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This Could Be the Biggest Winner of the Driverless Car Revolution

Traders are excited about driverless cars. They see a tremendous investment opportunity. Driverless cars, also referred to as autonomous vehicles, are designed to sense their environment and navigate roads without human input.

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  • Autonomous vehicles rely on technologies like GPS and radar to study their surroundings and make intelligent decisions about the car’s direction and speed. Depending on how soon the vehicles are introduced and adopted, the implications for investors are potentially large.

    Automated vehicles are quickly nearing a level of maturity that will allow manufacturers to start deliveries to consumers. A large group of companies are actively developing complete automated driving systems and the components that go into those systems.

    This list includes traditional auto companies, suppliers, non-automotive technology companies, and startups. Several of these companies entered this market recently but rapidly moved into contention through acquisitions, investments, and strategic hiring of key personnel.

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    In short it is a competitive market and there will be winners and losers. The losers are likely to outnumber the winners, a situation that has historically been the case before. Barron’s recently reviewed the market and reached a possibly surprising conclusion.

    “The United Kingdom has emerged as the No. 1 location on earth to support autonomous vehicles, or AVs, in a new analysis conducted by the Society of Motor Manufacturers and Traders, or SMMT. The U.K. lobby group has calculated that it will generate an economic boost of 62 billion pounds sterling ($81.1 billion) per annum by 2030, which will boost the U.K. economy and a range of firms.

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  • But How Can Investors Benefit?

    The key is to identify the sectors most likely to profit, and then some of the investible stars that lead the way in their fields.

    The car makers are an obvious choice. The automotive giants with well-advanced AV programs are Daimler ’s Mercedes-Benz, Volkswagen’s Audi, and BMW; Ford Motor (NYSE: F) and Tesla (Nasdaq: TSLA); Tata Motors (NYSE: TTM) Jaguar Land Rover; and Nissan Motor.”

    A long-term chart of Ford is shown below.

    F monthly chart

    The stock is near multiyear lows and the concern for investors might be the market for nonelectric cars. Those cars, of course, make up the majority of the company’s business and could be a drag on Ford’s performance for some time.

    A pure play in electric cars could be TSLA.

    TSLA monthly chart

    The chart shows the stock has delivered significant gains in the long term however the company has stumbled recently, largely on concerns that the company’s CEO, Elon Musk, is not focused enough on the company as he directs attention to other projects.

    Barron’s continued, “Sajid Yacoob, head of global electric vehicles at Tata Consultancy Services, says that these stocks are well placed for growth because they are embracing change.

    “When you see established OEMs [original equipment manufacturers] focus on autonomous activities, you see a bump in share prices,” he says. “This is because the market is moving away from traditional operations to this value-added business model.”

    But the sectors extend to a bunch of less obvious industries—think technology, telecoms, transport, infrastructure, insurance, and legal. Once driverless cars are built, the next two vital components are telecoms and power.

    AVs rely heavily on communications such as 4G and, eventually, 5G—the mobile connectivity that links them to the environment, such as intelligent traffic lights and road sensors.

    Among these, Yacoob says, the strongest telecoms players are the U.K.’s Vodafone Group (Nasdaq: VOD) and EE, a joint venture between Germany’s Deutsche Telekom and Orange, formerly France Télécom.”

    VOD is available in the US and the long term chart is shown below. This stock is also weighed down by the legacy business.

    VOD monthly chart

    Barron’s concluded, “In terms of power, most of the auto makers are developing their own battery technology. Japan’s Nissan has built its own state-of-the-art battery plant in northern Britain.

    Next up are the firms developing the software and hardware that allow cars to “talk” to the roads around them. These are electronic gadgets that sit inside vehicles that use wireless internet to synchronize with similar boxes placed at traffic junctions and along highways.

    Yacoob highlights Germany’s Continental, a blue-chip stock on the benchmark DAX index that is probably best known for tires but is also a leader in electronics, as well as the privately owned engineering company Bosch.

    In Europe, four countries, the U.K., the Netherlands, France, and Germany, are battling to be the first to deploy these autonomous robots on the roads. They believe that the technology will unlock economic growth, jobs, and wider improvements.

    The rollout of the new infrastructure and new software and hardware will generate an estimated £18 billion for firms and create about 420,000 jobs, according to the SMMT. Investors could benefit from owning a piece of the firms delivering all of this.”

    With so many of the potential investments in overseas markets, investors should consider their options carefully. Many large brokers allow investors in the US to access individual stocks in overseas markets directly through their accounts.

    While this could be tempting to some investors, the risks should not be ignored. Investing in stocks in other countries carries many of the same risks that investing in stocks on US markets carry. That includes company specific risks along with risks associated with the stock’s sector and the broad stock market.

    These stocks carry additional risks including risks associated with currencies. One large broker notes, “U.S. stocks can be impacted by the value of the dollar relative to currencies of other countries.” And adds,

    “International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets.”

    While the risks may be acceptable to some, they must be considered, especially when investing in new technologies. Another factor that must be considered is the issue of taxes.

    Investing in foreign stocks can require additional tax forms and the work involved may not be worth the effort for smaller investments. For smaller investors exchange traded funds could offer the best way to access international markets.

     

     

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