Evolution towards autonomous vehicles present infrastructure investment: AMP Capital

While driverless cars will “eventually” disrupt road transport, in the short and medium term, there are opportunities for infrastructure investors during the transition, according to AMP Capital’s Global Listed Infrastructure team.

AMP Capital has published a paper entitled Autonomous vehicles: the real opportunity that lies ahead for investors, which notes that autonomous vehicles will “will eventually help solve traffic congestion issues in densely populated urban areas,” and that in the future when “cars function free of human input, easing congestion and reducing journey times,” cars will drive closer together and with more occupants, vastly increasing “the capacity of existing road space by effectively reducing each occupant’s overall demand for space.”

However, this transition will take time, and will open up opportunities for investment in roads, as well as in telecommunications, noted Andy Jones, AMP Capital Global Listed Infrastructure portfolio manager.

“A lot of the press focuses on the technology of autonomous vehicles itself, questions like,– are we physically and technologically capable of designing and making autonomous vehicles work,” Jones said. “The implicit assumption is that the stuff in the background will get sorted. There’s a huge economic cost to that, and no answers as to who pays the bills for that. While everyone is focusing on the economics of having a robo-taxi for 20 cents per kilometre, we need to ask questions like,– who paints the stripes on the road and who makes sure the traffic lights are maintained? If you allocate that cost to the users of the autonomous vehicles , that’s expensive. If you allocate it as tax across the general taxpayer base, that’s unfair.”

Autonomous vehicles and electric vehicles will bring “huge value shifts” around issues like safety, parking spaces, reduced pollution, and increased mobility for people who are not currently able to drive manned cars, Jones noted, but in the meantime, before autonomous vehicles become a widely-embraced technology, there will be demand for other solutions to reduce traffic congestion. These may include creating managed lanes on existing freeways that drivers can access for a toll, and will provide opportunity for investment, the paper noted.

The transition to autonomous vehicles and electric vehicles will also bring new opportunities in other sectors of infrastructure, like utilities.

“How are we going to come up with a charging infrastructure for electric vehicles, and how will demand for power from the grid will become different from today,” Jones said. “We will see a more consistent baseload between day and night, with different power generation capacity versus today, and when that comes to utility investments, you’re investing in companies which have pre-defined regulatory framework. For every dollar you put into the ground to the power mix, you’re getting it at a calculable return over a known time horizon. But let’s say you’ve already invested for 10 years and you get that back in five, you’re being compensated for that at a low level of risk.”

Autonomous vehicles will also necessitate the widespread adoption of 5G wireless networks.

“AVs are huge generators of data,” Jones said. “If you work on a theory that you’re going to work on algorithmic computing, they’ll produce around 4tb of data a day. If you’re transmitting that through a 4G network, there simply aren’t enough seconds in a day to process and transit the data that can be produced. You need 5G.”

AMP Capital is using their observations as captured in this report in seeking out opportunities in countries like the US and regions like Europe, while also engaging with individual companies to test their strategies and innovation.

“One example – we’ve written this white paper and we’ve tried to publish on a regular timescale, where we look at telecommunications and the transition towards 5G,” Jones said. “As part of this, we’ve gone to one of our portfolio companies which is trialling how 5G and autonomous vehicles work. They’re testing this somewhere in the north of Italy, and we’ve gone to them and we’re trying to understand in practical circumstances how 5G works with autonomous vehicles.”