ICYMI: Part I of our series on AVs uncovered some interesting and consistent findings;
- By and large, the technology is relatively mature
- Big Tech and well-funded AV companies have a barbell advantage over smaller startups in the space
- A general lack of regulation is the most problematic aspect, but perhaps one of the most interesting
Take a moment to consider the lack of regulatory standards we discussed in Part I of our AV series:
At the Federal level, we currently have no aligned framework on how to treat, say, accidents. As a result, the impact of early death on regulatory policies is currently entirely unpredictable. And this isn’t a morbid observation, just a reality; AV is due to malfunction.
This creates an “uncapped risk” to the investment. To understand the impact of regulation on technology companies, look no further than China’s ban on for-profit school tutoring wiped out hundreds of billions in market value overnight.
And while previously we discussed AV in Last Mile Delivery presenting regulatory risks that were simply too large and unaccountable to have an investment upside, we do believe there will be an explosion of opportunity within unregulated AV application areas.
Now that the AV technology is relatively mature, these are the spaces where it can feasibly be adopted without regulatory approval or oversight.
What kind of unregulated AV is there?
An autonomous vehicle does two things. It commutes from A to B, and it performs a given or series of manipulations to the objectives, either while stationary or during transportation.
As a result, we ended with two broad throw categories of unregulated AV:
- Material Transportation where the AV’s primary function is generally to commute only. Material transportation application has less technological barriers and the technology is more likely to be scalable across multiple industries and use cases.
- Mobile Manipulation where the AV’s primary functions are generally to commute and manipulate objects. Mobile manipulation is harder to achieve and therefore has a higher technology moat, but its application is very specific and requires a sizable market size due to greater barriers to scale outside of its initial application.
A shortage of laborers in vehicle operations is the primary demand driver.
About a quarter of the logistics cost is labor. In particular, skilled material handling laborers are currently under shortage, primarily due to worker safety, the level of labor intensity, and the low quality of work environments and life.
While automation has been put in place to augment heavy lifting, skilled laborers are required to operate the machines. Take forklift drivers, for example. Not only is this role among one of the hardest to fill, these laborers are also responsible for 25% of shop floor transport injuries. In other words, the lack of skilled operators is hurting the growth of the forklift market.1
Automating these vehicles and other equipment present obvious opportunities for solving labor shortages within these undesirable and unsafe working conditions.
Indoor applications are overcrowded.
Indoor material transportation—such as parcel picking robots—is by far the largest opportunity in the use of AV, driven by eCommerce and the need for warehouse automation. As discussed in our Warehouse Automation blog post, the indoor material transportation segment appears to be highly competitive due to a relatively high level of technological maturity.
Object detection through the use of perception technology has appeared to be largely commoditized, especially in the indoor use case, which is more constrained. It does not appear that there is much (if any) investible opportunity within this space. The relatively low level of technological differentiation and defensibility and the risk of a highly competitive landscape will deteriorate long-term margin.
Outdoor is still in the early days, but is where the opportunities lie.
Compared to its indoor counterpart, outdoor material transportation is much more niche and massively overlooked. Still, it appears to be much more attractive.
One company that emerged in this category is Outrider, an autonomous yard operations company that transforms electric yard trucks into autonomous vehicles, which couple tractors to trailers and precisely maneuver between dock doors, parking spots, and areas for over-the-road pickup.
Outside of the immediate logistic space is a company called Burro. The company deploys a fleet of autonomous wheelbarrows that tour the vineyard and assist farmers with grape harvesting, seamlessly transporting grapes from farm to site.
The increased constraints and engineering involved in applying AV technology make unregulated AV for outdoor use cases highly attractive—even if it is a bit challenging. Companies like Outrider and Burro are less likely to face stiff competition and have much higher defensibility if they can conquer the challenge of uneven terrain that outdoor environments present.
Waste management is massively overlooked.
Global solid waste is expected to grow from its present 2.01 billion tons to 3.40 billion tons by 2050. That’s more than double the projected population growth over the same period.
Figure 1: Projected waste generation, by region (millions of tons/year)
Waste collection – a transfer of solid waste from the point of use and disposal to the point of treatment or landfill – is a critical step in managing waste. Yet rates vary largely by income levels, with upper-middle- and high-income countries providing nearly universal waste collection. High-income regions with high labor costs, such as North American and Europe, collect at least 90% of waste.
Figure2: Waste collection rates, by income level (percent)
It comes as no surprise that waste collection, one of the most unpleasant manual labor jobs, has been experiencing a consistently growing labor shortage.
While the greatest shortage centers around the collection process, given the increasing trend in the amount of parcel and food deliveries, we also expect an increasing shortage in labor at waste disposal sites and landfills.
So while it may be some time until autonomous vehicles are on the roads, there is certainly space for them in other sectors.
Labor shortages where skilled operators are hard to come by are ripe with opportunities for AV technology to make an impact—and a strong case for investment. Forklift operators, waste management services, and even the outdoor material transportation space all provide perfectly apt use cases for AV technology without the constraints of regulatory systems that aren’t even in place yet.
Join us for Part III where we’ll look even further into these unregulated sectors. If the technology is there and theirs no regulatory red-tape, where does AV application make the most sense, and how can we make it work?
Hint: It’s not where you think so leave the robotaxis and drone deliveries at the door.