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Where will autonomous vehicles (AVs) take us?

Waymo AV. Source: Wikimedia

Self-driving cars are in the news. In Phoenix last month, Waymo – Google’s autonomous vehicle project – announced they have plans to let everyone in the Arizona city request a driverless ride before year-end. They’ve ordered thousands of electric Chrysler Pacifica minivans and Jaguar I-Pace SUVs. They trick them out with lidar and other sensors, tied in with sophisticated AI algorithms and servo controls. GM has plans to start a ride-hailing service using its all-electric Chevy Bolt. Every automaker today has plans to produce autonomous vehicles.

There’s no question that self-driving cars have the potential to reshape society. Some AVs look like mobile living rooms, with club seating arrangements and lay-back chairs. There’s no reason riders couldn’t nap on their way to work. Ubiquitous ride-sharing services would mean there’s less need for parking. And the potential for safety improvements is huge. One estimate indicates that AVs could add 2% to GDP by 2050, reducing congestion, accidents, and energy consumption. On the other hand, AVs could increase travel time and ex-urban sprawl, by making it easier to commute long distances.

The clearest analogy to the promise and peril of AVs is the Interstate Highway System. In 1956, traditional analysis indicated that only 33% of the proposed system could be justified, economically. Only one road would be needed over the Rocky Mountains. Of course, such static analysis vastly underestimated the impact of the interstate. The benefit of reduced travel times rippled through society. Shipping costs dropped dramatically, making low-priced retail stores possible. In many ways, the interstate highway is responsible for the growth of Wal-Mart. It’s estimated that every dollar invested in the Interstate Highway System returned six dollars in economic productivity. And more than half of these benefits were realized in services and non-manufacturing industries.

Interstate Highway System. Public Domain. Source: Wikimedia

The interstate brought us economic benefits, but it also brought us suburban sprawl, lung-choking smog, and an economy that depended on oil imports for more than a generation. The same pluses and minuses will happen with self-driving cars. I’m personally skeptical that any algorithm will be able to navigate the potholes and frost heaves of a New Hampshire highway during a March snow storm. But engineering marvels have surprised me before.

There’s a race to be the first to introduce these vehicles to the public. Hundreds of cars are now being tested in 26 states. Getting there first matters: establishing a brand and building up economies of scale are critical. But getting things right matters more. It only takes a few software bugs or high-profile hacks to turn people off.

The first computer bug. Public Domain. Source: US Navy

The technological imperative states that after a technology is introduced, it has to be developed. Once we build a machine, we want it to go somewhere. Autonomous technology will eventually be as ubiquitous as automatic transmissions. The real question is whether we get behind self-driving cars, or try to stand in front of them.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2018-06-26T08:06:37+00:00June 26th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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