Unraveled: “Warren Buffett’s Worst Nightmare” pitch from the Motley Fool

Opening up an excerpt from an old Friday File, solving a Fool teaser about driverless cars that's still in heavy rotation

By Travis Johnson, Stock Gumshoe, October 27, 2014

We’ve had many questions from readers about this teaser spiel from the Motley Fool Stock Advisor letter, so we’re republishing an excerpt of the Friday File in which we solved that teaser.

What follows originally appeared as a part of the Friday File on May 9, it has not been updated or revised — the stock teased by the Fools in this piece has had some ups and downs but is within a few cents of where it traded on that day.

—-originally published 5/9/14—-

The Motley Fool is pitching this “Buffett’s worst nightmare” stock in order to get subscribers to David and Tom Gardner’s Stock Advisor newsletter, and they open the ad this way:

“What happens when the perfect business model sustains a direct hit from the brightest minds at one of Silicon Valley’s most innovative firms?

“Tough to say exactly. But here’s what experts DO anticipate…

  • CNBC predicts this burgeoning industry will be the ‘new battleground for tech companies.’
  • Forbes magazine estimates it will soon generate $2 trillion a year in sales and ‘even more market cap.’
  • KPMG advises we’re “on the cusp of revolutionary change” coming much ‘sooner than you think.'”

What’s that all about? The death of the auto insurance industry — which they tease is coming our way, sooner than you think, because of the advent of self-driving cars. Auto insurance is, of course, one of the major cash-gushing indexes owned by Berkshire Hathaway (BRK-B), primarily because they bought GEICO several decades ago and have poured as much money as they can find into marketing to grow that cash machine.

And no, not even the Motley Fool ad says that this will not be enough to seriously derail Berkshire specifically — but saying that something is Buffett’s “worst nightmare” does catch your attention and get you to read the ad, no?

Here’s some more in their words:

“An emerging technology from within the heart of Silicon Valley has the potential to destroy GEICO’s business as we know it.

“PricewaterhouseCoopers says this technology will ‘significantly disrupt the traditional auto insurance industry.’

“Renowned tech author Chunka Mui admitted in a speech to the Council on Foreign Relations: ‘The immediate losers are the people who depend on accidents for their businesses.’

“Even a former exec at Allstate acknowledges that, over the long term, ‘car insurance goes away.’

“Why? Because self-driving cars are moving from the realm of science fiction into reality.”

Self-driving cars are famously a big research project at Google, but Stock Advisor isn’t touting GOOG today — they’re teasing a company that builds the guts that can make a normal-looking, “real” self-driving car (without Google’s huge hardware package on the roof) a reality. Here’s more from the pitch:

“But here’s the kicker (and the real reason I’m writing you today)… as a gathering of tech leaders in San Jose, California at the end of March made certain (a meeting that received almost no media coverage!)… one shocking company stands at the forefront of taking this technology mainstream.

“This company is pursuing partnerships with the biggest names in the auto industry. It’s investing nearly one-third of its revenue into R&D to ensure its hardware is the hands-down favorite among automakers.

“And its CEO has been on a whirlwind tour both through the tech world (including addressing a ‘jam-packed’ room at January’s Consumer Electronics Show) and in closed-door meetings with auto execs — explaining why its hardware is capable TODAY of taking self-driving cars ‘from the realm of research into the mass market.'”

How about some more clues for us?

“You see, many stock pickers will try to pick the winning car manufacturer. Others will get sidetracked by fancy in-car technology like Apple’s CarPlay or GM’s built-in Wi-Fi.

“But the technology I’m sharing with you today has much greater potential….

“the tricky part about programming a self-driving car isn’t teaching a computer when to turn… or coding a camera to detect the speed limit.

It’s that — with all these inputs — these cars are ‘data guzzlers,’ as The Wall Street Journal recently put it. TRILLIONS of bytes of data are constantly pouring in, changing in real time, and requiring rapid responses.”

Then the really specific clues for our Thinkolator come in the description of this company’s recent presentation:

“The CEO of one of Silicon Valley’s most well-respected companies was giving the keynote address.

