Energy Implications of Autonomous Vehicles Adam Jonas, CFA [email protected] +1 212 761-1726 March 27, 2018 Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. of this line of this line Source: Ford Motor Company Website 2 of this line of this line Addressable Market: Traditional 80MM $19/k $1.5Tn Cars x Unit = 2% of GDP Source: Morgan Stanley Research 3 of this line of this line Addressable Market: Silicon Valley 10Tn $1/ $10Tn Miles x Mile = 13% of GDP Source: US Federal Highway Administration, DFT National Road Traffic Survey, Statistics Canada, BITRE, Ministry of Land, Infrastructure and Transport (Korea), World Bank, Morgan Stanley Research 4 of this line of this line 10 trillion miles = 1.7 light years x 108,000 Source: Shutterstock, Morgan Stanley Research 5 of this line of this line The Next $100bn Market? $100bn Source: Morgan Stanley Research 6 of this line of this line Global Mobility: 100 x $100bn Markets $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn $100bn Source: Morgan Stanley Research 7 of this line of this line Inefficiencies of Today’s Model 12 11 1 10 4% 2 9 8 4 7 5 6 Source: Morgan Stanley Research 8 of this line of this line Available Seat Mile Utilization ≈ 1% 1 hr x 1.55 passengers ( 24 hrs ) ( 5 seats ) = 1.3% Source: Morgan Stanley Research 9 of this line of this line The Deflationary Mile Cost / Mile ($) $1.20 $1.00 $1.00 $0.80 $0.60 $0.40 $0.20 $0.20 $0.00 Owned Shared Source: Morgan Stanley Research 10 of this line of this line Global Gasoline Consumption 10 tn miles = 500 bn gallons (1) ( 20 mpg ) Source: Morgan Stanley Research 1. Includes diesel consumption. 11 of this line of this line Total Gasoline Consumption Source: Shutterstock, Morgan Stanley Research 12 of this line of this line Global Oil Demand Passenger 45% Vehicle Consumption Source: Morgan Stanley Research 13 of this line of this line Source: Shutterstock 14 of this line of this line Time Spent in Cars 10 Tn Miles ( 25 Mph ) = 400 Bn x 1.55 Vehicle Hours Occupancy Rate = > 600 bn driver + passenger hours Source: Morgan Stanley Research 15 of this line of this line Time Spent in Cars (cont’d) 600 Bn Hours 68MM = Years ( 8,760 Hours/Yr ) Source: Morgan Stanley Research 16 of this line of this line Time Spent in Cars (cont’d) Mesozoic Cenozoic Triassic Jurassic Cretaceous Tertiary 252 201 145 66 2.6 now mya (1) mya mya mya mya Source: Wikipedia, Morgan Stanley Research 1. mya = million years ago 17 of this line of this line Source: Shutterstock 18 of this line of this line Source: Global Paleogeography and Tectonics in Deep Time © 2016 Colorado Plateau Geosystems Inc. 19 of this line of this line Source: Shutterstock 20 of this line of this line The Value of Time 1 hour = $? Source: Morgan Stanley Research 21 of this line of this line The Value of Time ( GDP Per Capita = $10,500 ) 365 x 16 hours =$1.80/hour Source: Morgan Stanley Research 22 of this line of this line The Value of Time 1 bn car owners =$10/hour Source: Morgan Stanley Research 23 of this line of this line Multi-Trillion TAM 600,000,000,000 hours x ANYTHING = a very large number Source: Morgan Stanley Research 24 of this line of this line Source: Shutterstock 25 of this line of this line Source: Shutterstock 26 of this line of this line Global Traffic Fatalities 1,300,000 deaths / yr > 3,500 deaths / day Source: World Health Organization, Morgan Stanley Research 27 of this line of this line Source: Shutterstock 28 of this line of this line First Autonomous Fleets 100 cars < 25 mph Autonomous Electric 1 mi2 Source: Morgan Stanley Research 29 of this line of this line Future Industry Model UTILITY • Automated • Regulated • Cheap CONTENT DATA • Media • Big Data • Retail • Analytics • Healthcare • Optimization Source: Morgan Stanley Research 30 SECTION 2 Second Order Impacts of this line of this line Auto OEMs & Suppliers AUTO 1.0 AUTO 2.0 • Human Driving • Private Ownership • Internal Combustion Source: Company Websites, Morgan Stanley Research 32 of this line of this line Car Rental DAILY RENTAL AUTO 2.0 Utilization Fleet Size Real Time Data Costs Source: Company Websites, Morgan Stanley Research 