The Smartest Way to Play the Autonomous Vehicle Boom

Imagine you’re getting ready for a night out with a friend. You’ve each just finished logging a long remote workday and are ready to blow off some steam. Instead of someone pulling the short straw to be designated sober driver, an autonomous vehicle pulls up. Your friend is already in the backseat, shouting directions to the onboard AI system. This is the stuff of science fiction – literally – as nearly 100 years ago now, Czech physician and writer Miles J. Breuer “invented” the concept of self-driving cars.

Source: Solveig Been/Shutterstock

At the time, it was considered a wild concept from a zany novelist. But over the following century, Breuer’s concept of autonomy inspired countless science fiction books and movies. Each collectively painted the picture of a futuristic society where cars, indeed, drove themselves.

In all those years of self-driving science fiction, though, autonomy was nothing more than world-building. That’s changed over the past few years.

Ninety years after Breuer dreamt up the concept, autonomy is turning into a reality.

These cars are on the roads today. You may see an autonomous vehicle zipping around various cities the world over, like Phoenix, Boston, Berlin, London, and San Francisco. Today, we’re entering a fully autonomous era. And we’re seeing real self-driving cars — without a human driver — on real roads in actual communities.

Google’s self-driving unit Waymo has started driverless taxi rides in Phoenix. Autonomous trucking giant TuSimple (NASDAQ:TSP) has successfully conducted multiple “driver-out” truck tests throughout Arizona.

Across the nation, Uber Eats is leveraging a fleet of driverless cars to deliver food and other goods. Domino’s (NYSE:DPZ) is autonomously delivering pizzas using mini self-driving cars in Houston. 7-Eleven has launched its own autonomous delivery service in California.

Folks, the Autonomous Vehicle Revolution has arrived. And it’s about to enter “hypergrowth” mode.

Accelerated Progress Expected Over the Next Five Years

As it’s done over the last few years, the AV Revolution will continue to progress in waves. Specifically, we see it lasting roughly 25 years and going through five different “waves,” or phases.

The first occurred in the early 2010s and saw the transformation of self-driving concepts into working prototypes. We’re calling this the “Construction Wave.”

The second wave occurred in the back half of the 2010s and involved testing prototypes on real roads. It began with Waymo launching its autonomous ride-hailing service in 2016. Consequently, we’re calling this the “Testing Wave.”

Currently, we’re in the third wave of the AV Revolution — the “Validation Wave.” The previous wave was all about evaluating the tech. This one’s all about validating the value. Can these cars transport goods from point A to point B? Can they safely transport people without a fail-safe driver behind the wheel? Do they save costs?

Next is the “Commercialization Wave.” Auto makers will manufacture as many AVs as possible. We expect significant commercial ramp and growth in AV penetration during this era (2024-2030). During this period, we see AV adoption soaring from 1% to 50%.

Lastly, we’ll phase into the “Standardization Wave.” The hypergrowth era of AVs will end, and this technology will simply become standardized across all autos. Growth will be steady and healthy but much smaller than it was during the Commercialization Wave.

Considering this roadmap, we believe we’re in the middle of the Validation Wave and on the cusp of entering the Commercialization Wave.

This next phase will be the fastest-growing era of AVs during the AV Revolution. And as revenues start to grow at a triple-digit pace, we expect high-quality AV stocks to absolutely soar in value.

Consequently, we believe now is the best time to buy AV stocks.

The Best Way to Play the Autonomous Vehicle Revolution

We’re confident the best way to play this revolution is to invest in the core technology making it all possible. That’s LiDAR.

Indeed, to unlock self-driving’s full autonomous potential, cars need to have complete “vision.” They need a human-like ability to see and respond to their surroundings.

Ideally, you want to do this with built-in cameras, since cameras are space- and cost-efficient. But cameras have significant limitations that have proven difficult to overcome. So, instead, laser light perception sensors called LiDAR have taken their place.

To get a sense of the car’s surroundings, these sensors emit laser pulses. Those beams travel out, hit objects around the car and then bounce back to the sensors. Then, the sensors carefully measure changes in the returning beam to create a proxy for distance.

