We are Witnessing a Revolution in Self-driving Cars

Have you heard of the Mercedes Benz tricycle?

Created by Karl Benz in 1888, it is considered by many the first petrol powered automobile. And it was financed by his wealthy wife, Bertha.

It looks like a weird mix between a tricycle and a horse carriage.

Karl patented the car and built several copies of it. Then showed the vehicles around in the hopes of selling them. But people weren’t too keen on them.

You see, Karl was a great engineer, but he wasn’t much of a salesman. And after a few disasters during demonstrations, Karl felt defeated. He hid in his factory to tweak his invention.

But Bertha was an early entrepreneur. She knew that she needed to show off the car or they were risking going bankrupt. And that’s what she did.

Without her husband’s permission, she took one of the cars, and hit the road with her two sons, to visit her mother in Pforzheim.

During the journey, she had to stop several times to solve problems. And as there were no mechanics around yet, she had to get creative. She cleaned the carburettor with a hair pin, used a garter to insulate a wire, and when the breaks started to wear down, she invented brake lining.

Her drive from Mannheim to Pforzheim was the first ever completed long distance trip. She drove 105 km…in 12 hours. Quite a feat in a time when most automobiles could only drive a couple of kilometres.

The people that saw her pass were witnessing history. They alerted the press, and Bertha got the publicity she was seeking.

Much like the people seeing Bertha go by, we are witnessing a revolution in the automobile industry.

The Self-driving Car Revolution

Karl and Bertha may have been the first ones to convince us we should own our own car. But it looks like car manufacturers are now betting on the opposite. Car sharing.

You see, it all starts with Uber. Uber has spent years trying to build a fleet of drivers. Yet it’s CEO, Travis Kalanick, has a longer term goal in mind: to replace Uber’s more than 1 million drivers with robot drivers.

It is essential for Uber’s survival that they develop this technology. They need to reduce the cost of ride sharing, since they are incurring in big losses.

Especially more so after some of Uber’s drivers have sued the company. The drivers want to be classified as employees rather than independent contractors. So Uber may have to pay payroll taxes.

Yet Kalanick is getting very close to eliminating the drivers.

Volvo has just delivered a fleet of XC90 self-driving cars to Uber. And later this month, Uber’s Pittsburgh customers will be the first ones to trial them.

The fleet is not completely autonomous — yet. A human in the passenger seat supervises the car, and can take control if needed. And the deal is not exclusive with Volvo. They are planning to approach other car manufacturers for similar models.

Volvo is not the only car manufacturer signing deals with car share riding companies.

General Motors has allied with Uber’s competitor Lyft, and they are planning to test driverless taxis. The company has also launched its own car sharing service, Maven.

Daimler is also investing in car sharing. They have created the subsidiary Car2go, a company that provides services in Europe and North America.

BMW too has also put a stake in a joint venture with DriveNow and SIXT to provide car sharing in Europe. And have created their own premium car sharing service, ReachNow.

Even Tesla has included car sharing in its master plan. It wants to enable car owners to have their car make money for them while they are not using it.

The strategy for the future of automobile industries is quite clear. They are betting on people purchasing fewer cars, and so they’re positioning the industry into a service.

So did Karl and Bertha have it all wrong? Should they have been offering car rides instead of selling their cars?

Car sharing makes more economic sense than car ownership.

Consider the expense of having a car. The purchasing costs, insurance, gas, registration, maintenance… Australian’s spend thousands of dollars to own a car.

Yet cars spend 95% of their time parked. It is a lot of money for something you only use 5% of your time.

And most of the time, we use a fifth of its capacity, by transporting only one person. It is a waste of resources.

As cities around the world start shifting their focus to restricting cars, it is an industry waiting to be disrupted.


Selva Freigedo,
For Markets and Money

Markets and Money’s Vern Gowdie believes we’re already at the beginning of the next major crisis.

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Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.

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