Why Driverless Cars Are Here to Stay

Louis BaseneseYou know I’m bullish on driverless cars.

Driverless cars are the ultimate disrupter.

Heck, Ford executives now make regular trips to Silicon Valley to meet with executives running startups a millionth Ford’s size.

Doesn’t that say everything?

Last week, Domino’s began testing pizza deliveries in a driverless Ford Fusion.

“A Ford engineer will be at the wheel, but the front windows have been blacked out so customers won’t interact with the driver,” reports The Associated Press.

The investment appeal of driverless cars is unquestionable, right?

Yet when my publisher’s 80-year-old father recently challenged my bullish thesis on driverless cars, I felt obligated to share it with everyone.

Mr. Williams was very short and articulate, saying…

“How are driverless cars any different than the Segway? Because the Segway was supposed to change the world, too.”

Below, I’ll list the five reasons why Segway failed, and tell you why driverless cars are very different.

Reason #1: Segway Expectations Were Too High

Jonathan RodriguezAh, the Segway.

It was hyped as the world’s first motorized, battery-powered self-balancing scooter when it launched in 1999.

But fewer inventions have fallen harder on their proverbial face…

Back in 2001, Segway creator Dean Kamen boldly claimed that 50,000 of these units would be sold in their first year on the market.

Forbes reported that in the six years that followed that boast, the company sold just 30,000 units — in total.

Ouch!

But world domination was always going to be tough for Segway when a single device cost a whopping $5,000 when it launched.

Not to mention it weighed 80 pounds, ran for 11 miles on a single charge and hit a top speed of 10 miles per hour.

Reason #2: A Solution to Nothing

Devices like smartphones provided a solution to a problem that we didn’t even know we had.

Same goes for cars that drive themselves.

But unlike smartphones and driverless cars, the world never needed Segway.

Actually, forget need…

Segway sales proved that the world didn’t even want Segway.

After initially predicting the device would change the world, the late, great Apple CEO Steve Jobs said that the Segway flat-out “sucks.”

If the guy who created the billion-dollar need for smartphones says your product sucks, you may want rethink everything.

Clearly, reality didn’t match the hype — which ultimately doomed the scooter to commercial failure.

Reason #3: No Target Market

Martin HutchinsonEntering my senior citizen years, I am looking forward to driverless cars.

When my mediocre driving becomes truly lousy, as my father’s did after his eyesight went, driverless cars will mean I won’t be trapped at home or begging for rides.

As long as I can figure out the damn technology (a big ask!) I will be fully mobile.

Can’t say the same for the Segway.

Once you’re too unsteady to walk long distances, you won’t be nimble enough to master a Segway. You’ll just fall off.

So the one target market that might have worked for Segway was a total bust.

Now, another big use would have been airports, with their sometimes vast distances. But those are too crowded. You’d just mow people down.

Reason #4: More Toy Than True Innovation

Segway was not a true innovation. It did not change anything about the way we do things.

Even if it had been widely adopted, little about our lives would have changed.

It was simply an interesting gadget, equivalent to a new model of a food processor.

In spite of huge marketing hype, Segway was just a fun toy. And it was about as useful as Marty McFly’s hoverboard — and less fun.

It therefore failed to gain traction.

Reason #5: Regulatory Disaster

Louis BaseneseSkateboards. Bicycles. Golf carts. Even Rollerblades. Existing regulations contemplated the use of all of them on sidewalks and roads.

But nobody had a clue about Segways or how to incorporate them. The mode of transportation didn’t fit into any neat, pre-existing categories. And the company did little to nothing to inform and guide regulatory bodies.

The result? Countries responded in knee-jerk fashion to ban it, instead of working to expand regulations to accommodate it.

Thankfully, driverless cars won’t fall victim to the same fate. Regulatory approval has been a key focus for all the early movers. And it’s working.

Case in point: The U.S. House of Representatives is set to vote on a measure this week that would speed up deployment in two major ways:

  1. By granting automakers exemptions to put 25,000–100,000 vehicles per year on the road without meeting existing safety standards. Instead of pre-approval, they would submit ongoing safety reports.
  1. By barring states from blocking driverless cars. The federal mandate would supersede any state efforts and roll back regulations in some states like California that are considered to be too restrictive.

“Self-driving vehicles stand to make our transportation system safer and more efficient,” said House Majority Leader Kevin McCarthy.

The Segway held no such promise, which is why authorities weren’t proactive about regulating them, even in the absence of the company’s efforts.

But when it comes to driverless cars, the government’s going all in on helping, not hindering, the technology. Or as McCarthy said, “Advancing this technology to road-ready requires government policy that encourages continued testing and development.”

If you’re not positioning your portfolio to profit from the ultimate disruption, what are you waiting for?

We alerted True Alpha subscribers to driverless car chipmaker Mobileye months before Intel’s $15 billion buyout offer hit. And we’ve singled out three more small caps levered to the trend that could easily be scooped up at any moment. To find out their identity today, sign up for a risk-free trial here.

Ahead of the tape,

Louis Basenese
Chief Investment Strategist, Wall Street Daily

You May Also Be Interested In:

Natural Gas: The Ultimate Contrarian Play for 2012

You know I’m bullish on driverless cars. Driverless cars are the ultimate disrupter. Heck, Ford executives now make regular trips to Silicon Valley to meet with executives running startups a millionth Ford’s size. Doesn’t that say everything? Last week, Domino’s began testing pizza deliveries in a driverless Ford Fusion. “A Ford engineer will be at...