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Audi ACCIn November 2013 Morgan Stanley announced their blue paper report: “Autonomous Cars: Self-Driving the New Auto Industry Paradigm.” The authors predicted trillions in savings but the announcement provided little data on where those savings would come from. However, thanks to a research note released yesterday on Tesla Motors, Inc. (TSLA’s New Path of Disruption) Morgan Stanley provided an extract from the initial report which provides an outline of how they arrived at the annual $1.3 trillion in savings in the United States (with over $5.6 trillions globally).

Nearly every major auto manufacturer has initiated research and development of automated vehicle systems (semi-autonomous) and self-driving cars. Perhaps the most notable example, Google engineers have already recorded hundreds of thousands of miles in vehicles modified with advanced automated vehicle technology.

Preparing for driverless cars and cars with advanced connectivity technology makes up a significant portion of the $100 billion the global auto industry spends on research and development.

The research and development spend is a reflection of the auto industry’s inevitable change towards self-driving cars which Morgan Stanley says:

“Are no longer just the realm of science fiction. They are real and will be on roads sooner than you think. Cars with basic autonomous capability are in showrooms today, semi-autonomous cars are coming in 12-18 months, and completely autonomous cars are set to be available before the end of the decade.”

The total savings of over $5.6 trillion annually are not envisioned until a couple of decades as Morgan Stanley see four phases of adoption of self-driving vehicles. Phase 1 is already underway, Phase 2 will be semi-autonomous, Phase 3 will be within 5 to 10 years, by which time we will see fully self-driving vehicles on the roads – but not widespread usage. The authors say Phase 4, which will have the biggest impact, is when 100% of all vehicles on the roads will be fully autonomous, they say this may take a couple of decades.

The authors do add: “However, Phase 4 could come sooner than we think. If the government, the auto industry and other entities choose to accelerate adoption to access the full socioeconomic benefits of autonomous cars.”

Quantifying the Economic Benefits

The societal and economic benefits of autonomous vehicles include decreased crashes, decreased loss of life, increased mobility for the elderly, disabled and blind and decreases in fuel usage. The large potential savings, which they estimate at $1.3 trillion per year should accelerate the adoption of self-driving vehicles.

They outline five key areas where the cost savings will come from: $158 billion in fuel cost savings, $488 billion in annual savings will come through a reduction of accident costs, $507 billion is likely to be gained through increased productivity, reducing congestion will add a further $11 billion in savings, plus an additional $138 billion in productivity savings from less congestion.

The authors indicate the $1.3 trillion is a base case estimate and indicate a bear case scenario of $0.7 trillion savings per annum in the United States and a Bull case scenario of US$ 2.2 trillion per year.

Bull and bear

This authors are careful to point out that this is a rough estimate and does not account for the cost of implementing autonomous vehicles (one-time), offsetting losses, and investment implications. It also assumes 100% adoption of self-driving vehicles to achieve the potential savings indicated.

Fuel savings: $158 billion per year

Today’s cars, using cruise control and driving smoothly can deliver fuel economy savings of between 20 to 30 percent. Self-driving cars and autonomous vehicles will be more fuel efficient as they will be on cruise control 100 percent of the time, this factor along with improved aerodynamic styling and lighter weight material and other new technological advances cause the authors to conservatively predict:

An autonomous car can be 30% more efficient than an equivalent non-autonomous car… If we were to reduce the nation’s $535 gasoline bill by 30%, that would save us $158 bn.


Accident savings (including injuries and fatalities) $563 billion per year

The authors refer to various reports, such as the World Health Organization  estimated 1.24 million deaths globally due to vehicle accidents.

According to the US Census, there were 10.8 million motor vehicle accidents in the US in 2009 (the last year for which data is available).

According to the US DOT, these accidents resulted in over 2 million injuries and 32,000 deaths. Morgan Stanley indicate that human error has been the main determinant in over 90 percent of these accidents.

There is a total cost of $625 billion per year in the US due to motor vehicle-related accidents. If 90% of accidents are caused by driver error, taking the driver out of the equation could theoretically reduce the cost of accidents by 90%. This could save $563 bn (90% of $625 bn) per year.


Productivity gains: $422 bn per year

This is the area I consider most subjective. The authors claim that people will improve productivity as they will be able to work in their cars en-route to work, meetings, etc. The report does provide some pretty compelling statistics.


Congestion savings: $149 bn per year

Referring to a report by the European Commission that congestion costs 1 percent of GDP, the authors believe there will be less cars on the road, due to traffic pooling and better use of cars which will reduce congestion, freeing us up to be more productive.

Fuel Savings from Vehicle Traffic Congestion Avoidance

Fuel from congestion

In summary — The authors believe that full penetration of autonomous cars could result in social benefits such as saving lives, reducing frustration from traffic jams, and giving people more flexibility with commuting or leisure driving.

“These benefits also have significant potential economic implications. And the implications are truly significant – the $1.3 trillion of value potentially generated by autonomous cars amounts to over 8 percent of the entire US GDP, as well as 152 percent of the US Defense budget and 144 percent of all student loans outstanding.”

There is considerable uncertainty concerning autonomous vehicle benefits, costs and travel impacts, this Morgan Stanley research adds significantly to the debate as we move towards fully automated vehicles.

For the Morgan Stanley report refer to the WSJ (research report from Morgan Stanley reference at “uses the word “utopian” 11 times.”)