How to invest in the coming of driverless cars

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It will take some time for driverless cars to dominate the roads but in the meantime there are ways for investors to get the benefit of this gradual technological change, according to research by AMP Capital’s Global Listed Infrastructure team.

While driverless cars are expected to eventually help solve traffic congestion issues, more varied solutions are likely to be needed in the medium term and both will require significant infrastructure investment.

“A system in which cars drive much closer together and with more occupants can vastly increase the capacity of existing road space by effectively reducing each occupant’s overall demand for space,” says Andy Jones, AMP Capital’s Global Listed Infrastructure Portfolio Manager.

“There are strong reasons to suggest, however, the adoption of autonomous vehicles will be more gradual than the technological leap from the horse and cart to the motorised car.

The benefits of greater traffic density can only be achieved when a critical mass of cars is autonomous. Until then, they maybe more convenient for the driver but they won’t shorten journey times, which diminishes the incentive to would-be early adopters.”

In a paper entitled “Autonomous vehicles: the real opportunity that lies ahead for investors”, AMP Capital notes that in the near term, before autonomous vehicles become a widely-embraced technology, there will be demand for other solutions to reduce traffic congestion.

These may include creating managed lanes on existing freeways that drivers can access for a toll, and will provide opportunity for investment.

Medium term, road markings and signs will need to be refreshed so they can be reliably read by growing numbers of autonomous car cameras and this will also require investment.

Other investment opportunities include facilitating electricity demand patterns given the high likelihood that autonomous vehicles will be electric.

Telecoms infrastructure will also play a big role due to the data generated by driverless cars.

AMP Capital has found each autonomous vehicle could generate a daily amount of data equivalent to 2,700 internet users. If autonomous vehicles come to represent 30% of total cars on the road, it would be the equivalent to the internet usage of one trillion people every day.

“The investment opportunity lies less in the makers of the autonomous vehicles of the future that currently beguile much of the media,” says Jones.

“It’s the less glamorous infrastructure that will support the new technology and will require investment on a large scale, offering the potential of attractive risk-adjusted returns.”

Key infrastructure themes include enhancing existing road networks, investments in a changing power mix and increasing wireless data transmission capacity and energy, via continued petrol demand from traditional cars in the short term and then demand for hybrid autonomous vehicles.