Autonomous car: what will happen in 2021?

On a beautiful spring evening, we had a discussion with an investor about autonomous cars. According to him, it was quite impossible to see this type of vehicle on our roads in 2025. We must specify that this investor has passed the sixties mark, and like many people his age, he sees with skeptic's eyes this kind of upheaval, which may occur sooner than it anticipates.

As for us, why are we less skeptical? A fully autonomous vehicle requires a system that can cope with all kinds of situations: an animal suddenly crossing the road, a pothole to bypass, snowstorms blurring cameras, etc. Is not it impossible to entrust the driving of a vehicle to a computer with all these obstacles?

If it was a project undertaken by a single company, we would obviously express a lot of skepticism. However, there are currently no fewer than 44 companies that directly or directly work or invest in the creation of autonomous vehicles to varying degrees https://www.cbinsights.com/research/autonomous-driverless-vehicles-corporations-list/

Several of them set the year 2021 as their goal to complete their projects, such as BMW, Mobileye, Ford, PSA Group and Toyota.

We do not believe that these vehicles will necessarily be here in 2021, however, we are seeing more and more companies participating in the Autonomous Car Race. Why? Simply because there is a lot to gain for some, and a lot to lose for those who will not be racing. We are already witnessing the profound and rapid changes that an application like Uberexerce's in the taxi industry. Imagine for a moment a car that drives itself.

We would not need to try to find parking anymore. The time to go to work would be profitable because instead of concentrating his attention on driving in traffic, one could read on his cell phone and answer his emails. No need for a driver's license for many people, especially the millennia, for whom owning a vehicle would not be a priority. Thanks to sharing apps, carpooling and using vehicles anytime (instead of being parked 95% of the time as it is now) will allow people to travel by car simply through a query on their phone.

Autonomous vehicles will be, in a way, computer computers, totally guided by software. One can easily understand why Alphabet (formerly "Google") and Apple are closely interested in this project. Alphabet started the project that led to Waymo in 2009, and Apple, the Titan Project in 2014. These companies want to make sure not to be left behind when the revolution happens. Unfortunately, some sectors will be under threat, and as investors, you have to recognize these threats to avoid deadly traps.

We are thinking, among other things, of car dealerships. For many of them, the sale of parts is the most profitable division. As the self-driving cars that come out will obviously be all-electric, we wonder about the likely impact on companies like Penske Automotive (NY, PAG), Sonic Automotive (NY, SAH), Group 1 Automotive (NY, GPI) or Asbury Automotive (NY, AGB) to name a few examples. These securities seem to be trading at a very good price compared to their historical valuation.

To try to measure this impact, take the case of Autonation (N.Y., NA), the largest dealer in the United States. Gross margins on new, used and auto parts are 5%, 6%, and 43% respectively. That's why, even though parts sales represent only 15% of the company's revenue, they generate twice as much profit as new car sales. However, there are apparently 100 times fewer removable parts in electric cars than in vehicles equipped with a combustion engine! Certainly, electric and autonomous cars will not flood the market tomorrow morning. Nevertheless, if in the aggregate, investors anticipate this trend well in advance, you could wait a long time before reviewing these securities return to their valuations of yesteryear.

Automobile manufacturers are another industry targeted by the trend. Even if they will sell electric vehicles, one must question the influence of technology giants like Alphabet or Apple on their business model, as well as on car sales in a sharing economy fostered by cellular applications more and more sophisticated. Last but not least, let's look at auto parts retailers like O'Reilly Automotive (NASDAQ, ORLY), whose