Show notes
Autonomous trucking may sound like science fiction, but its impacts on transportation costs, the labor market and a breadth of industries may be closer than we think.----- Transcript -----Adam Jonas Welcome to Thoughts on the Market. I'm Adam Jonas, head of Morgan Stanley's Global Auto and shared mobility research team. Ravi Shanker And I'm Ravi Shankar, equity analyst covering the North American freight transportation industry. Adam Jonas And on this episode of the podcast, we'll be talking autonomous. Specifically, the road ahead for autonomous trucking. It's Wednesday, October 27th at 10 a.m. in New York. Adam Jonas Ravi, before we get into the autonomy topic, specifically, your sector really sits at the epicenter of labor inflation and driver shortage. So, just help set the scene for us. How big of a problem is this? Ravi Shanker It's pretty difficult right now. It has been the case for a while. We've had a demographic problem in trucking for pretty much the last two decades and counting. In fact, you can find news stories going back to 1910 talking about a driver shortage in the industry. But it's particularly acute right now. A lot of it is structural, not cyclical. So we think we need to find unconventional solutions to the problem. Adam Jonas So remind us why autonomy progresses faster in trucking than in cars. You and I have had this debate over many years but tell us why it's faster in trucking. Ravi Shanker It's a slightly different problem to solve with trucking. I mean, it's still a very difficult problem to solve. But the fact that 93% of miles driven of a truck are on the highway and autonomous driving is slightly easier to solve on the highway than it is in the middle of Manhattan for instance. That really helps. The fact that this is an industry that's really driven by unit economics and labor accounts for 35-40% of the cost of trucking, and if you can substitute a driver at least partially or maybe completely even, that will significantly reduce the cost of trucking. And obviously, there's a safety aspect; the fact that a truck accident can cause significant damage. And if you can have technology solve that problem and step in, that can save countless lives over time. So we think it's a slightly easier problem to solve. The economic savings may be better or easier to quantify with trucking than with passenger cars. Adam Jonas And that's a really good point, because I find in my conversations with investors that people tend to think of autonomy as this blanket homogeneous technology. But I want to understand a bit more about the economics of autonomy, payback periods, cost benefit. What are some of the highlights from the numbers that you've been running? Ravi Shanker So we think that autonomy can reduce the cost of trucking by 60%, six zero. If you can electrify the truck, that's probably another 10% on top of that. Obviously, if you take a truck company today and reduce their cost of operations by 60%, that's significant savings. On top of that, because you don't have to deal with hours of service regulations for a driver, you can significantly improve your productivity of the truck and hopefully you can gain some market share as well. So, we think that these new technology trucks cost roughly 50 to 70 thousand dollars more than a regular truck today, but the payback period can be measured in weeks and not years. Ravi Shanker So Adam, again, to me, it's relatively clear what the use case is for autonomy in trucking. Where are we with pass cars, where are those passenger robotaxis that we were promised a few years ago? Adam Jonas Well, I actually had the opportunity to ask the chair and CEO of General Motors, Mary Barra, on a Morgan Stanley video series that we published that exact question. And her response, pretty confidently was we're going to see major development in quarters, not years. Now that mission is focused on robotaxi in dense urban cities like San Francisco and other cities. Ravi, I think the definition of success there isn't that they've solved autonomy in two years because that's not something we're going to solve. We think that the definition of success there will be; are they able to fleet many tens or maybe even a couple of hundred robotaxis in a major city or a collection of major U.S. cities with driver out? Even if it's a simple mission doing a giant rectangle on a geofence or, you know, something that can resemble a streetcar without cables or a streetcar without wires. Just that proof point, even if it doesn't completely remove your driving license and substitute your commute entirely, will go a long way to convincing policymakers, investors and the general public that this is not science fiction, we're going to get there, right? Just like the barnstorming age of early aviation, these bigger and bigger feats every week, every month, we think we'll see something similar in autonomy. Ravi Shanker And maybe some of the key benefits of autonomy can be realized even with these kind of small early use cases. But I was thinking like maybe a pretty nice commonality in both our worlds, maybe the center sliver of the Venn diagram, if you will, between autonomous trucking, autonomous pass cars, is autonomous delivery vans. We've done a lot of work on what this means the last mile. Obviously, GM, Ford other OEMs have been talking about this. Where do you think we stand there in terms of these OEMs entering that market again? Adam Jonas Yeah, especially post-COVID. I mean, the growth of e-commerce and our obvious dependency, increasing dependency on final mile. That use case is perfect for electrification and autonomy. And I would just make the point that advancing the state of the art of connected car and connected car ecosystems and electric ecosystems accelerates the development of the autonomous economy too because electric cars make better AVs. And then autonomous cars make better electric cars because you can optimize the utilization and the use case and the inter workings with the infrastructure. So, I think that is a very hot area and I would agree with you there is middle ground that we're going to see in your neighborhood, perhaps sooner than people think, even if it's still at a slow speed or not all the time in all neighborhoods, in all weather conditions. Adam Jonas Before I let you go, I wanted to ask you a question that's always on people's minds and that's the impact on the workforce and jobs. How are your companies talking to current drivers about this autonomy subject? Ravi Shanker This is a really good question and obviously somewhat of a sensitive topic. I think the truck fleet operators want to be very careful and very clear that trucking is not going to displace every truck driver or like hundreds of thousands of truck jobs any time soon. In fact, we had a report that was commissioned and published by the Department of Transportation a few months ago, it was earlier this year that basically said that even with a bullish base of adoption of autonomous trucking, they did not see risk to significant job losses in the trucking space just given the extreme truck driver shortage that we already have and the limited new labor supply that's going into this industry. So, it's something to be very cognizant of, something to be very sensitive about, but at the same time, we think the technology can actually help the industry and not be a hindrance. Ravi Shanker So Adam, taking everything we've discussed today into account, what are the investment implications of this? Adam Jonas There's really lots of different ways you could express an investment opinion. I think Apple CEO Tim Cook once described autonomy as the mother of all AI. In the auto industry, many of our clients see it, as you know, the ultimate internet of things, internet of cars. And so, there are a variety of adjacent industries, both within auto and transportation, but also technology enablers, sensor companies, semiconductors, processors, A.I. companies, network operators, data. There's all sorts of ways to express it across industries. And interestingly, according to your work, the beneficiaries of autonomy ultimately extend across multiple industries, right? Fleet operators and frankly, ultimately, the consumer, too. So, the question might be what sector isn't exposed to this technological revolution? Adam Jonas All right, Ravi, thanks for taking the time to chat. Ravi Shanker Absolutely, Adam. Great speaking with you. Adam Jonas And thanks for listening. If you enjoy the show, please leave us a review on Apple Podcasts and share Thoughts on the Market with a friend or colleague today.