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Revolution on the roads:  How driverless and electric car technology could change everything

The Automated and Electric Vehicles Bill, announced in the June 2017 Queen’s Speech and expected to be passed in ‘the next year or two’, is the UK Government’s early attempt to crank up the slow-moving engine of law-making to keep pace with exciting technological progress on the roads.   

After decades of only superficial refinement, suddenly, automated or ‘driverless’ and electric technologies are challenging a 100-year old personally-driven-internal-combustion business model from two distinct directions. Government, industry and car consumers are waking up to the knock-on potential of this double disruption.  

According to the wording of the above Bill, Theresa May’s Government is determined to ‘put the UK at the forefront of automated vehicle ownership’ (projected to be worth £28bn here by 2035), and to ‘lead the world in electric vehicle technology’. The Department for Transport boasts that the UK is already the largest market for electric vehicles in the EU, where 20% of Europe’s electric cars are sold.

Although the measures being proposed in the Bill are hardly revolutionary: tweaking insurance rules to account for non-human error and increasing plug-in point infrastructure at motorway service stations and elsewhere, the UK seems no less ready than any other country for the coming roads revolution.

These are just the preliminary drips in what is likely to be a torrent of necessary policy and law-making designed to ensure that the law keeps up with electric and/or robo-cars. However the point will come – possibly quite soon – when one or other of these new technologies will gather so much momentum as to make current legal coverage of the new landscape inadequate.   With driverless technology, investment bank Morgan Stanley has said the motor industry was being disrupted ‘far sooner, faster and more powerfully than one might expect.’ The bank predicted that the risk the technology poses to the old model of personalised car ownership will see automobile companies scramble in the coming year to reinvent or at least cover themselves. An example of this is General Motor’s 2016 investment of US$500m in private company Lyft, a ride-sharing service with which it plans to deploy thousands of self-driving electric cars in test fleets.

The indivisibility of a vehicle with an alert flesh-and-blood driver is at the basis of entire industries from motor insurance to haulage to highway hospitality. Break that link by creating human error-free road transport, and all kinds of ramifications, known and unknown will emerge. This will initially create almost as many losers (long-distance lorry drivers, airlines, delivery drivers, motel owners, insurers and car dealers) as it will create winners (the disabled and elderly, busy parents, long distance overnight travellers, fleet owners).  It will be no consolation for those put out of business that the net gains are likely to be vast – around US$7 trillion worldwide according to Australian think tank ESSA.

In parallel, the transition from cars powered by conventional internal combustion engines to electric vehicles is being carefully watched by tech investors as well as dealers in related components and commodities.

UBS has predicted that the lowering costs of core components like battery packs (though there is some disagreement about how rapid this will be) tips the cost of ownership balance in favour of petrol-less electrics and hybrids, possibly as early as next year. UBS predicts that electric vehicles and plug-in hybrids will account for 30% of new vehicles sold in Europe and 14% globally by 2025 from around 2% today. However that depends on the fortunes of an entirely separate set of potentially disruptive technical advances in the internal combustion model, which – this time according to Deutsche Bank – could slow the advance of the electrics’ relative market share.

Also to be considered is the impact on the oil market – although cars and light trucks only account for about a quarter of the market, and any effect will likely be tempered by the expected growth in global GDP in the next decades.

All of this is unknowable, as is the possible effect of politically-inspired market intervention, for example the roughly £1bn in public subsidies detailed by the Department of Transport in their notes to their proposed Bill. This money is being spent to ‘ensure the UK continues to be at the forefront of developing new technology in electric and automated road vehicles’. 

The road ahead for these technologies, and for those who invest in affected sectors, will be full of sharp turns, speed bumps and cul-de-sacs. There are still formidable technical barriers to be overcome and forecasting the pace and penetration of new technologies rarely turns out to be accurate, strewn as it is with bias and incorrect assumptions. Analysis of today’s high tech auto stocks is as fallible as that of previous eras in identifying which current leading intellectual property holders have the most potential value and which may be rendered virtually worthless by commoditisation or usurped by unseen alternatives. 

At present we are watching developments with keen interest but do not yet see attractive and accessible value to direct investment in these technologies.  The potential negative impact on the oil market at present looks manageable while there is scope for established companies to benefit from more efficient logistics and changes in consumer behaviour.

Speirs & Jeffrey

4 October 2017