33 of this line of this line Freight Transportation % Reduction in Overall Truck Carrier Operating Cost 70.0% 60% – 70% 60.0% 50.0% 40% 40.0% 30.0% 20.0% 10.0% 6% 2.5% 0.0% ADAS Platooning Autonomous Autonomous + Electric Note: Based on average TL carrier estimates Source: Morgan Stanley Research 34 of this line of this line Insurance Today Future • B2C • B2B • Actuarial advantage • Informational parity / disadvantage • $500Bn premium • Diminished risk pool • 70bps of GDP Source: Morgan Stanley Research 35 of this line of this line Electric Utilities = 1,200 TwH 250 Million cars = 1 Bn Tons x = 60,000 x = 1/3 of Total US Electricity Demand Source: Shutterstock, Morgan Stanley Research 36 of this line of this line 2040E Global Infrastructure Spending $2.7Tr $186 AUTOS 39% UTILITIES $1,031 $797 30% CAPITAL GOODS 24% METALS & MINING $643 7% Source: Shutterstock, Morgan Stanley Research 37 of this line of this line EVs To See Exponential Growth … mn % 600 35.0% 526 500 30.0% 25.0% 400 20.0% 300 15.0% 200 108 10.0% 100 37 5.0% 2 8 0 0.0% 2017 2020 2025 2030 2040 Global EV Fleet (Mn) EV as % of Total Fleet Source: Morgan Stanley Research 38 of this line of this line … But So Is Miles Traveled bn % 35,000 32Tr 40% 30,000 35% 30% 25,000 25% 20,000 20% 15,000 11Tr 15% 10,000 10% 5,000 5% 0 0% 2017 2020 2025 2030 2040 Global Miles Traveled (Bn) EV Miles Traveled (Bn) EV Miles Penetration (%) Source: Morgan Stanley Research 39 of this line of this line Gasoline Demand Surprisingly High Gasoline Consumed (Bn Gallons) 500 400 300 200 100 0 2015 2020 2025 2030 2035 2040 Global US Europe Japan India China RoW Source: Morgan Stanley Research 40 of this line of this line Tech Hardware, Software & Internet Source: Company Websites, Shutterstock, Morgan Stanley Research 41 of this line of this line Total US DUI Arrests (2005 – 2014) Total US DUI Arrests (MM) 1.60 1.48 1.46 1.43 1.44 1.37 1.41 1.40 1.28 1.22 1.17 1.20 1.12 1.00 0.80 0.60 0.40 0.20 0.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: MADD, U.S. Department of Justice, Federal Bureau of Investigation, Morgan Stanley Research 42 of this line of this line Global Alcohol Consumption Sizing the Market & Incremental Opportunity GLOBAL ALCOHOL CONSUMPTION ECONOMICS Drinks per person / week (1) Global drinking population (Bn) 2.85 Total drinks consumed per year (Bn) 1,137 10 Value per drink $1.33 Total value of drinks consumed (Bn) $1,509 Drinks consumed per person per year 399 13 Drinks consumed per person per week 8 Drinks consumed per person per day 1 vs. IMPACT FROM SHARED AUTONOMY 14 Additional drinks consumed per person per week 1 Additional drinks consumed per person per year 52 Value per drink $1.33 16 Incremental value created (Bn) $196 Source: Euromonitor Data, World Health Organization, Morgan Stanley Research 1. At this juncture, we make no assumption on shared/autonomous penetration. Implicit in our +1 drink/wk assumption is that a portion of the population continues to drive, for whom there is no incremental consumption. 43 of this line of this line How Much More Would You Drink if You Never Had To Drive? 44 of this line of this line US Alcohol-Impaired Traffic Fatalities Total U.S. Traffic Fatalities in 2014 (FHA) Alcohol-Impaired 9,967 31% 22,708 69% Source: Federal Highway Administration, Morgan Stanley Research 45 of this line of this line Real Estate 1 bn cars x 4 parking x 300 ft2 …spots = 43,000 miles2 Source: Google Maps Earth, Morgan Stanley Research 46 of this line of this line Real Estate x 1,886 Source: Google Maps Earth, Morgan Stanley Research 47 SECTION 3 Strange Things of this line of this line Wait… What? Source: United States Patent and Trademark Office 49 of this line of this line I Drive a Dyson Battery / Intelligent Portable Design Power Electric Motor Source: Shutterstock, Morgan Stanley Research 50 of this line of this line Autonomous Pizza Source: Company Website, Shutterstock, Morgan Stanley Research 51 of this line of this line Welcome to Skynet… 52 of this line of this line Disclaimers Morgan Stanley is engaged to provide financial advisory services to Avis Budget Group, Inc.