Why investors are keeping autonomous vehicles in the headlights

Autonomous vehicle companies could offer strong ROI for investors as technology advances and consumer demand grows.

Need a ride in San Francisco? Now you can hail a driverless taxi at any time, day or night, thanks to California regulators’ recent approval of these self-driving services.¹ The future of transportation is finally here, and despite past roadblocks and controversies, the autonomous vehicle (AV) industry has begun to accelerate.

In 2022, the U.S. autonomous vehicle market commanded an impressive $36.4 billion valuation, solidifying its status as a major AV player. On a global scale, North America represents the fastest-growing AV market, with a substantial 40.15% share of the revenue pie in 2022.²

The sector offers investors the potential for a high return on investment if the market follows global trends of a 35% growth rate from 2021, reaching projections of $2.4 trillion globally by 2032.³

Semi-autonomous vehicles pave the way for AV investments

The Society of Automotive Engineers (SAE) defines six automation levels, from fully manual (0) to fully autonomous (5).⁴ Some consumers remain skeptical of fully self-driving cars, citing concerns about a range of potential problems, including malfunctions, overreliance, lack of control, and hacking.⁵ But semi-autonomous features are already becoming mainstream in passenger vehicles, and fully autonomous cars are likely to win over public opinion as a result.

The semi-autonomous vehicle segment accounted for 95.06% of revenue share in 2022.⁶ Most vehicles sold in the U.S. are equipped with automatic emergency braking (AEB) or automatic emergency steering (AES) thanks to the National Highway Traffic Safety Administration’s 5-Star Safety Rating standards.⁷ Consumers love semi-autonomous features like lane departure warning, adaptive cruise control, and blind spot detection: 83% want blind spot warnings, while over 80% want forward collision warning and rear view mirror cameras.⁸ Today’s consumers may even be willing to pay via a subscription or pay-per-use model for other premium automation features.

An optimistic investor outlook for the technologies enabling AVs

Both semi-autonomous and fully autonomous cars rely on specific hardware and software capabilities, and investors looking at the AV market should recognize how these technologies undergird the industry.

• Sensors: In 2022, the global autonomous vehicle sensors market reached $410 million, but that number is expected to grow quickly, reaching $50.6 billion by 2032 with a CAGR of 61.8%.⁹ Various types of sensors – including LIDAR, ultrasonic, RADAR, and infrared – provide real-time data, enabling vehicles to determine distances from objects, make informed decisions, navigate safely, and respond to dynamic traffic situations. Waymo, owned by Alphabet, developed proprietary LIDAR sensors that create a 3D, 360-degree map around the car, emitting light so that they work day or night. Tesla’s model famously doesn’t deploy LIDAR, instead using cameras, ultrasonic sensors, and radar to navigate.

• Semiconductors: The latest AVs have relied heavily on semiconductors as the foundational hardware for data processing, so it’s hardly surprising that the semiconductor industry’s market is expected to reach $553 billion in 2023.¹⁰  As demand for semiconductors grows alongside automated vehicles, so will the need for indium phosphate, indium gallium arsenide, gallium nitride, and other materials used in chips.¹¹

• Artificial intelligence: AVs are reliant on AI-powered software, which interprets sensor data, predicts behaviors in the environment, and plans the car’s subsequent actions. Through a network of sensors, cameras, and advanced algorithms, these AI systems process vast amounts of data, interpreting road signs, detecting obstacles, and predicting vehicles’ and pedestrians’ movements so the car can adapt to complex and dynamic traffic scenarios. AI could also help enable connected cars or telematics platooning, which improves traffic and efficiency. Across industries, AI is on the rise, with a projected CAGR of 37.3% between 2023 and 2030.¹²

Auto companies are heavily investing in autonomous tech through in-house research efforts or strategic partnerships. Tesla develops its solutions in-house, while General Motors acquired Cruise in 2016, Ford established its subsidiary Latitude AI, and Toyota, Volvo, and Uber have partnered with Aurora Innovation, a company dedicated to creating safe and reliable self-driving technology.¹³

Uses and key investment areas for autonomous vehicles

Passenger vehicles play an undeniable role in the AV investment landscape, with 74.15% of 2022’s revenue share coming from the passenger segment.¹⁴  Despite some consumer skepticism, AVs can offer passengers increased safety, lower maintenance and repair costs, and increased accessibility. As they become widespread, they could help alleviate traffic congestion by communicating and coordinating with surrounding vehicles.

Rideshares and shuttle services are another area for investors to consider. Already, autonomous vehicle companies like Waymo and Cruise are operating driverless taxis in cities like San Francisco and Phoenix. Younger generations prefer access over ownership, fueling the rise of mobility-as-a-service offerings – and indeed, Uber, Lyft, and Gett are actively involved in AV testing and development partnerships.

Today’s market also presents opportunities around autonomous trucks and delivery vehicles. Not only can they increase efficiency and safety, but they can also reduce operating costs by roughly 45%.¹⁵ With their potential to streamline last-mile deliveries and provide faster shipping, autonomous trucks are poised to meet the soaring demand for online shopping , creating a compelling opportunity for investors looking to navigate the evolving transportation and logistics landscape. Though progress on this front is in the early stages, notable advancements include TuSimple’s successful autonomous semi-truck runs¹⁶ and Nuro's approval for driverless grocery deliveries at speeds up to 25 mph.¹⁷

Companies are actively fueling research and development to make AVs even more reliable, safe, and energy efficient. But a few outstanding questions remain.

Notably, some consumers generally don’t trust artificial intelligence and feel uncomfortable with the idea of self-driving cars. In fact, 44% of U.S. adults say driverless cars would be bad for society, 63% said they would not want to ride in a driverless car, and 45% are uncomfortable sharing the road with driverless vehicles.¹⁸ Hacking concerns pose another hurdle for the autonomous vehicle industry.

Additionally, the autonomous vehicle insurance and liability frameworks aren’t yet clear. Level 5 self-driving vehicles could potentially disrupt the $350 billion car insurance market by reducing crashes.¹⁹ As technology advances, liability may shift from human to vehicle entirely, potentially forcing the auto insurance industry into a decline or giving rise to autonomous vehicle insurance policies focusing on cybersecurity and sensors.

Still, autonomous vehicle investors could earn high ROIs. After all, most cars in the U.S. now offer at least basic automated features and consumers are becoming more familiar with the idea of AVs. Most U.S. states have now passed regulations around the use of AVs, paving the way for consumers and companies. At the federal level, lawmakers are discussing legislation that could ensure the safe, regulated rollout of self-driving cars — which may help clarify what investors can expect in the years ahead.²⁰

Autonomous vehicles open the door for high potential ROIs

While the autonomous vehicle market has encountered obstacles on its journey, it has also made significant progress. The widespread integration of semi-autonomous driving technologies, ongoing research and technological advancements, and largely successful AV taxi deployments in U.S. cities, all point toward a future of sustained growth in automated passenger vehicles, rideshares, and trucking. As the autonomous vehicle industry continues to evolve, investors who keep a forward-looking perspective are well-positioned to reap the rewards of this revolution in transportation.

References to companies are for illustrative purposes only and should not be viewed as investment recommendations.

Risk Warning: Investment involves risk including the loss of capital.