Posted by Macquarie Asset Management
26 Feb 2020
1.35 million people die on the world’s roads each year1 with approximately 95% of accidents caused by human error2. With congestion also costing $US300 billion each year to the US economy alone, automotive manufacturers, road users and infrastructure managers are looking to AVs as a means to improve road safety and efficiency.
All AVs are not created equal.
According to a classification system devised by The Society of Automobile Engineers, AVs fall on a spectrum of zero to five. ‘Level Zero’ vehicles are completely manual, requiring drivers to perform all tasks whilst driving. At the other end of the autonomous spectrum, ‘Level Five’ AVs are entirely automated – requiring no human intervention whatsoever whilst on the road.
Although much of the attention paid to AVs is focused on vehicles at the upper end of the autonomous spectrum, ‘Level Three’ technologies from parking assistance to cruise control have been in the mainstream for a number of years. Despite limited pilot programmes involving ‘Level Four’ robotaxis having been launched in the US and Singapore, ‘Level Four’ and ‘Level Five’ AVs face a number of hurdles before they can be deployed more widely.
One of the most significant challenges will involve satisfying the high safety standards expected by regulators and the community. AVs collect and process significant amounts of data in order to understand and interact with the vehicles and infrastructure around them. This technology must be developed to handle so-called ‘edge cases’ – situations where a vehicle encounters something it has not experienced before and does not know how to react to.
Although reaching this stage of development is not impossible, car makers are coming to appreciate the challenges involved in making AVs capable of handling all situations they may face when on the road.
All major automotive manufacturers have recognised the importance of AVs to the future of transport. The question for carmakers is, “When will a market exist for my AV?”
The advent of AVs could create a market worth $US7 trillion by 20503. However, the remaining technological challenges and uncertainty about if or when robotaxis will become a genuine reality has made forecasting AV take-up difficult, with current AV adoption predictions varying wildly. For example, as noted in the table below, UBS’s conservative case for AV sales by 2030 is just 2.5 million, compared to its bull case of 40 million.
In other areas automation technology is, however, already a commercial reality. Automation in the agricultural and port handling sectors is, for example, already in use, reducing costs and adding to efficiency in these sectors.
AV sales in 2030 as a percentage of total automobile sales.
|Company||Units (million)||% of total sales|
|McKinsey – Base case||16.0||15.2%|
|UBS – Base case||12.6||12.0%|
|UBS – Bull case||40.0||38.0%|
|UBS – Conservative case||2.5||2.4%|
Source: Bloomberg New Energy Finance (BNEF), Long-term AV Outlooks (May 2018)
Given their convenience, privacy and comfort, robotaxis have the potential to impact demand for public transport such as buses and metro services. In reality, however, any significant shift to AVs in peak commuter hours could result in unacceptable levels of additional congestion. In such cases, local municipalities may impose surcharges – providing respite for buses, trams and trains.
Automation should mean that more cars will travel along roads and across bridges, given the opportunity for; narrower lanes, the ability for cars to travel closer together, and fewer accidents. When combined, these factors could significantly increase the earning potential of these assets.
Overall demand for parking could weaken if robotaxis ultimately prove viable in urban areas. However, car park operators may also receive significant benefits from automation technology. Self-parking systems will mean utilisation and revenue per square metre could increase. Car park operators will also be able to offer additional services to robofleet companies, such as cleaning and charging. These potential opportunities for margin and revenue improvement should offer comfort in the face of some demand headwinds.
AV technology is already in use in the form of automated baggage handling systems at airports and automated guided vehicles (AGVs) in seaports. These environments – which are far less complicated than conditions faced by AVs on the open road – are well suited to currently available AV technology. More widespread adoption could see significant cost and efficiency gains for these assets as they integrate autonomous technology into their operations.
Given the number of sensors and recording devices they rely on, AVs are expected to capture vast amounts of data. Some reports suggest this will be as much as 30 Terabytes per vehicle per day – equivalent to 3,000 times the amount of data produced by all of Twitter’s 270 million users in a day combined4. Industry forecasts predict that due to the proliferation of connected devices and cloud computing in general, the demand for data centres is expected to increase significantly over the next decade5.
While an AV does not necessarily need cellular access to function, the success of many of the Vehicle-2-Network (V2N) applications are dependent on access to a reliable cellular network. As such, there could be opportunities for mobile network operators to offer enhanced services to mobility providers.