“You probably wouldn’t recognize him by name. After all, he’s not really the Steve Jobs — or even Tim Cook — type. He’s content running a behind-the-scenes hardware company that doesn’t usually make headlines.

“But as he was sharing his company’s latest advancements, he held the audience in the palm of his hands.

“After an hour and a half, the CEO throws a curveball…

“And introduces the head of product development from one of the world’s elite automakers.

“Together, they walk the audience through a video explaining what the two companies are working on — showing how sensors map out a virtual landscape that allows a car to determine where it should travel.

“Then the automaker VP says, ‘I brought something with me…’

“All eyes dart stage right as a sleek, silver sedan slowly drives toward them… and smoothly parks diagonally next to the two men.

“They go to open the driver-side door… no one is there!

“They walk around the side, coming to the trunk. Opening it up, they reveal the driver… by holding up the central CPU ‘manning’ the car (roughly the size of a notebook, it fits snugly off to one side.)

“The rep from the automaker then explains that the critical component powering the CPU is this tech company’s newest mobile processor.”

More on that key processor?

“The tech company’s CEO concedes that developing this processor was the ‘most ambitious project we’ve ever worked on.’ And that it’s ‘impossibly advanced.’

“A press release also explained that this processor provides ’10 times the computing power of previous mobile processors without consuming additional energy.’ And that it’s the same level of technology ‘that powers the world’s 10 most energy-efficient supercomputers.’

“Gary Vasilach, founding editor of Automotive Design & Production, one of the leading publications for automotive engineers, stood in awe, later writing that, ‘with four processors per car, a two-car garage would have as much computing power as the $120 million Blue Mountain supercomputer installed at the Los Alamos National Laboratory in 1998.’

“And that’s where many experts have this company incorrectly pegged — and why most investors haven’t caught on to this tech company’s true potential…

“Since the company has developed a ‘mobile processor,’ some analysts argue that the company is behind the times — that it doesn’t have a strong selling point with smartphone manufacturers.”

And this chip is already in use, apparently…

“Then consider that this company already has their products in more than 4.5 million cars (and growing!) — in everything from Porsches and Maseratis to Volkswagens and Hyundais… even Teslas!”

So who is it? Thinkolator sez that they’re teasing… Nvidia (NVDA), a $10 billion, dividend-paying semiconductor company that I don’t think I’ve ever taken a serious look at. They are priced at a premium to the market right now, in part because of some rapid earnings growth recently and because they’ve had nice upside surprises in their quarterly earnings three times in the past year, but analysts (other than the Gardner brothers, apparently) are pretty skeptical about growth — they’re penciling in just 7% earnings growth for the next five years.

The company has a great balance sheet, plenty of cash, a slowly growing dividend — and the Fool has been teasing it for about two weeks now that I’ve seen, during which the stock hasn’t moved much. But then they released earnings yesterday, and the stock is down about 3% as I type. You can see the conference call transcript from last night here.

Their latest processor that’s being used in automotive and high-end mobile devices, the Tegra K1, is what’s being teased here. I know almost nothing about it, but there’s another story about that March presentation here if you’re curious. They are gradually getting out of low-end graphics chips that carry lower margins, it appears, and aiming for the data-intensive operations — of which automotive is just one. They’ve been aiming to get their sales to the automotive segment up to a billion dollars, which would be about a quarter of their total revenue from the last year, so it should be substantial but it won’t be the single “driver” of the stock.

When will the autonomous, “self-driving” cars become a reality? Some folks are predicting that they’ll be common on the road within five years, but it’s awfully hard to predict adoption – and even if cars aren’t really “self-driving” in this decade, they are becoming smarter and smarter and requiring more and more data processing capacity, we’re told. The Foolies say that…

“The big money is made somewhere between widespread popular disbelief and when the technology is found in every home .

“Like with Microsoft in ’86… before the home PC revolution took off (and handed early investors a 56,000%+ gain).

“Then with AOL in ’94… before everyone and their grandma were using those shiny ‘free Internet’ CDs (handing early investors a 20,000%+ gain).”

