Earlier today we got a note from Art Cashin, market sage and CNBC regular, asking us for a piece we wrote years ago about autonomous vehicles. Art’s memory is better than either Outlook’s or Apple Mail’s search function, so we had to recreate it for him. The spark behind his request was news (link below) that Apple is pushing to have a fully autonomous vehicle on the road by 2025. That was enough to send AAPL to a new all-time high today even though the company has been on-again, off-again with AVs for years. Such is the power of the investment narrative around autonomous, and obviously also electric, vehicles at present.
Back when Big Tech’s ambitions in autonomous broke in the mid-2010s, we developed 2 theories about why a Google or others would have an interest in this space (and our note on the topic is what lodged in Art’s encyclopedic memory).
#1: It’s a huge global market; call it 75 million vehicles/year at an average price of $25,000 apiece, just to be conservative. That’s almost $2 trillion in annual revenues. Apple’s revenues in the last 12 months were $366 billion, and it is the largest of the US Big Tech companies by sales. The value of any company, tech or not, is set in a bedrock of 1) the size of its addressable market, 2) the growth of that market and 3) the profits available in that market.
Of course, we thought, Big Tech must be in the automotive sector even if it has historically been a graveyard for capital. It is just too large a market to ignore, but the product they develop must change the traditional economic of the business. Autonomous vehicles allow for “transportation as a service”, where users rent a car or truck for only as long as they need it. Once their journey is complete, the AV shuttles itself off to the next user. That’s a revenue model any tech company would understand and embrace.
#2: That’s the obvious bit, but what is less well understood is how people (especially Americans) actually use their cars. Before the pandemic, 85 percent of workers used a vehicle to commute to work, 5 days/week, 50 weeks/year. Most (75 percent of the total) drive alone, and the average commute is 35 minutes each way.
This means that for a full hour-plus every weekday, as well whatever driving occurs on the weekends, over 100 million working aged Americans cannot access the Internet aside from perhaps streaming music or listening to podcasts. No Facebook, no Instagram, no YouTube, no email, no web surfing … No nothing. Or, at least they shouldn’t just due to safety concerns.
What is an hour/day of access to the most valuable audience of consumers anywhere in the world “worth”? We’re talking about 50 billion hours/year in total (10 hours/week x 50 weeks/year x 100 million car commuters). That is a market Big Tech understands – monetizing users’ time and attention.
The same thought – and math – applies around the world. Wherever autonomous driving rolls out the market for online advertising, gaming, media consumption, and everything else grows. We are all already so tied to our devices that there’s not much available time left. Commuting is quite literally the “last hour” available and dominating it is critical to Big Tech.
We’ll close out with one other observation: Ford and GM fell after the Bloomberg article on Apple’s AV ambitions hit the tape. “Makes sense” you might say. But … When you realize that Apple has $191 billion in cash on its balance sheet and F/GM’s combined market cap is $169 bn, the scale of the problem for the OEMs is more apparent. Apple can throw a lot of money at the AV challenge. That doesn’t solve everything, but it helps.
Following on our thought earlier in the week that Ford and GM should strongly consider splitting up into EV and non-EV operations, the Apple news today is just another bullet point in our investment banking PowerPoint for the idea. It is not that Ford and GM can’t compete in EVs or AVs – they can. It is that their chances improve materially if they can have an equity currency that goes toe – to – toe with Tesla and (now) Apple.