Three Plays on Driverless Cars: GM, Toyota, and Daimler

02/08/2019 5:00 am EST


Tony Daltorio

Editor, Investors Alley Premium Digest

The main takeaway I got from the annual Consumer Electronics Show in Las Vegas was that enthusiasm for autonomous (driverless) vehicles among the world's auto makers has cooled, observes Tony Daltorio, editor of Growth Stock Advisor.

Just a year or two ago, car and some tech companies could hardly restrain their excitement over the next revolution in mobility — driverless vehicles.

There are six levels of autonomy, from zero for absolutely no autonomy to Level 5, which would be complete autonomy. In other words, completely controlled by computers. This technology is probably a decade away.

Many auto companies are reluctant to even move to Level 3 autonomy. And it's easy to see why - that's the first point at which full responsibility — and legal liability - shifts from the driver to the car.

But now, as the next step in driving automation comes closer to reality, some auto industry executives seem keen to back away from implementation and move directly on to the next step.

So what companies seem best poised to benefit from the move toward greater autonomy for vehicles? I do like Toyota Motors (TM) because it seems to be moving on its own independent path, separate from the other automakers with regard to new technologies. I like their skepticism toward Level 3 vehicles.

And their skepticism toward electric vehicles is interesting. Instead, it is concentrating its efforts on both solid state batteries and fuel cell vehicles. I will be discussing Toyota’s and Japan’s move toward a hydrogen economy in a future article.

I find solid state batteries fascinating. They are capable of holding more electricity and recharging more quickly than their lithium-ion counterparts. These batteries could do to lithium-ion power cells what transistors did to vacuum tubes: render them obsolete.

As the name implies, solid-state batteries use solid rather than liquid materials as an electrolyte. That is the stuff through which ions pass as they move between the poles of a battery as it is charged and discharged. Because they do not leak or give off flammable vapor, as lithium-ion batteries are prone to, solid-state batteries are safer (lower fire hazard).

They are also more energy-dense (leading to higher power capacity) and thus more compact. Solid-state batteries are also a promising power source for internet-of-things devices that are coming into wider usage daily.

I also like Daimler AG (DMLRY). Its Freightliner Cascadia will go on sale this year and be the first truck in North America to feature partially-automated driver assistance.

And Daimler is heading straight from level two to level four, in which a truck can operate without user intervention on specific routes because the company says level three “does not offer truck customers a substantial advantage”.

Unlike Tesla (TSLA), it considers Level 3 to be a dead end since it would have to rely on human attention during the crucial 1% of the time after telling the driver not to pay attention 99% of the time. With truckers on long haul routes, I see sleep and Level 3 not being compatible.

Finally, if I must go with a company that is pursuing Level 3 automation, I’ll go with General Motors (GM) instead of the cult stock Tesla.

Its Level 3 system is better than Tesla’s. If the driver still doesn’t take control after several prompts, the system will gradually bring the vehicle to a complete stop, activate the hazard warning flashers, and call for help (using GM’s OnStar system.)

GM also built a slew of additional safeguards into Super Cruise to try to ensure that it’s only used in circumstances it can safely handle. For example, if the vehicle isn’t on a highway, the road’s lane markings aren’t clearly visible, or the system thinks that the driver isn’t fully attentive – it won’t even switch on.

And GM is challenging Tesla in the electric car space. It is re-casting its luxury Cadillac brand as an electric brand. GM says the premium marque would be the company’s “lead electric vehicle brand and will introduce the first model from the company’s all-new battery electric vehicle architecture”.

Tesla has long dominated sales of premium electric vehicles, but it faces fresh challenges, not only from the upcoming electric Cadillac, but also from European premium nameplates.

GM is making a lot of right moves, from cost cutting to getting major investments from Honda and Softbank. That led it to recently forecast higher than expected 2018 profits.

It also said earnings will rise further in 2019, despite flat or declining car sales in both the U.S. and China, its two primary profit drivers. The automaker expects adjusted earnings per share for 2018 to exceed the guidance given in October of $5.80 to $6.20, and 2019 EPS to rise to $6.50 to $7.00 per share, above market estimates.

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