What do Tesla, Nvidia, Alphabet, and General Motors, All Have In Common?
All are attacking an $8 trillion market future.
This future market is a reason I own all of these stocks!
Let’s be clear. My ownership of the stocks of these companies is no inherent reason for others to invest. However, my research about why I purchased these stocks provide a guide about each company’s future leadership potential in a massive new market opportunity. Before discussing these details, you should know I believe in investing versus trading. For me, investing is a long term endeavor versus trying to time a company’s stock price by making frequent entry or exit decisions. I think of investing like being an owner of the company. I put a lot of emphasis on the quality of management (mostly the CEO), along with the decisions management makes around capital allocation.
Also, I like companies that have cash cows (significant profits from long-term products or services sold today) that can fund investments into new products, services or industries. In the case of GM, Nvidia and Alphabet, they also have cash cow businesses and products that allow for the massive allocation of capital targeted at a gigantic future market known as transportation-as-a-service (TaaS), thought to be an $8 trillion market opportunity. Tesla, however, has almost unlimited access to capital markets allowing it to continue investing in the technology required to continue to drive toward building its TaaS future.
Follow the leader, Tesla
The leader in the autonomous driving space is Tesla. Unlike others, Tesla collects data from a global fleet of customer vehicles already equipped with self-driving data collecting sensors (all of those Model S, Model X, Model 3, and Model Y vehicles on the road around the globe). This was highlighted in a Medium article I wrote earlier this year about Tesla’s engineering advantages. Other companies rely on test fleets and simulations for data generation. Tesla has amassed 3 billion miles of real-world, Autopilot data according to Electrek. That’s a massive amount of data that far exceeds others. It’s this large and growing data that feeds the neural networks which drives the artificial intelligence required for developing full-self-driving capability. Tesla’s goal is to leverage the self-driving capability of its customer’s cars into an autonomous taxi fleet allowing other people to hail the car when owners are not using it. It’s an audacious goal for sure. However, what once seemed audacious in the electric vehicle space for Tesla, is now capability still unmatched by any other company. So when Elon Musk states audacious goals, I now choose not to discount his statements. As the TaaS space unfolds over the years, I fully expect Tesla to be a major player (if not the leader) on the global TaaS stage.
Follow the technology, Nvidia
Nvidia is a multinational technology company popularly known for its graphics processing units (GPUs) for gaming. The company also produces supercomputers for cloud systems as well as. But Nvidia is more than a gaming GPU company. In addition to its data centers, the company has made substantial investments in the automotive sector as well as in artificial intelligence capabilities designed to enable self-driving vehicles.
Nvidia’s automotive clients include not only automakers, but also automotive suppliers. A recent CleanTechnica article by Zachary Shahan describes how Nvidia’s automotive partnerships have moved beyond just supplying GPUs and SoCs (systems-on-a-chip) to the automotive industry. The company is now working with automakers to develop cars centered around artificial intelligence (AI) and supercomputers. Until recently, even the self-driving computer used by Tesla came from Nvidia. The company is developing self-driving vehicle systems in partnership with Volvo, Continental, Xpeng Motors, Toyota and Mercedes. Last year in a post on the TaaSMaster site about the autonomous vehicle ecosystem, it seemed clear that Nvidia was the one company that has the most TaaS business relationships with other entities in the space. And today, it seems these partnerships have only grown giving Nvidia a substantial leg-up on other companies providing the technology to the TaaS industry.
Follow the deep pockets, Google
Very few companies have the balance sheet of Alphabet to take on the financial burden of developing autonomous vehicle TaaS solutions. And no other company has been working on this longer than the parent company formally known as Google. Back in 2008, Google assembled a team of experts to tackle the challenges of autonomous driving in a project that internally became known as Chauffeur according to Larry Burns in his book, Autonomy. Today, Chauffeur is an Alphabet subsidiary called Waymo.
