This last week, we saw Tesla take advantage of the lack of information available on autonomous vehicle technology. Unfortunately, the facts around autonomous vehicles are elusive as PR copywriters fuel journalists, who are churning out content to meet deadlines.
For starters, to get machines to respond like humans, within milliseconds, is one of the most difficult problems that technologists have aimed to solve. The truth about autonomous vehicles includes regulations, production cycles, and delays in implementation. I predicted when I wrote my analysis six months ago, that the gap between investor expectations (perception) and commercial deployments (reality) had created an autonomous vehicle bubble that would pop in 2019.
One example is Intel, which has been propped up under hope that AV is close to deployment. “How Intel Plans to Win Self-Driving Cars,” is a headline published by Motley Fool and there are dozens of more like it. Meanwhile, six days ago, Intel laid off dozens from the autonomous vehicle program in Palo Alto.
In my updated analysis, I want to dive deep into the reality around autonomous vehicles, and draw some important conclusions as to why it is impossible to deliver robotaxis in 2020. This will help investors and consumers understand a few basics around what needs to happen for full autonomy so that both constituents can make better, informed decisions. Investors should especially pay close attention because for the handful of companies who are overhyped and pushing for sky-high valuations too early, there are many more quality small cap and mid cap stocks that are underhyped and perfectly timed relative to valuation.
Truth Number One: Driver-Assisted Vehicles
We are at level 2 autonomy and all auto manufacturers are halted at this level. Tesla cannot release more advanced features than what Ford, Mercedes, or BMW have on the roads today. On that note, autonomy is a misnomer as Level 2 is considered “driver-assisted.”
Please note: I wrote about the disconnect between SAE’s AV levels and reality around commercial deployment long before it appeared in the press. My previous analysis is a must-read for anyone interested in more information on the AV bubble or AV software.
Here is an overview from my analysis published in October of 2018:
Level 0-1: No automation and driver assistance.
Level 2: Partial automation. The vehicle assists with steering and accelerating functions.
Level 3: Conditional automation: The vehicle controls the monitoring of environment using sensors. The driver’s attention is critical but the AV system runs the safety critical functions. Does not require human attention under 37 miles per hour
Level 4: High automation: Vehicle is capable of steering, braking, and accelerating, as well as responding to events and changing lanes. Vehicle cannot determine dynamic instances such as traffic jams or merging onto the highway.
Level 5: Complete automation. No human attention required. No need for pedals, brakes or a steering wheel. The AV controls all critical tasks, monitoring of the environment and identification of unique driving conditions like traffic jams.
Level 2 (where we are today) and Level 3 (where we might be in 2-3 years from now) are not considered autonomous. These levels are considered “driver-assisted.” Audi, not Tesla, was going to be the first to commercially deploy a Level 3 autonomous vehicle in January of 2019 with the Audi A8 Traffic Jam Assist, but has been delayed due to “foggy federal regulatory framework, infrastructural differences, and a lack of consumer understanding of self-driving technology.”
As of January 2019, any presentations on releasing Level 3 driver-assisted technology (again, the next level is not categorized as autonomous) would be remiss to not address the regulatory framework that is preventing deployment of Level 3 at this time. The presentation would also be remiss to not discuss why regulations would skip Level 3 and go to Level 4 – or as robotaxis would require, Level 5 commercial deployment.
Truth Number Two: AVs Heart 5G
5G was absent from Tesla’s recent presentation on autonomous vehicles, which is odd to say the least. 4G speeds are simply not fast enough for the sensors on a vehicle to react or brake in milliseconds. We need the network capacity of 5G for machines and vehicles to think as fast as humans, and to remove latency in critical moments.
On my podcast about 5G, I recently interviewed Anthony Pellegrino from a disruptive startup called Mutable, which provides edge computing for microdata centers. Microdata centers are miniature data center racks that enable faster, easier and a more cost-effective way to build and deploy applications at the network edge. Because 5G microdata centers will be more omnipresent, so to speak, and located closer to the device or vehicle, you can improve response time from 60 milliseconds to 20 milliseconds. In the case of braking for a pedestrian, these 40 milliseconds are crucial.