So… interesting stock, you can’t really call it a cheap stock at this point, and they’re in an extremely competitive market, but it looks like David Gardner is thinking outside the box a bit and envisioning a much faster ramp-up of automotive processing power, and that NVDA will lead that charge. Seems possible but is certainly not guaranteed — it’s a growth stock, with a growth valuation, in a market where they’re mostly competing against large companies that are cheaper (like Intel and Qualcomm).

I’m not running out to buy the stock, particularly since I really have never looked at them before today, but it’s an interesting story. If you’d like a negative spin on NVDA for balance, there’s an interesting analysis (heavily debated) at SeekingAlpha here from the time of their last earnings release. Yesterday’s earnings also got mistakenly leaked earlier in the week, and a Fool writer wrote that they “looked great” at the time.

———

Back to October now … you can see the current version of this ad, which seems mostly unchanged to me, right here. There have been no really dramatic changes to their analyst estimates in the last 90 days, nor anything that stands out like insider buying or big deals, and they have been relatively boring during the latest market turmoil (which is probably a good thing). So are you interested in NVDA at a three-year high, agree with Warren Buffett when he says that self-driving cars might be a “real threat” to auto insurance companies? Think their connection to the wired car and the future driverless car will spur NVDA higher? Let us know with a comment below.


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96 Comments on "Unraveled: “Warren Buffett’s Worst Nightmare” pitch from the Motley Fool"

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fischershaw
Member
35

I suspect that the auto industry would require much more solid drivers than what NVidia typically provides. A computer reboot may mean lost data, an automobile reboot may mean lost lives.

mocker
Guest
0
nonsense. i agree that you shouldn’t invest in nvda quincy adams (because of buffet’s mantra: you should understand a company/sector UR investing in). in reality any product can be designed with multiple safety layers. i’ll use the simplest example: an oil tanker. most of them have one steering system. if it fails, it fails. the best oil tanker has two totally indepedant steering system – both of which are autarchic. doing this mechanically is more expensive and more difficult. that’s why today, when you’re driving downhill and your breaks fail, you’re in trouble. to show just how absurd your statement… Read more »
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doug r
Guest
0

Them’s the Brakes, eh?

v4t1n4
Irregular
49

boeing, boeing!

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arch1
Irregular
7782

‘Allo ‘Allo ? wrong number?

Rusty Brown in Canada
Guest
0
Rusty Brown in Canada

people, people!

philg
Guest
0

the dynamics are totally different. oil tankers lumber, cars careen. computer controlled brakes can fail at the mechanism level, bad analogy on your part

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James
Guest
0

Last thing I heard about warren buffett was his raving and ranting about how great a value he believes companies that buy up auto dealerships like asbury automotive auto nation {car max} which warren owns. Only problem with these stocks they have already had a great run up the last five years its not a great time to buy these stocks.

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quincy adams
Guest
0

I don’t think Mr. Buffett should lose any sleep over this. No one here in Texas is likely to give up their chance to run me off the road with their pick-up.

jonomalley
Member
87

I highly doubt buffet loses any sleep about anything related to stocks. Not just because he’s already crazy wealthy but because he’s too wise to lose sleep over the stock market (if things go down he buys more- if they go up his portfolio goes up).

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Bob Taylor
Guest
0
I am not familiar with Nvidia’s automotive ambitions, but it appears from the article here http://www.eetimes.com/document.asp?doc_id=1322539&page_number=1 that they might have near-term ambitions more along the lines of general purpose computing, home-based supercomputing, and the embedded processor market. Offering a $192 eval board including all the components for a general purpose computer motherboard is a typical approach used by chip manufacturers to entice computer system manufacturers to use their product in their own product designs. Very often, the chip manufacturer will even offer free reference designs including detailed circuit schematics, printed circuit board layout recommendations, and bill of materials to make… Read more »
jdb83
Guest
0

I have Nvidia, and I like it. It seems to like me, too, as it has increased over the past year, plus it pays a little dividend. The automatic drive aspect? They seem to be an experimental company, and I like that. Meanwhile, their other products go tripping along, making money for us stockholders.

