GM cast as winner in era of driverless cars

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The future of automobiles, it is said, will favour Silicon Valley over Detroit.

And it's true that the automotive industry faces profound disruption with the onset of the driverless car era. But according to Citibank, the transformation taking shape in automobiles will not necessarily be unambiguously negative for traditional auto makers.

"Our view is that a competitive arms race will accelerate and ultimately foster select partnerships between different players across the chain, resulting in a few auto makers emerging as key partners/players," Citi said in a report.

Among the auto industry's biggest current players, General Motors Co. is poised to emerge as a beneficiary of driverless disruption, Citibank said. If true, what is now an "overlooked free option," or potential catalyst, could spark an appreciation of GM's stock by 40 per cent or more in the years ahead.

"The window by which market perceptions might shift on this issue could come as soon as the next 12 to 24 months," Citi's analysts said.

The great changes that Citibank is contemplating are already afoot.

Well before the full adoption of driverless vehicles, the industry continues to make advancements in automated driving and active safety.

For example, drivers are seeing the increasing adoption of semi-autonomous features such as traffic jam assist and hands-free highway driving.

This is what Citibank calls the first "arms race," which is in "full swing" and which should continue to play out over the next five years or so.

The second arms race is just getting started, and should peak around 2020, when the market sees the introduction of driverless cars.

Whatever shape the auto industry takes, partnerships will likely be struck between Silicon Valley and traditional auto makers, the report said.

Perhaps ride-sharing services such as Uber will eventually partner with car companies, for example.

"There likely won't be room for every auto maker to necessarily succeed," Citibank analysts said. "There likely will be some winners and losers."

And GM is in good shape to find itself among the winners. It has global size and scale, with a vast dealer network.

The company also established itself as an early leader of embedded vehicle technology with OnStar.

"Connectivity is paramount to any mobility network and having early learnings on a sizable fleet likely becomes an advantage," the report said.

The strength of OnStar in particular should enable GM to tap into a revenue pool in automobile connectivity even outside of emerging trends such as automated ride sharing.

Earlier this year, GM said it expected OnStar alone to add $350-million (U.S.) of earnings by 2018, in what Citi calls "only the beginning of the total addressable opportunity."

But the company's share price didn't move with that announcement, an indication that the market assigns no value to GM's potential in the driverless car movement, Citi said.

"Ride sharing and eventually the introduction of driverless cars could open new opportunities for GM to position OnStar as not only a connectivity/telematics provider but also a fleet manager/big data company," the report said.