According to UBS, Waymo could generate $114 billion in revenue by 2030. And like the “follow the money” overview for GM’s Cruise division, Waymo recently raised $2.25 billion from entities such as Silver Lake, Magna, Andreessen Horowitz and AutoNation. Waymo’s parent, Google, also enjoys massive profits from their advertising business that allow the company to continue to fund the development of its TaaS business. Like Nvidia’s partnership strategy, Waymo has linked-up with multiple automakers to help create an autonomous, TaaS future. Waymo has partnerships with Volvo, Fiat-Chrysler, Jaguar, and Renault-Nissan. Waymo already operates an autonomous ride-hailing service called Waymo One in the Phoenix area. In my opinion, the company is well-positioned to be a major player in a global TaaS future.
Follow the money, General Motors
Dan Ammann, CEO of GM’s Cruise autonomous vehicle subsidiary, recently described to CNBC how TaaS will become an $8 trillion market opportunity. It’s this business future that drove GM to acquire Cruise Automation in 2016 estimated to be between a $580 million and $1 billion acquisition. Cruise is helping GM develop autonomous vehicle technology. Autonomous vehicle capability is a major capability required to succeed in this future $8 trillion market. It’s because of Cruise’s technology that Softbank’s Vision Fund invested $2.25 billion into the company in May 2018. Also in 2018, Honda announced that it would invest $750 million into Cruise followed by an additional $2 billion investment over the next 12 years. These are giant bets on GM’s future capability in a new TaaS world.
Get over what you think you know about GM
I realize GM gets less Wall Street love than the others. Investors do not like traditional automakers. In fact, GM’s share price today hovers around its post-bankruptcy, 2010 IPO price of of $33. GM’s very good, recent financial performance (even during the industry slowdown caused by coronavirus) can’t get the stock pricing moving forward. However, believing yesterday’s General Motors will be tomorrow’s GM is a mistake.
“History is littered with big companies that ignored innovation”
The quote above is attributed to GM’s former CEO, Dan Akerson, when he formed an internal skunk-works team in 2013 to keep tabs on Tesla and its burgeoning electric vehicle technology. Akerson believed then that Tesla could be a disruptor. We now know that Akerson was correct. GM’s current CEO, Mary Barra, is steering the company today to an electric, autonomous, and mobility future. The company calls it Zero Zero Zero (Zero crashes, Zero emissions, Zero congestion). Each “zero” requires the development of autonomous driving, mobility solutions and electric vehicles. Of the major global automakers (except for Tesla), GM has been driving toward this future the longest and will have more to show for their efforts faster than many others.
I also like that profits from key aspects of GM’s business (trucks and truck-based SUVs primarily) which help fund the massive investments required for a TaaS future as highlighted in this Medium article. Other than Tesla, GM seems to possess the best EV technology along with an overlooked, but required, capability to produce electric vehicles at scale. Similar to Tesla’s strategy, GM is building a dedicated EV battery factory with their EV battery partner, LG Chem. The company also is converting an entire vehicle assembly plant in Michigan dedicated to producing electric vehicles only. GM even recently revealed a production-ready electric, autonomous vehicle clearly designed for a TaaS world. It’s called Origin. It has no steering wheel or pedals. Its interior has seats that face each other. Origin, together with Cruise and GM’s massive electric vehicle investments are examples of smart capital allocation that will pay tremendous dividends toward a future TaaS world.
And then there’s China, where GM sold 3.1 million vehicles in the country in 2019 (second for international automakers other than Volkswagen). GM’s Chinese business contributes almost a fifth of the companies profit. And the Chinese market (including Chinese government mandates) is a primary impetus driving General Motors to accelerate its push to a Zero Zero Zero future.
TESLA. Follow the leader!
NVIDIA. Follow the technology!
GOOGLE. Follow the deep pockets!
Generals Motor. Follow the money!
I’m sure other companies also will prosper and benefit from the disruption occurring in transportation. However, General Motors, Nvidia, Google and Tesla each have a head start and a great opportunity to write the future, not just participate in a new Taas world.
Written by Randall McAdory
RMcAdory@taasmaster.com
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