Jay Altman
Guest
0
George is right with his comments, especially when a computer glitch or reboot may mean loss of life. Unless the driverless vehicle is on a route prepared for and restricted to driverless cars, there is no possible way the computer can deal with all situations without human intervention. Just as the auto pilot in aircraft requires a human pilot monitoring the plane’s activity in any well populated air space, the driverless car will require constant monitoring by a human. Will the driverless car put on a turn signal before making a turn, or will turn signals become obsolete as well?… Read more »
dcohn
Irregular
200

Redundancy is key here. They will not allow a reboot to occur that takes everything down. It it would have everything in pairs and clustered so if one goes down the other is already active and you notice nothing,

Kenny
Guest
0
What NVIDIA has described as their self driving car application for the Tegra K1 GPU (or one of it’s successors) includes four separate and redundant laptop sized computing units in each car, as I understand it. The self driving cars that will eventually be in widespread use will also be massive data processing pigs that dwarf that will be receiving , processsing and transmitting Trillions of bytes of data constantly , so the four redundant computing units may be a low estimate if the GPUs processing power doesn’t continue to advance rapidly. That’s fine with NVIDIA, Intel, QualComm, or whoever… Read more »
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mocker
Guest
0

i commented george’s statement.
yours is equally absurd – almost religious.
if you have any questions, don’t hesitate to ask someone who doesn’t buy apple products.

doug r
Guest
0

I can picture your New York scenario in a couple of years, but eventually almost all or all vehicles will be self driving.

cooperjoe50
Guest
0

If the brain is not 100% that would be insane in the membrane. I’d say the body is at fault carrying out the signal from the brain.

Jay Walker
Guest
0
And just think… 60 years or so ago people were saying how it would be impossible to transmit signals to a box in your house where you could watch the president give a speech. Now having less than 100 channels (different signals) on that box is rare. It isn’t a matter of whether this will happen. It is a matter of when. The more people that use it, the safer the roads will be. For instance, I would much rather have a driverless car than a car controlled by a drunk driver. A car that could take them home without… Read more »
Anonymous Bob
Guest
0

One good solar storm like the one back in the mid 1800s that fried our country’s burgeoning electric grid (we are overdue for another, look it up), and any self-driving car would be just another useless Boulder.

Andrew
Guest
0

People didn’t believe in television in 1955?

George
Member
1

In 1955 we had tv and there were no close stations. The nearest was 90 miles away. A huge antenna pole provided a snowy picture but we were so happy when the first test pattern came on. Later there were 3 stations within 50 miles and we had lots of TV. We believed in TV in 1955 though there was little programing available. Now I have over 100 channels which are not free like in the 1950s when a tv with 6 inch screen cost $700,

Charlie R
Guest
0
Actually, existing driverless cars do perfectly well with lots of traffic, including cyclists, cars, trucks, complex intersections, etc., etc. In 1.7 million miles, Google cars got in 11 minor accidents. All were verified (via video, naturally) to be the other cars’ fault (bicycle in a couple cases, I think) without any injuries. My understanding is that there are weather conditions, e.g. fog and drizzle, that incapacitate driverless systems. For now, human vision is still better at dealing with difficult conditions such as these. Theoretically, radar could be used. But non-visible light systems are cost prohibitive. As it is, digital cameras… Read more »
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Divedoggy
Guest
0

Interesting article about Nvidia’s push into AI and “deep learning” technology:
http://www.wired.com/2015/03/nvidias-powerful-new-computer-helps-teach-cars-drive
Facebook has a large AI research effort headed by Yann LeCun:
http://spectrum.ieee.org/automaton/robotics/artificial-intelligence/facebook-ai-director-yann-lecun-on-deep-learning
I like both NVDA and FB … cutting edge stuff.

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Greg Best
Guest
0
Doesn’t seem like many of you are from the tech industry or are software engineers based on what is being said/talked about; it appears that most of the comments here are business-minded with a lack of understanding of the technology itself and the ridiculous impact it is already making and will continue to make. Can a driverless car put on a turn signal and still avoid hitting a biker? Absolutely. Can it do it better than a human? Significantly better. Perceived problems? You got it. It might be scary for some, but saying that humans can process thousands of variables… Read more »
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canonfodder
Member
82

Remember the automated airliner announcement? The automation equipment welcomed the passengers aboard and assured them that, “Nothing can go wrong……go wrong….go wrong….go wrong…………..

