Driverless cars could have significant credit impact across range of sectors

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London, UK (May 19, 2016) – Driverless cars could have significant credit implications across a wide range of companies and sectors as the technology becomes more advanced and widespread in the coming years, according to a Moody’s Investors Service report.

Although the extensive use of self-driving vehicles is still some way off, the technology has the potential to make road travel safer and cheaper, while having a big impact on vehicle production, financing and usage. It is also likely to carry credit consequences for insurers, car-makers, banks and technology firms.

The report, Autonomous Vehicles Will Drive Change from Auto Manufacturing to Insurance, is available on www.moodys.com. Moody’s subscribers can access this report using the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

Highlights:

  • Driverless cars could have significant credit impact across range of sectors;
  • The extensive use of self-driving vehicles is still some way off;
  • For car-makers, driverless vehicles likely to have mixed consequences. Companies could benefit from demanding a price premium for these cars;
  • Biggest impact would be if manufacturers were to accept liability for accidents due to autonomous vehicles;
  • Driverless cars likely to open up new forms of competition for traditional car manufacturers, with firms such as Google entering the market.

“While there are still many uncertainties around the future of driverless cars and trucks, the technology is likely to have credit implications across a wide range of sectors,” said Colin Ellis, Moody’s Managing Director, Chief Credit Officer EMEA, and co-author of the report.

Driverless cars are likely to open up new forms of competition for traditional car manufacturers, with software and data firms such as Google entering the market.

The new technology could also create new opportunities for manufacturers. These vehicles could, in principle, capture information about households’ travel and other habits, particularly if the cars link with other household systems. This data would be valuable for banks, insurers and other companies and could also allow manufacturers to identify new goods and services that households may want to purchase, further diversifying revenue streams.

Ultimately, the car itself may become more commoditised, with buyers more focused on the software that allows the vehicle to drive autonomously. In this scenario, software and semiconductor firms may be best placed to reap the benefits of demand.

Secure IT hardware and software will also be critical to protect autonomous vehicles from both inadvertent and malicious interference, which will benefit semiconductor firms alongside software companies. Similarly, hardware producers who build the sensors and cameras for autonomous vehicles should also benefit.

In theory, automated vehicles could free up space on the roads, reduce the risk of accidents and cut journey times for individuals and companies. This could cut transport costs for freight haulage and increase employees’ productivity.

For car-makers, driverless vehicles are likely to have mixed consequences. Companies could benefit from demanding a price premium for these cars. However, they could lose out if smoother computer-operated driving styles were to reduce wear and tear and, consequently, give cars a longer lifespan before they need replacing.

The impact on insurance companies could also be significant. Lower accident rates should result in lower costs and premiums. Set against that, autonomous vehicles may be more expensive to replace, which could push up premiums.

However, the biggest impact would be if car manufacturers were to accept liability for accidents due to autonomous vehicles, which could dramatically reduce demand for traditional insurance: this shift in liability could also arise from new regulations or legislation.

The rise of autonomous cars could also lead to changes in car financing. In principle, their premium nature could reduce the need for car financing, if richer households with less need for credit are the main customers.

However, car-makers could also seek to increase the number of owners of driverless cars by encouraging consumers to rent the operating systems and software that drive the vehicle, emulating the approach already adopted with some battery-powered cars.

Subscribers can access the report here.

About Moody’s Investors Service

Moody’s Investors Service is a leading provider of credit ratings, research, and risk analysis. Moody’s commitment and expertise contributes to transparent and integrated financial markets. The firm’s ratings and analysis track debt covering more than 120 sovereign nations, approximately 11,000 corporate issuers, 21,000 public finance issuers, and 72,000 structured finance obligations. Moody’s Investors Service is a subsidiary of Moody’s Corporation (NYSE: MCO), which reported revenue of $3.5 billion in 2015, employs approximately 10,800 people worldwide and maintains a presence in 36 countries. Further information is available at www.moodys.com.