In its research report on autonomous vehicles, the investment firm ARK Invest estimates the net present value (using an 8% discount rate) of the autonomous car industry as follows:

$600 billion on a 10-year time horizon

$2 trillion on a 15-year time horizon

$3 trillion on a 20-year time horizon

It’s hard to say how equity markets currently value the autonomous car industry. We know that Intel acquired Mobileye for $15 billion in 2017, and recently SoftBank invested in GM’s subsidiary Cruise at a reported $11.5 billion valuation. However, Waymo is a subsidiary of Alphabet, with no indication of how its parent company or outside investors might value it. Tesla is valued at around $50 billion (its stock price wildly fluctuates), but most analysts and investors seem to value it on the basis of the electric car opportunity, not vehicle autonomy.

ARK Invest’s modelling of the industry looks to be the best out there, so I’ll go with its net present value estimates. I’ll use Tesla as my example. Tesla distinguishes itself in the field with the roughly 500 million miles that customers are estimated to have driven using Enhanced Autopilot, its newest advanced driver assistance system. Driving data is a key metric because it’s used to train the neural networks that make vehicles autonomous.

Suppose you think Tesla has a 50% chance of gaining a 10% share of the global autonomous ride-hailing market and a 50% chance of going bankrupt. In that case, Tesla’s net present value in expected value terms would be $30 billion on a 10-year time horizon – before accounting for the value of Tesla’s current lines of business: electric vehicle manufacturing, solar power generation, and battery energy storage. On a 15-year time horizon, that figure would be $100 billion. On a 20-year time horizon, $150 billion.

The biggest caveat with ARK Invest’s model is that it assumes the first commercial autonomous ride-hailing service will launch in 2019. I’m not sure whether a small pilot project in a few suburbs, like Waymo is planning, would count. The longer it takes to deploy the first fleet of autonomous taxis, the further those higher net present values will be pushed back. Suppose the first service launches in 2024, five years later than ARK Invest expects. That would put Tesla’s net present value at $100 billion on a 20-year time horizon, using the same assumptions as above.

This makes me think of something Sam Altman (the President of Y Combinator) said:

I think that one of the few arbitrage opportunities left in the market is time. … I don’t think you can go beat the market in a lot of ways, but the one way I do is by making a long-term commitment to something.

There is some evidence that the time horizon of the U.S. stock market has been shrinking. The more short-term the market’s pricing of stocks is, the more mispriced some stocks are likely to be on a longer-term basis, and so, it stands to reason, the more long-term alpha that is likely to be left on the table. Long-term thinking may therefore be a competitive advantage in the stock market.

However, the particular bet I’ve been discussing is troubled by uncertainty. The six biggest risks to Tesla succeeding in the autonomous taxi market are (in roughly descending order):

full autonomy isn’t achieved within the next 20 years (a risk for all companies)

Tesla’s strategy of accelerating data collection by eschewing lidar (which is prohibitively expensive for production cars) backfires

A company like Mobileye, General Motors, Volkswagen, or Toyota begins to collect the same data as Tesla from a much larger fleet of production cars

Google develops one or more proprietary neural network architectures that greatly outperform all others, and then provides them to Waymo, thereby overcoming Tesla’s data advantage

In-house real world testing of full autonomy turns out to matter most, and Tesla doesn’t keep up with Waymo

Competitive advantage is developing autonomy somehow comes down to compute, whether it’s through simulation, training, or neural architecture search

There’s also unknown unknowns and all the standard risks that face companies. This is why, for the sake of argument, I assigned only a 50% chance of success to Tesla and a 50% chance of bankruptcy. However, the actual probabilities are impossible to know. With a new technology like autonomy, there is a large degree of irreducible uncertainty.

There has to be some weighing of quantitative methods and qualitative evidence, and an acceptance that the future is to some degree just unpredictable. Investing in new technology means genuine risk-taking. It is pushing on the edges of the unknown.