No thanks. I’ll turn my own steering wheel for a long time yet. I may talk to the people at NVDA about a good quote on some liability insurance I could arrange for them.

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HJ
Guest
0

If you believe they will need to make claims, why in the world would you want to sell them insurance? You want to sell insurance to people who WON’T make claims.

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Bobby Lee Corley
Guest
0

Maddox was making a facetious humorous comment…to be taken in jest… Lighten up HJ.

robin
Guest
0
I have explored a far more comfortable tech improvement to Caltrans folks whenever I had any chance meeting one their folks. It is totally possible right today– to wire up the entire highway system with multiple sensors for communicating to the human drivers — what exactly to do as this instant. Just like pilots have to follow similar instructions — it will call for a new style of “driver’s License” training, so will the drivers. The purpose will be to maintain a smooth constant flow of traffic through on/off ramps, mergers at` the highest speed a segment will computationally make… Read more »
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AlterIn
Guest
0

Does not seem to account for variability among drivers. As I dimly recall, simulations in the late 1970s (leading up to on-ramp flow control) suggested some strategies could minimize, but not prevent jams.

midorosan
Irregular
56

“The computer I am using right now to post this comment interrupts my work many times to download an update. ”
You are clearly ion need of a hardware upgrade Jay can I suggest a nice iMac which won’t interrupt your work when it is downloading updates.
As for NVIDIA I bought them some time ago and they have behaved quite well but I do not share the Fools enthusiasm as they are just one in a pantheon of far superior SoC makers.

mocker
Guest
0

please name just one SoC who is in cars already. the more info the better.
thank you in advance.
this seems to be a very valid reservation you voice (if true).

Rusty Brown in Canada
Guest
0
Rusty Brown in Canada

SoC: “A system on a chip or system on chip (SoC or SOC) is an integrated circuit (IC) that integrates all components of a computer or other electronic system into…”
I looked it up!

John Galloway
Guest
0
NVIDIAs tegra (actualy the car product has 2 of them on one board) IS in cars today. Self driving cars will be coming but not all at once (i.e. self parking, self highway driving etc). The high way is a pretty much solved problem, and low speed (<15) in town works well (as you can not out drive the sensor range at that speed), but in town at higher speeds still needs work. NVIDA is a good company, I've followed their tech for years. However with 252M cars on the US and sales of 8M, even if every new car… Read more »
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gguy
Guest
0

MF touted them in December 2012 and I bought stock, wrote covered calls once a month for 6 months when the option was finally assigned but I made a profit; my experience with MF is that make solid recommendations that can be used as a basis for writing covered calls to reduce one’s cost basis.

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jimarb
Member
18

DRIVERLESS ???? – READ ABOUT ALL THE LARGE TRUCKS MOVING ORE IN AUSTRALIA MINES AND THE REST OF THE WORLD – DRIVERLESS – NO THE PLAY IS NOT AUTOS ON THE HIGHWAY BUT INDUSTRY – DRIVERLESS VECHILES IN WAREHOUSES PICKING ITEMS FROM RACKS AN DELIVERING THEM TO THE INTENDED DESTINATION AND HUNDREDS OF OTHER USES – THIS IS AND WILL BE A HUGE MARKET – GET OFF THE POPULAR MECHANICS PAGE AND LOOK AT THE REAL WORLD

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mocker
Guest
0

you will typically find “caps lock” above the left shift key.
you’re welcome.

cooperjoe50
Guest
0

Just emphasizing, I guess. Lol

Rusty Brown in Canada
Guest
0
Rusty Brown in Canada

Shouting is also a way of “emphasizing”.

mocker
Guest
0

here is james insightful comment in humanly-acceptable form:

“driverless ???? – read about all the large trucks moving ore in australia mines and the rest of the world – driverless – no the play is not autos on the highway but industry – driverless vechiles in warehouses picking items from racks an delivering them to the intended destination and hundreds of other uses – this is and will be a huge market – get off the popular mechanics page and look at the real world”

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canonfodder
Member
82

Mocker, you seem to be skilled a mocking. What useful things can you do?