AVs are an exciting technology in many respects. A strong understanding of the technology, its likely adoption timeline, and its implications, could unlock a number of opportunities for infrastructure investors.
While there is a lot of optimism about the timeline for AV adoption, we believe full ‘Level 5’ (or even wide-ranging ‘Level 4’) adoption is still some way off. With residual edge cases proving particularly difficult to solve, as well as legal and regulatory concerns still to be worked through, we do not expect to see broad-based AV adoption prior to 2030. It could be closer to 2040 before human drivers are in the minority.
1 The World Health Organisation February 2020, https://www.who.int/en/news-room/fact-sheets/detail/road-traffic-injuries
2 Royal Society for the Prevention of Accidents (RoSPA) 2017, https://www.rospa.com/rospaweb/docs/advice-services/road-safety/road-crashes-overview.pdf
3 Intel and Strategy Analytics, Accelerating the Future: The Economic Impact of the Emerging Passenger Economy (June 2017)
This market commentary has been prepared for general informational purposes by the authors, who are part of Macquarie Infrastructure and Real Assets (MIRA), a business division of Macquarie Group (Macquarie), and is not a product of the Macquarie Research Department. This market commentary reflects the views of the authors and statements in it may differ from the views of others in MIRA or of other Macquarie divisions or groups, including Macquarie Research. This market commentary has not been prepared to comply with requirements designed to promote the independence of investment research and is accordingly not subject to any prohibition on dealing ahead of the dissemination of investment research. Nothing in this market commentary shall be construed as a solicitation to buy or sell any security or other product, or to engage in or refrain from engaging in any transaction. Macquarie conducts a global full-service, integrated investment banking, asset management, and brokerage business. Macquarie may do, and seek to do, business with any of the companies covered in this market commentary. Macquarie has investment banking and other business relationships with a significant number of companies, which may include companies that are discussed in this commentary, and may have positions in financial instruments or other financial interests in the subject matter of this market commentary. As a result, investors should be aware that Macquarie may have a conflict of interest that could affect the objectivity of this market commentary. In preparing this market commentary, we did not take into account the investment objectives, financial situation or needs of any particular client. You should not make an investment decision on the basis of this market commentary. Before making an investment decision you need to consider, with or without the assistance of an adviser, whether the investment is appropriate in light of your particular investment needs, objectives and financial circumstances. Macquarie salespeople, traders and other professionals may provide oral or written market commentary, analysis, trading strategies or research products to Macquarie’s clients that reflect opinions which are different from or contrary to the opinions expressed in this market commentary. Macquarie’s asset management business (including MIRA), principal trading desks and investing businesses may make investment decisions that are inconsistent with the views expressed in this commentary. There are risks involved in investing. The price of securities and other financial products can and does fluctuate, and an individual security or financial product may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international or local financial, market, economic, tax or regulatory conditions, which may adversely affect the value of the investment. This market commentary is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in this market commentary. Opinions, information, and data in this market commentary are as of the date indicated on the cover and subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this market commentary and/or further communication in relation to this market commentary. Some of the data in this market commentary may be sourced from information and materials published by government or industry bodies or agencies, however this market commentary is neither endorsed or certified by any such bodies or agencies. This market commentary does not constitute legal, tax accounting or investment advice. Recipients should independently evaluate any specific investment in consultation with their legal, tax, accounting, and investment advisors. Past performance is not indicative of future results.
This market commentary may include forward-looking statements, forecasts, estimates, projections, opinions and investment theses, which may be identified by the use of terminology such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “can”, “plan”, “will”, “would”, “should”, “seek”, “project”, “continue”, “target” and similar expressions. No representation is made or will be made that any forward-looking statements will be achieved or will prove to be correct or that any assumptions on which such statements may be based are reasonable. A number of factors could cause actual future results and operations to vary materially and adversely from the forward-looking statements. Qualitative statements regarding political, regulatory, market and economic environments and opportunities are based on the [authors’ // relevant MIRA team’s] opinion, belief and judgment.
Other than Macquarie Bank Limited ABN 46 008 583 542 (MBL), none of the entities noted in this document is an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) or banking legislation in other jurisdictions. The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities.