RBC Capital Markets’ equity research examines autonomous vehicle (AV) development, what the obstacles are, reasonable timelines, implications on the legacy Auto OEM and supplier ecosystem, along with tangential sectors including public transit operators, real estate, and motor insurers.
AVs are coming
RBC thinks autonomous vehicles could potentially transform society more than anything else in our lifetimes, saving millions of lives and trillions in hours in terms of productivity. Avs will also accelerate electrification, decrease the car parc, and help subsidize the energy transition. As the world’s urban population increases, AVs should also contribute to free up space in cities and increase mobility. RBC expects Level 4 (no driver) capabilities should be available on highways on a hub-to-hub basis by 2025, and expects urban applications by the end of the decade. Although regulatory obstacles remain, OEMs accepting liability could be the silver bullet that standardizes policy globally.
Autos
RBC is not concerned with OEMs partnering with tech players as, ultimately, car-makers will control what applications get into vehicles (like with smart-phones). Premium car-makers more indexed to luxury should fare better than those tailored more to driving, it argues. Non-premium OEMs could lose volumes to robotaxis given higher utilization and mileage per vehicle. OEMs providing robotaxi services end-to-end (VW) should be more profitable than those outsourcing the backend to service providers like Uber. But in both scenarios, RBC reckons robotaxis could be net accretive to the OEMs. Some truck OEMs should also benefit as AVs will remove the number one cost item for their customers - the driver, and increase utilization. It will also likely happen sooner than for cars - potentially on a hub-to-hub basis as early as mid-decade. Declining volumes will hurt auto suppliers levered to non-AV/EV components (seating, interiors, and lighting etc.), which could be offset with assisted driving and electrification revenues.
Public Transport
RBC believes that whilst the drivers of public transport (urbanization, demographics and environmentally friendly policies) look positive for bus and rail operators in the 2020s, AVs and robotaxis could be a risk to public transport over a longer time frame given they will cost less than taxis/minicabs. However, since they could facilitate a reduction in car ownership, they also could be a key driver of bus usage. AVs could also bring opportunities for public transport, particularly for bus operators where driver cost is a substantial portion of operating expense. RBC notes that the UK’s first full-sized autonomous bus took to Scottish roads in April as five buses operating at SAE Level 4 underwent testing, ahead of a planned passenger service beginning in late summer. Furthermore, as employee costs make up around two thirds of operating costs for bus operators, with the driver a substantial portion of that, autonomy could either facilitate the introduction of new services, or facilitate reduced bus fares on existing routes.
Real estate
Less parking would increase the supply of land for alternative uses, more efficient commuting could shift the location of occupier land, and lower distribution costs could add to flexibility on warehouse locations. RBC also stresses that more efficient commuting could shift the location of occupier demand by reducing travel times and allowing such journeys to become more productive.
Motor insurers
Finally, the “new world” of motor insurance with widespread adoption of AVs would see reduced frequency and severity of accidents, consequently lowering insurance premiums relative to today’s levels, RBC points out. However, the integration of product liability and cyber risks within motor insurance could also introduce new paradigms of risks. Larger insurers are likely to be better positioned from scale advantages, albeit in an industry where the risk pool might well be lower than current levels, the auto team concludes.