Pellegrino provided the following example in the podcast, “Think about Ford, if they want to do autonomous vehicles, are they going to put redundant compute literally in thousands of locations, or are they going to, when a car comes by in the neighborhood, and you’re connected to 5G, send a request across? You can just spin up an instance of these applications on demand, and use it when it’s needed … that’s very cost effective.”
At MWC in Barcelona this past year, a semi company called Einride, set up a simulator for autonomous driving that allowed attendees to demo driving an 18-wheeler from roughly 3,000 miles away. The speed was limited to 5 kilometers per hour for safety purposes andEricsson provided Einride with a 5G network for the successful simulation.
Although 5G has deployed in two cities, Chicago and Minneapolis, we will need the semi-ubiquitous presence of 5G for the commercial deployment of personal-use vehicles on public roads. For instance, one critical feature of 5G is that the signal from connected devices do not need to travel to a cellular tower first in order for vehicles to quickly send and receive information. One reason many auto companies are putting the next level of AV deployment at 2022 when many optional autonomous features will be released, is that 5G networks will be available. However, fully autonomous (without human driver) will still have serious hurdles as 5G is an urban technology rather than a rural technology – and privately owned robotaxis, without a human driver, deployed outside of urban areas is skipping many crucial levels and steps, that it should not even be discussed right now.
Keeping this in mind, we are more likely to see 5G-enabled autonomous transportation within urban areas for mass transportation before you or I have the ability to buy an autonomous vehicle from a dealership. China hopes to do this by 2022 through a partnership with Mobileye/Intel, Beijing Public Transport Corporation (BPTC), and Beijing Beytai.
Truth Number Three: Driverless is Prohibitively Expensive
Notably, there are vehicles that have all of the data onboard and do not need to communicate with IoT sensors or the cloud to brake or respond to obstacles. Caterpillar is currently operating driverless machinery today although these machines drive in areas where there are few unknown obstacles, such as pedestrians or bicyclists. However, self-driving with computing resources built into the machine or vehicle is prohibitively expensive today for personal vehicles and for most industries outside of the manufacturing industry or defense industry.
Historically, autonomous vehicle technology was first developed for the military to prevent deaths from roadside bombs. I spoke with Michael Fleming of Torc Robotics in a separate podcast interview, who has been developing AV software for the defense industry for over a decade, and is the software provider for the Caterpillar driverless machinery currently operated today.
Here is what Fleming said about the current state of AV software “Self-driving is a very difficult problem. It’s a very complex problem, but in reality, think of the software architecture as hundreds of different software modules all being interconnected, which is pretty incredibly complex. Now, we’ve been working in this space for over 12 years, and these complex technologies do not come together in short order. And for that reason, I think it’s important that the organizations take a slow and methodical approach to not only developing, but deploying self-driving vehicles.”
In the podcast, Fleming also pointed out that “defense vehicles and mining vehicles are a little bit more expensive than the consumer car that you and I would buy, so they can justify a higher price point for autonomy.”
Elon Musk is priming people to rent out their cars “while they sleep” because full self-driving that doesn’t rely on 5G edge computing will be too expensive to sell to consumers for personal use. This doesn’t address the more holistic issue which is the battery of the vehicle may not be able to handle autonomous workloads with reasonable battery life.
As Pellegrino pointed out, “So with autonomous vehicles, when you have cars, you can fill them up with batteries, and you can go from point A to point B. But the more compute that you have on the car, or servers that you have on these cars, the less you’ll travel because you’re now using that energy not just to move the car, but to make decisions.”
Truth Number Four: Very Little Differentiation Right Now
Tesla’s Autonomous Investor day revealed basically two things: the company has built an in-house AV chip and the company does not plan to rely on lidar sensors. Instead, Tesla will rely on cameras. Musk emphasized that the hardware was ready to deploy.
Keep in mind Waymo has had the hardware ready for nearly a decade and has already tested the hardware and software with over 10 million miles recorded, with a human driver on board to intervene when needed. Waymo will not be commercially deploying AVs for the public anytime soon because the software is the challenging part, and the AVs they are testing with beta testers in Arizona are confused by pedestrians and rain storms.
The cars released today with connectivity features have the computing power of 20 personal computers and feature over 100 million lines of programming code. Next decade’s semi-autonomous cars will have 300 million lines of code, and the distant future of fully autonomous will have 1 billion lines of code. The challenge is in the software – not the hardware.
