Self-driving cars could fix automakers' biggest business problem

AuroraHyundai A autonomous Ioniq.

  • Morgan Stanley analysts Adam Jonas said that auto execs are avoiding scepticism about self-driving cars because innovation could work in carmakers’ favour.
  • A reliably cyclical business could shed the cycles.
  • It remains to be seen if automakers will make good on their announcements.

If you’ve bee watching the boom in US auto sales for the past three years, you could be forgiven for thinking that the old car business, cyclical by nature, is in the past.

But the cycle is still there and eventually, demand will decline and automakers will sell fewer cars and trucks in the US.

To a certain extent, car companies have been trying to get out the building-and-selling cars business since the first vehicle rolled off an assembly line over 100 years ago. They explored various other lines of business, with lending people money to buy the cars being perhaps the most lucrative.

Now they have a real shot at escaping the curse of sales cycles, and that’s why numerous big automakers are announcing major investments in electric vehicles and self-driving cars.

It doesn’t cost car companies much money to say that they will spend billions to such and such by some far-off date. That’s why, with electric cars making up only about one per cent of global sales and no real fully self-driving cars in commercial application yet, you’re still hearing news, news, and more news about the all-electric, self-driving future.

Escaping the cycle

Morgan Stanley analyst Adam Jonas – the most out-there thinker on advanced mobility on Wall Street – thinks he knows why, and he outlined his take in a research note published Wednesday:

Auto firms seem careful not to express scepticism about AVs. We can’t help but notice a tight dispersion of opinions expressed amongst auto OEMs and suppliers alike about the tremendous commercial opportunities around shared and autonomous vehicles. They seem to be collectively emphasising the payback period of replacing the human commercial driver with a robot and turning cyclical buying patterns into a regularly recurring subscription model.

Dependable annual inflows of cash would parallel the steady stream of loan and lease payments that automakers have long raked in through their captive-lending arms. For any auto executive, that’s an exciting proposition, at least from a business perspective.

Obviously, it’s a lot less exciting if you find traditional, human-driving automobiles thrilling, but it is beginning to look as if we’re in the early days of a massive shift.

I’ve heard a few big-shot auto executives express some moderate scepticism about autonomous vehicles, so Jonas isn’t entirely on the mark there. However, his larger point is worth considering: investors want to hear that carmakers are prepared to attack a future of opportunities that look very different from the past.

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