Do this thousands of times in a 360-degree frame-of-view, and voila. You have a complete and dynamic “picture” of the surrounding environment.

Why Vision-Only Approaches Will Fail

It’s commonly accepted across the AV space that the self-driving car of the future will include cameras, LiDAR, and RADAR. Since it provides the highest-resolution picture of a car’s environment, LiDAR will be the most important element in the stack.

However, this consensus opinion has some detractors, including Tesla (NASDAQ:TSLA) CEO Elon Musk. He believes that the future of self-driving is “vision only” — just cameras, no LiDAR or RADAR.

A human can drive a car with just two eyes and a brain. Why can’t a machine do the same with a few cameras and a robust AI processor?

Maybe at some point in the future. But today? No. It won’t happen.

Compared to the human eye, cameras offer low resolution and a narrow viewing frame. But LiDAR uses short-wavelength laser beams to create a very high-resolution picture with a wide viewing frame. In fact, two LiDAR sensors can do what dozens of cameras would be able to…

And at the same time, LiDAR data is low-density — not so with cameras. It’s structured, 3D-position data (X, Y, Z) with time. That means it’s quite easy to process. You don’t need an impossibly complex software system to make sense of LiDAR data. It’s very straightforward.

Barriers Are Coming Down

Now, LiDAR sensors are awfully expensive. That’s why Musk is so anti-LiDAR. Back when Tesla began its self-driving efforts in the early 2010s, LiDAR sensors cost as much as $75,000 per sensor!

But thanks to Wright’s Law and certain technological improvements, its cost has plunged in recent years. Today, some companies are making LiDAR sensors for less than $1,000. And most experts see those prices coming down toward $100 within the decade.

So… LiDAR produces high-res, easy-to-digest data. And the sensors’ cost is plunging to be on par with that of cameras and RADAR…

To be sure, LiDAR is the future of self-driving.

Specifically, the self-driving car of the future will include cameras (for color data), LiDAR (for high-res, near-field perception), and RADAR (for long-range perception in severe weather). And in that sensor suite, LiDAR will be the most valuable and most important.

So… I repeat… the best way to play the self-driving revolution is to buy LiDAR stocks.

“Version 1.0” LiDAR

In the world of LiDAR stocks, you have the 400-pound gorilla in the industry, Luminar (NASDAQ:LAZR). Indeed, it’s a core holding in our Innovation Investor portfolio.

Luminar, like most other LiDAR makers, is building its sensors using something called Time-of-Flight (or ToF) techniques. This is basically the 1.0 iteration of cost-effective LiDAR sensors.

And as “Version 1.0,” ToF LiDAR have significant limitations.

These sensors send out laser pulses and measure the time it takes for those pulses to return to the sensor. They use the “time of flight” as a proxy for distance.

ToF LiDAR sensors are cool. But they provide a choppy signal that’s open to ample interference and noise. And because they transmit data in pulses, those laser beams also can’t measure velocity data. Therefore, instantaneous velocity is impossible to accurately calculate from the data.

“Version 2.0” LiDAR won’t sent out choppy laser pulses. Instead, it’ll send out a smooth signal that is interference-free and can calculate point velocity.

And we know a company working on this next generation of LiDAR that will soar on the back of the AV Revolution.

The Final Word on the Autonomous Vehicle Revolution

Autonomous vehicles are on the cusp of entering a hypergrowth phase from 2023 to 2030. And we want to buy and own as many high-quality autonomous vehicle stocks as possible ahead of this acceleration. That’s especially because many are trading at or near all-time lows ahead of this big growth spurt.

The setup is quite compelling.

Stocks are getting crushed today because of high inflation and fears of an incoming recession. Those concerns will pass.

Meanwhile, they’re giving us the perfect opportunity to buy the powerhouse behind the AV Revolution at a dirt-cheap price.

Could we make 10X our money on this stock? Maybe even 20X or more? Absolutely. It’s not a “sure thing” — far from it. But this is the sort of shot you have to take if you want to make big money in the markets.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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