Do you remember your 16th birthday?
I’ll never forget mine… My family was on vacation at the time, but that didn’t stop me from getting my driver’s license.
After breakfast, my Dad drove me to the local DMV where I aced my road test and then drove Dad’s Crown Victoria back to the vacation rental house. I’ll always remember the feeling of freedom after dropping my Dad off, and driving down the road all by myself. A new world of freedom had just been opened up to this newly licensed driver.
My, how times have changed… The next generation of drivers has much less interest in being behind the wheel. And that’s driving (pardon the pun) some major shifts for investors today…
The Demise of the Millennial Driver
My oldest daughter turned 16 this year.
To celebrate, I took Avery on a trip to Universal Studios where we spent two days fully immersed in Harry Potter world. We had a blast and made some very special memories.
One memory that we did NOT make was a trip to the DMV to get her driver’s license.
In fact, Avery doesn’t even have her learner’s permit yet. So it’s going to be quite some time before I can send her to the store to get something for dinner, or to the school to pick up her little sisters.
Avery, like many of her friends, simply has no interest in driving a car.
I haven’t figured out exactly why she’s so disinterested.
- Maybe she feels like her mother and I will take her anywhere she wants to go. (Oops!)
- She’s mentioned the occasional fear of being responsible for an accident.
- Maybe her online communication with friends replaces her need to “go” places.
- Or maybe she realizes that in the future, she simply won’t need to have a driver’s license.
You see, Avery’s generation will grow up knowing that they are never more than a few minutes away from an Uber (or Lyft) driver picking them up and taking them wherever they want to go. And that means there is much less of an incentive to get their own driver’s license.
Today, the number of licensed drivers under the age of 24 represents the smallest percentage of total drivers in recent history. And the trend continues to move steadily lower.
This means that the car market as we know it, is in store for some major changes.
The Stakes Are Getting Higher for Driverless Cars
If rideshare services like Uber and Lyft are set to be the preferred method of transportation in the future, then the case for driverless cars is going to be economically irresistible.
You see, payments made to drivers represent the biggest cost to companies like Uber and Lyft. So if these ride share companies are able to set up fleets of autonomous driving cars, the business models will become all the more profitable.
Of course, you and I may feel a bit insecure jumping into a car with no driver, armed only with our smartphone to tell the car where we want to go. But according to a recent Barron’s article, self-driving cars — even in their current form, with much more technological innovation yet to come — could lead to much safer travel conditions.
Here’s a quick quote from the article, which cites a study by research group Eno Center for Transportation:
Worldwide, 1.2 million people die each year in car accidents, and many times that number are injured. In the U.S., if 90% of cars were self-driving, road deaths would plunge from 40,000 a year to 11,300, and accidents, from six million to 1.3 million…1
That’s a pretty significant shift in safety… One that I expect insurance companies to advocate simply to cut down on claims paid to accident victims.
With the economic and demographic trends clearly favoring self-driving cars (and rideshare services like Uber and Lyft), investors need to be extremely vigilant in identifying opportunities and risks…
A Dynamic Investment Environment For Cars, Tech and Services
The growing trend toward rideshare services and autonomous-driving cars creates a very interesting conundrum for traditional automakers like General Motors (GM) and Ford Motor (F) — and for their investors.
On one hand, rideshare services have the potential to hurt these companies because the total number of cars on the road may eventually be significantly reduced. If millennials decide not to get driver’s licenses and not to purchase cars, there could be a marked shift in demand for new vehicles.
But on the other hand, a global shift toward autonomous-driving cars would boost short-term demand for new cars with this technology built in. Not to mention the fact that these cars will likely have higher price points and fatter profit margins thanks to the additional technology built in to these vehicles.
Earlier this month, Ford’s board of directors appointed Jim Hackett as the company’s new CEO. Hackett previously managed Ford Smart Mobility, a division focused on driverless car technologies. So this appointment clearly shows that Ford is aware of this shift in the car market. And the company is taking steps to profit from this shift instead of letting their current business become obsolete.
I should mention that both Ford and GM’s shares are trading at extremely low valuations. This suggests that the market is very focused on the risks to domestic car makers without giving Ford or GM any benefit of the doubt when it comes to profiting from these new dynamics.
At current prices, both Ford and GM look like exceptional buy opportunities. Both stocks could trade sharply higher from here, not to mention the fact that Ford pays a 5.5% dividend yield, and GM is close behind with a 4.6% yield.
Another way to profit from this driverless car trend is by investing in companies that power the technology keeping these cars (literally) on the road.
Earlier this month, I recommended investing in chip companies Nvidia (NVDA) and Intel (INTC). Both of these companies are tied directly to the autonomous vehicle market and should see profits grow as this new market catches on.
While Intel has been relatively flat for the last three weeks, shares of Nvidia are up roughly 40% since appearing in The Daily Edge.
Nvidia beat analyst expectations, sending the stock sharply higher on May 10th. Wall Street analysts have been revising estimates for future earnings higher, a move that should help NVDA shares continue to trade up.
To be sure, the autonomous car is certainly coming to a street near you. It’s only a matter of time.
And as this technology becomes widely accepted, it will open up tremendous opportunities for us as investors. We’ll be watching the market closely, and picking out plenty of new ways for you to profit from this trend as this shift picks up momentum.
Here’s to growing and protecting your wealth!
Editor, The Daily Edge