Driverless cars create infrastructure investment opportunities

From
car light trails on the roundabout road at night

Investment could offer potential for attractive risk-adjusted returns.

Driverless cars will eventually dominate the world’s roads but widespread adoption isn’t imminent and there continue to be opportunities for investors in the road sector, according to AMP Capital’s Global Listed Infrastructure team.

In a paper entitled Autonomous vehicles: the real opportunity that lies ahead for investors, AMP Capital notes while driverless cars will eventually help solve traffic congestion issues in densely populated urban areas, more varied solutions are likely to be required in the medium term and both will require significant infrastructure investment.

AMP Capital Global Listed Infrastructure Portfolio Manager Andy Jones said: “Investors are undoubtedly aware of visions of a future in which cars function free of human input, easing congestion and reducing journey times.  A system in which cars drive much closer together and with more occupants can vastly increase the capacity of existing road space by effectively reducing each occupant’s overall demand for space.

“There are strong reasons to suggest, however, the adoption of autonomous vehicles will be more gradual than the technological leap from the horse and cart to the motorised car.  The benefits of greater traffic density can only be achieved when a critical mass of cars is autonomous.  Until then, they may be more convenient for the driver but they won’t shorten journey times, which diminishes the incentive to would-be early adopters.”

In the near term, before autonomous vehicles become a widely-embraced technology, there will be demand for other solutions to reduce traffic congestion. These may include creating managed lanes on existing freeways that drivers can access for a toll, and will provide opportunity for investment.

“The benefits of greater traffic density can only be achieved when a critical mass of cars is autonomous” – Andy Jones.

Medium term, road markings and signs will need to be refreshed so they can be reliably read by growing numbers of autonomous car cameras and this will also require investment.

Other investment opportunities include facilitating new electricity demand patterns given the high likelihood that autonomous vehicles will be electric.  Telecoms infrastructure will also play a big role due to the data generated by driverless cars.  AMP Capital has found each autonomous vehicle could generate a daily amount of data equivalent to 2,700 internet users.  Should autonomous vehicles represent 30 per cent of total cars on the road, it would be the equivalent to the internet usage of one trillion people every day.

Mr Jones added: “The investment opportunity lies less in the makers of the autonomous vehicles of the future that currently beguile much of the media.  It’s the less glamorous infrastructure that will support the new technology and will require investment on a large scale, offering the potential of attractive risk-adjusted returns.

“Key infrastructure thematics include transportation (enhancing existing road networks), utilities (investments in a changing power mix), communications (increasing wireless data transmission capacity) and energy (via continued gasoline demand from traditional cars in the short term and then demand for hybrid autonomous vehicles in the medium term).  Listed and core infrastructure firms in these sectors, particularly first movers with a superior understanding of how commuters value their time, have substantial potential for growth and investors will be interested in the increasing inflation-linked and stable cash flows they will offer.”

You must be logged in to post or view comments.