HJ
Guest
0

Mocker! No Mocking!

Bobakazooo
Guest
0

I was just in Australia and the big trucks had drivers, logging and mining.

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heynow
Guest
0
Driverless or autonomous cars are close to a reality by large companies already such as Google, Tesla, Audi, Mercedez Benz, etc. The reality is soon to come. Whether NVDA will be the only ones for a while, I am not so sure as Intel is also really getting into it. I think NVDA’s chip of 192-cores is great for parallel processing which is important for this new technology. It has a lot of potential, but too early to tell how everything will shake out. The point that NVDA was first to come out with a chip with 192 processing units,… Read more »
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Michael
Guest
0

We’ve already pretty much turned over flying to computers and no one really bats an eye at that. I’d say any concern over the computers in a driverless car are unfounded. Besides I’d rather cars drive themselves instead of some of the foolish people currently behind the wheel.

Sandy
Guest
0

It appears that there is a huge market being missed in this debate with ‘self driving’ automobiles and chips that process data etc. That simply is the aggregation of real-time data likely to be set wirelessly to these ‘self driving cars’. The processing of the chips in a vehicle alone is nothing with real time traffic updates, GPS tracking; road obstructions. There will be a vendor to ensure safe connectivity during downloads, updates etc. That is the real play for the money here. The data aggregate provider. Let’s see who wins that business.

andy451
Member
216
Warren Buffet’s greatest nightmare? What about his greatest dream? Do you remember your first computer that connected to the in- ternet? Wasn’t that the greatest machine ever? A “game changer” machine with “game changing” technology. Wasn’t it the greatest? Better than Muhammad Ali? So, you try to log on to the internet. ERRRRrrrrrRRRRRrrrrrRRRRR [alien sounding modem noise]. After five or ten minutes, depending on your connection, computer speed, time of day, public usage you are now connected! Almost a miracle really. And what do computers like to do more than anything? I don’t know about yours, but mine liked to… Read more »
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Mikey
Guest
0

On the positive side – The car doesn’t claim Affluenza, but can’t go to jail for reckless driving because it’s not human.

Bob Sutters
Guest
0

I put my whole portfolio into shorting Geico. I shouldn’t have listened to this!

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Rick M
Guest
0
A couple of months ago, I spoke with a truck driver that is driving one of these new trucks with all the techno and “safety” hardware, and he told me that the drivers hated these gadgets. I just took my daughter to Penn State grad school, and therefore rented a new Penske truck. I was driving around doing errands with the empty truck, and something took me by total surprise. State College, PA is quite hilly and I was headed back to my daughter’s place and started going down a hill at about 35 MPH, and all of a sudden,… Read more »
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teddo1
Irregular
0

Begging your pardon, Sir, but you obviously do not know how to drive a large, hard tired, big empty truck. It would exponentially become more difficult to stop with each increase in mph. it was keeping you out of trouble.
Truck drivers also hate the GPS systems, but mainly because they can’t cheat on the log books and make a decent living.

Jim W
Guest
0

The thought of driverless cars with more computing power in a two car garage than the
Blue Mountain supercomputer seems a little ridiculous but I am curious about the Data
Aggregate Provider(s) mentioned in Sandy’s reply.
Would that be Google? Who else?
Regardless, I doubt they will not be required to have insurance. At least until proven.

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Robert Ernst
Guest
0
I think I will pass on this play until I find the George Jetson flying car that we can put Elroy into a bubble and send him off to school. I realize the efficiency of computers- having done Fortran, getting up at 3AM to get a space in the PSU computer lab and punching cards, made great confetti for the football games! Until then, I think I will pass on a driverless car. It’s day will come, but I do not believe in the next 20 years or so. As we all know, it only took 100 years from the… Read more »
Andrew
Guest
0

People forget there is a second issue in adoption, it is not just fear over tech issues, but there are many of us out here who like to drive, who enjoy controlling the machine, and driverless cars eliminate that. Thus, there will continue to be a large number who avoid driverless cars, and, just as a guess, that considerable contingent of human controlled cars will probably create mor