Investing In Self-Driving Cars

I was explaining self-driving cars to my 7-year-old son the other day. He was positively fascinated by the idea.

His primary takeaway was that these robot cars “will be able to drive 120 mph!”

It got me thinking as well. I wondered how far self-driving technology would go by the time my kids got their licenses.

Would they have to learn to drive at all?

It seems certain that by the time they get their licenses, self-driving tech will be mainstream.

At some point, it will become a standard option. A bit later down the road, many futurists think it’ll actually be illegal to drive a car in “human-driving” mode. I could see it happening. Once self-driving tech is mature, humans behind the wheel will be seen as needlessly dangerous.

Self-driving cars (and trucks) are set to shake up the world. Investors, especially early-stage folks, would be wise to pay close attention.

Tesla’s Autopilot Breaks Ground

If you haven’t watched a video of Tesla’s (TSLATSLA) Autopilot feature yet, do yourself a favor and watch this one on YouTube. It’s mind-boggling.

The driver, hands off of the wheel, is cruising at 70 mph in a Tesla Model S. He turns on his blinker.

The 762-horsepower electric sports car checks its surroundings before silently gliding to the right.

In traffic, the car brakes on its own and keeps pace with traffic. Its sensors and cameras track everything around it. The car can even read speed limit signs and adjust as needed.

There’s also the video showing a Tesla Model S driver sound asleep in traffic, his autopilot handling stop-and-go traffic as he snoozes.

The technology is like something out of a sci-fi flick. But it’s not yet perfected. This is demonstrated by recent crashes and a few fatalities involving cars in autopilot mode.

In Tesla’s defense, it instructs drivers to always have both hands on the wheel. Many of the drivers involved in these autopilot crashes ignored warnings from the car to put their hands on the wheel.

Still, many say Tesla is moving too fast with assisted driving. Consumer Reports recently put out a report titled, “Tesla’s Autopilot: Too Much Autonomy Too Soon.”

Tesla CEO Elon Musk may indeed have launched Autopilot prematurely. Bad press at this point could delay self-driving technology a bit.

But this is one of those inevitable leaps. Something we’re destined to achieve in the near future. With Tesla, Google (GOOGL) and other companies using advanced machine learning, the technology will advance rapidly. And before too long, self-driving cars and trucks will be the norm.

Investment Implications

In Uber’s vision of the future, fleets of self-driving chauffeurs will replace car ownership.

The concept is eyebrow-raising, to say the least.

But there’s solid logic here. If the average car is used for only one hour a day, that’s not very efficient. Self-driving cars can operate 20-plus hours per day.

So in a self-driving world, most people wouldn’t need to own a car. Robot taxis would ferry us around. You’d be able to reserve a seat for regular commutes, then use on-demand options as needed.

Such a world would be many times more efficient than our current system. And much safer to boot. I’m betting it will be a reality in 20 years or so.

If so, the implications are far-reaching. What happens to automakers? What about car insurance? The trucking industry? These sectors will need to adapt quickly when self-driving cars do take over. And we’re beginning to see them do just that.

For example, GM (GM) recently bought Cruise Automation, a self-driving car startup, for $1 billion. (See Fortune‘s recent article “Equity Crowdfunding Just Had Its First Billion Dollar Exit” for more.)

GM also invested $500 million in ridesharing company Lyft, as part of a new self-driving car service partnership.

This should help explain why there’s so much hype around self-driving tech companies. I’m certainly on the lookout for quality investments in the space.

Whenever a technology this disruptive is on the horizon, it’s something investors must pay attention to.

For now, I’m watching a few publicly traded companies, including Mobileye (OME.F) and GM. But I know the largest gains will be made at the early stages.

The biggest challenge is, naturally, finding truly promising opportunities. In any “hot” area of investment, such as self-driving tech, virtual reality or artificial intelligence, there is far more noise than signal.

We’ll keep you updated on this market as it evolves.