self-driving car

How Will Self-Driving Cars Affect Your Investments?


If and when self-driving cars become the norm, their effect on the economy and life in general will be enormous and far-reaching.  Since 90%+ of car accidents are caused by human error, there will be a huge immediate reduction in injuries, death, and property damage from fewer accidents.  The average commuter spends over 25 minutes driving to work and another 25+ minutes driving home.  Instead of driving, they could be doing something productive or at least doing something for personal enjoyment.  The ability to have your own car drop you off and then go park a long way away could have a very large impact on real estate.  On-site parking requirements could be diminished greatly which could allow land previously allocated to an on-site parking lot to be developed with more office/industrial/retail/multi-family/etc. square footage.  At the same time reasonably close off-site parking lots could become more valuable since you wouldn’t want your car to be more than 10 minutes or so away when you summon it (and having it circle the block over and over again would waste gas).

Some of the most obvious losers would include:

Auto Insurance Companies – publicly traded companies like Allstate (NYSE: ALL) or Progressive Corp (NYSE: PGR) are going to have a huge hole to fill in the loss of premiums from auto insurance.  If you eliminate 90% of the accidents, then there will be a much smaller opportunity to generate a profit on the difference between the cost of claims and the premiums collected.  It is unclear of consumers would even carry their own auto insurance policies or if the manufacturers would build in some type of warranty.

Insurance Agency Books of Business – the value of personal or commercial auto insurance policies will be greatly diminished.  Auto policies typically make up more than half of the premium for P&C agencies like State Farm, Allstate, Farmers, etc. so the size of the book would likely decline when auto policies were being renewed at much lower rates due to the dramatic drop in accidents.

Taxi Medallions – as if Uber/Lyft weren’t enough of a problem, self-driving cars will present another large problem for taxi companies.  People using taxis because they are drinking alcohol will no longer need to use a taxi when they can let their self-driving own car do the driving.  Same thing for some people that are handicapped and physically unable to drive.  Assuming they had a way to program a destination and physically get in and out of the car, they could choose to use their own self-driving car instead of a taxi.

Airport Parking Lots – there would not be a need to pay $8-$10 per day for airport parking when you could just have your car drop you off and then go back home and park itself in your garage.  To a lesser extent, expensive parking lots for sporting events and concerts would be affected because the car could park itself farther away (although road restrictions and massive amounts of traffic might make it difficult to pull it off).

Public Transportation – people that cannot to own a car or pay to ride with Uber will continue to use light rail, buses, trains, etc. but business travelers will probably prefer self-driving cars.  They can still get work done, relax or sleep but within their own personal space instead of in public.  The stupidity of spending money to build a train from Los Angeles to Las Vegas may become increasingly apparent as people prefer to ride a high speed self-driving car or bus.

Collision Centers – auto maintenance won’t go away, but most collision centers will.  You will still have the occasional car that hits a deer or boulder, or that gets dinged by a shopping cart in the parking lot, but the typical at-fault accident will go away.

Medical Practices and Emergency Room Care Related to Car Accidents – there will still be a variety of other ailments to deal with, but car accidents will be sharply reduced.  It could also effect chiropractors and injury rehab businesses.

Personal Injury Lawyers – car accident lawsuits are a huge source of business for P.I. lawyers, especially the ones that advertise on TV.  They will have to focus on other types of injuries like dog bites or ATV accidents, or move into other areas of litigation (divorces, criminal defense, class actions, evictions, or any other legal niche).

DUI Defense Attorneys – again, they will need to find a new niche.

Some that could go either way:

Car Companies – the biggest risk/opportunity for car companies seems to be ridesharing.  90% of the time, cars go unused.  So a perfectly designed rideshare service (having a car ready for you right when you need it with no wait) coupled with an attitude shift in car ownership (people not caring about whether they owned their own car) could cause a massive decrease in sales.  Self-driving cars would throw gasoline on this fire because you would no longer have to interact with a driver or deal with the small risk of that person harming you in some way or causing you awkward discomfort.  At the same time, self-driving cars might be more expensive to build, but the insurance aspect of car ownership would almost certainly decrease with fewer accidents.  People may still value their personal freedom of having their own car rather than having charge after charge from a rideshare company on their credit card.  The demand for cars could increase with new buyers out there like convicted drunk drivers, blind people, and possibly even parents that want to buy additional cars to take young kids to school and practice.

Billboards – on one hand, people won’t be driving and keeping their eyes on the road.  On another hand, they may have more time to stare out the window and have their attention captured by a billboard.  So the high value of billboards, billboard permits, leases, and easements may or may not be maintained.

Motels – since they aren’t driving themselves, people will be less likely to pull off the highway to rest on a road trip.  They will be able to push it a lot further.  That being said, at some point sitting in a car for 10 or more hours becomes uncomfortable.  Also, people may travel by car, much, much more because of how easy it would become.

Some investments that will be almost sure to benefit:

The Alcohol Industry – including beer/wine/liquor companies, bars, restaurants, and even companies like airlines that sell alcohol.  This effect would probably be even more dramatic in smaller towns and rural areas where Uber/Lyft are not available or taxi service is spotty.  Liquor licenses could potentially become more valuable.  People would almost surely drink more if they knew that they never had to worry about drunk driving.  Events where people are embarrassed to show up in an Uber like kid’s birthday parties, as well as events where someone wasn’t planning on drinking, but changed their mind, would probably see more alcohol consumed.

Trucking and Delivery Companies and Delivery Routes – labor is an enormous expense for trucking companies and local delivery companies.  Someone that owns a FedEx Ground delivery route might be able to eliminate all of their drivers and all the costs associated with them (salary, benefits, unemployment, lawsuits, etc.)  Insurance costs will also be dramatically reduced without having your own human drivers or having to deal with terrible drivers on all the roads.  This does not mean that local delivery companies aren’t without other threats — drones come to mind.

Rental Properties in the Exurbs – commuting will be less of an issue when you don’t have to drive the car yourself.  Many people will still prefer to live closer to work and cultural activities; however, the horrible nature of a 45 minute commute will be much improved when you can enjoy yourself or sleep during those minutes.

Small Lots in Good Areas without Enough Parking – parking should be less of a deal killer when your own car can drop you off and drive somewhere else to park.  As long as you have enough land for a structure and a good drop off point, you may be OK.

With many investments, self-driving cars will have an effect; it might even be something completely out-of-left field that no one anticipated but that makes sense in retrospect.  We shall see.

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