The Auto Industry’s $2 Trillion Breakthrough

Shattered glass was everywhere.

After the sound of sirens and flashing police lights grew closer, I gave myself permission to leave… and tried to put it out of my mind. Obviously, that last part didn’t work.

I’ll never forget that 20-something-year-old woman, standing there in the middle of the highway… screaming and crying… phone in hand, shaking.

The front of her car was a crumpled monstrosity. To make matters worse, she had just slammed into a Porsche — the poor thing.

Fortunately, nobody was in critical condition.

Big Auto is paying attention… They’re salivating over a nearly $2 trillion pie.

As you probably know all too well, they’re not always so lucky.

The car accident I witnessed last Friday was one of about 5.5 million motor vehicle accidents that occur in the U.S every year. Using 2009 numbers, these accidents involve 9.5 million vehicles and result in 33,808 deaths, 2.2 million injuries and 240,000 hospitalizations.

So what is to be done?

Many blame the rise in smartphone usage to be the problem. “At least 28% of all traffic crashes,” says the National Safety Council — “or at least 1.6 million crashes each year — involve drivers using cellphones and texting.”

While it’s certainly true that texting, e-mail, playing music or whatever is leading to more accidents, blaming that particular technology is missing the point.

I’m sure you’ve also seen people eating breakfast while driving. Some groom themselves. Some are just not paying attention or would rather not be — plain and simple. We’ve all been guilty of one of these human tendencies at some point…

More dead-worded laws can only do so much. But consider for a moment that technology can solve what most paper proclamations can’t. For example…

Have you ever seen those signs on the road that say “Caution: Slippery When Wet”?

How about taking the sign away and instead putting an abrasive in the road so it’s not slippery when wet. That’s a technological solution, rather than the current sorry excuse for problem solving.

To take a more futuristic example, why not build houses out of fireproof materials? It would certainly save a lot of water… and who knows, is it conceivable that one day in the far-off future, we wouldn’t need fire departments?

Getting back to cars… how about drunk driving? Why not put an oscillator in a car that measures how much a person swerves, and pulls over when it’s too much? Or a breathalyzer that measures if it’s safe for them to drive? That would save people a lot of legal trouble, not to mention more car accidents.

The point is many of our problems are technical. And it’s entrepreneurs who need to get these innovations going. Laws like “no texting while driving” are well intentioned. (How does that saying go? The road to hell is paved with good intentions?)

But if we want to address the root problem, we need to upgrade our technology so it’s in sync with our environment. It’s happening right now… and I’m not talking about hands-free Bluetooth headsets…

The No. 1 cause of all auto accidents is human error. So let’s upgrade the whole car so that it drives itself!

There’s a good chance that if you live in the U.S., you’ve passed a driverless car without even knowing it. Google (GOOG) fitted a Lexus with a complex array of lasers and sensors. A LIDAR (laser radar) system that sits atop the car scans 360 degrees around to identify other vehicles, pedestrians, road hazards, etc.

The Google Lexus has logged thousands of driverless miles. Likewise, a fleet of Google Priuses with the same tech has logged over 500,000 driverless miles.

Google’s driverless technology emerged through the mysterious doors of Google X Lab. But it only took a dozen engineers to produce. They spent perhaps $50 million on the project, or less than 0.0003% of Google’s revenue, throughout the course of the entire program.

That means any other large automaker can design these cars once the market realizes how incredibly superior they are. The cost of Google’s driverless car project is “less than a third of what carmakers have spent on Super Bowl ads over the same period,” according to a Forbes article.

And indeed, Big Auto is paying attention… They’re salivating over a nearly $2 trillion pie. According to Google’s lead developer of the project, Sebastian Thrun, fully automated cars would achieve three monumental feats. They’d allow us to:

1. Reduce traffic accidents by 90%
2. Reduce wasted commute time and energy by 90%
3. Reduce the number of cars by 90%.

“Add up all the pieces,” say the authors of Driverless Cars: Trillions Are up for Grabs, “and what do you get?

“$450 billion related to crashes, $600 billion of car sales, $200 billion in auto-insurance premiums, the hundreds of billions of dollars of health insurance that plausibly relate to car accidents and so on — and you pretty easily get to about $2 trillion in revenue associated with cars each year in the U.S. that the Google driverless car could eliminate.”

So how is a driverless car even possible?

Most people don’t understand that the modern-day car is a powerful computer.

It has a multimedia system, satellite navigation or GPS, dashboard and engine. Almost a third of all computing cars do is just to tell you what’s going on. Check out any automaker’s production line and you’ll see the sensors, computers and millions of lines of computer code installed.

Mercedes Benz claims, for example, that their S-Class model has over 30 million lines of code for just the multimedia system. Compare that with the F-35 Joint Strike Fighter jets. Those planes use about 5.7 million lines of code to operate their onboard systems. In that respect, a Mercedes is more complex than a fighter jet!

And because your car is a computer, it follows the awesome reliability of Moore’s law.

Moore’s law, by the way, is one trend every tech investor must know. It’s proved reliable for 70 some years. Simply put, it states that computing power continues to double every 18 months. Now that driverless cars are becoming more of a computer, it’s almost a guarantee that they’ll be on our roads within the next decade.

Here’s where it gets really interesting…

The driverless car market is shaping up to look a lot like the smartphone market with respect to the emerging business models and profit opportunities.

Big Auto has begun to pick up speed, and it’s gaining mileage on Google.

But what’s this? Tesla Motors (TSLA)  just pulled ahead in the race, with an estimated 90% driverless car ETA of just three years!

The Space Race of the global automotive market is heating up.

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