla uploads all the data to its learning network, the cars have the ability to improve together.” The company, however, isn’t even turning a profit right now.
With respect to direct investment, Granski advises investors to think small. “Autonomously driving vehicles will require a wide array of technologies and so investing in companies that will eventually provide this technology to car makers, such as Google or Tesla, will give investors the best access to the budding industry.”
Tesla has a lot more riding on this technology. It is a money-losing company, offering products that are generally not affordable on a mass scale.
On the other hand, Mobileye (MBLY) develops vision-based advanced assistance systems for collision prevention and mitigation, and Granski said that 90% of leading automakers have already signed deals to install its crash avoidance systems in their new vehicles.
Ledley also mentioned Mobileye as a way to play in the infrastructure of driverless cars. He also says, “Companies like Delco and Bosch are pursuing autonomous technologies that could build on their role as suppliers of critical parts to automobile manufacturers.” Still, “Tesla has established the capacity to do it all, from design and manufacture, to sales and service.”
There’s a degree of safety in investing in an infrastructure play like Mobileye. It is manufacturer agnostic, so if the cars become a mass-produced product and Mobileye stays ahead of the competition, it probably has the most appreciation potential.
Bottom Line
So which company makes the most sense? Phillips cautioned that, “No company has a leadership position in autonomous driving, but the companies that make big strides quickly will be very well positioned for the next 10-20-30 years.”
Personally, I wouldn’t invest in any of those companies solely for the purpose of investing in driverless cars. I’d invest in the company that has the most diversified and profitable core business in the event that the driverless car aspect doesn’t work out, to reduce risk. To me, that’s Apple.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he was long AAPL. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