Security is another challenge that needs to be solved before AVs can be commercially released to the public. This is because the electrical components in a car (known as the electronic control units, or ECUs) are connected via an internal network. The peripheral ECU introduces vulnerabilities such as the vehicle’s infotainment center, which means WiFi or Bluetooth can grant access to core systems such as the brakes and transmission.
Regarding AV-specific chips, Qualcomm has been doing some interesting things in the AV chip space with the Qualcomm 9150 C-V2X chipset solution launched in 2017 which enables C-V2X technology or cellular-to-vehicle everything. This is the technology of choice for China’s Intelligent Transportation System and Connected Vehicles, and Ford plans to roll out C-V2X in global fleets by 2022. C-V2X uses LTE networks to enhance driver safety by allowing vehicles and infrastructure to communicate (machine to machine communication), although 5G networks is where true autonomy can occur. C-V2X can offer direct communications outside of cell networks, although features are limited in this transmission mode, as ideally traffic lights and pedestrian crosswalks communicate with the vehicle rather than relying on the vehicle to discern these situations without IoT communication. Audi, Ford and Ducati motorcycles with C-V2X chips were on display this year at CES 2019.
Truth Number Five: Autonomous Vehicle Leaders Work Together for Public Safety
Companies developing AV technology are being irresponsible if they are not working together for public safety before they work towards individual company gains. We’ve recently seen what can happen when a veteran like Boeing rushes the deployment in transportation. Today, there are 6 million auto collision per year in the United States and 2 million permanent injuries. The risks are too great to rush deployment for AVs, and a company acting alone can become the target for lawsuits and negative sentiment following the first high-profile accident.
At CES 2019 this year, a new coalition called PAVE was formed which stands for Partners for Automated Vehicle Education. The purpose of PAVE is “to bring realistic, factual information to policymakers and the public so consumers and decision-makers understand the technology, its current state and its future potential – including the benefits in safety, mobility and sustainability.” The partnership list is lengthy and includes Audi, Daimler, General Motors, Toyota, Waymo, Volkswagen, Nvidia and Intel.
Notably, Tesla is missing from the list of Autonomous Vehicle Education (PAVE) participants.
Rather than write a new conclusion, I’ll copy what I had written in October of 2018, as my analysis written then is even more pertinent today.
“Short sellers of Tesla this year and last year may have been basing their calls on the CEO’s behavior but we are now about to enter major technology road blocks and consolidation that unbiased analysts predict will put even the highest performing AV companies to the test – which many low performing AV companies will not survive. The current shorts [October 2018] are not wrong, they are simply too early in the maturation process for AVs and [the shorts] have had a bumpy ride because of this.
Telsa shorts were right but their timing was off. We are in a Level 2 AV bubble, and it will burst as Level 3 and Level 4 experience growing pains (lots of cash has poured in with too high of expectations on when AV will start to turn a profit). Tesla, a luxury electric car company, will struggle greatly in the competitive hurricane for reliable and safe automation. Therefore, I’m considering a short on Tesla in 2019 or 2020, which I plan to time with the AV bubble bursting.”
As I posted on FATrader, I entered my short at $300 in early March 2019 based off my understanding of the AV bubble and expectations vs reality. It surprised me to see an Autonomous Investor Day scheduled and occur this month, as although it supports my thesis, it is also disappointing that the misinformation has reached this level.
My overall advice would be to question any company who is making big AV claims and to look for small companies who are designing a workforce around testing right now or supply a critical piece to the stack for driver-assisted and autonomous. Look for industries that can justify the high price for vehicles to carry AV load or look for pure plays in the 5G market at very low prices.
I am updating my analysis on Xilinx, which I consider a solid investment. Xilinx is well diversified in 5G, AVs and my favorite – AI and data centers. My original analysis called for a 20% pullback and we hit a 15% pullback this earnings season. I have not built a position in Xilinx yet but am patiently waiting to do so.
You can read my previous analysis on autonomous vehicles here:
Autonomous Vehicle Bubble:
The Level 2 Autonomous Vehicle Bubble
GM Stock Risky Due to Autonomous Vehicle Bubble
Why Apple Will Never Buy Tesla: Autonomous Vehicles 101
Autonomous Vehicles: Fact Vs. Fiction at CES 2019
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