Why Autonomous Vehicle Technology Threatens Copart’s Business

A large portion of Copart’s (NASDAQ:CPRT) business depends on people getting into car crashes, but as autonomous car technology takes hold, the rate of car crashes could decline. Does this present an existential threat to Copart’s business model?

In this video from the Industry Focus podcast recorded on March 11, Motley Fool contributor Luis Sanchez and Industry Focus host Nick Sciple discuss Copart and the market for used cars.

Nick Sciple: Luis, part of the driver of the business for Copart is you need totaled cars to go to auction. A lot of people will talk about this rise of autonomous vehicles, improved safety technology in vehicles, and the idea that maybe sometime in the future, we have far fewer accidents, far fewer fatalities, those sorts of things. How do you think about that risk for Copart’s business?

Luis Sanchez: Cars are getting safer, and that’s great for everyone. But the reality is that we’re still going to have accidents, even if cars are safer. There’s a couple of long-term trends that are actually working in our favor. The biggest one is really just that the population is growing and there’s more people driving. The total miles driven in the U.S. and around the world has steadily gone up every year, about like 1% to 2% per year. Just logically, the more cars that are on the road, the absolute number of accidents is going to be higher. The other interesting thing that actually specifically relates to autonomous and electric cars is that as you put more technology into the car, it makes it harder to repair the car. It makes it more expensive to repair the car. The parts in the car are worth a lot more money, so there’s an increasing rate of totaled cars.

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If you go back to the 1980s and you look at the car crashes that happened in literally, like 1980, only about 5% of cars that were in a car crash in 1980 were considered totaled. Fast-forward 40 years, and now, it’s more than 20% of cars that are involved in accidents are totaled, and it’s because of that gap between the value of the car and the cost to repair it. I don’t know if you have any insight into this, but I’ve heard that repairing a Tesla is [laughs] extremely expensive. It’s probably more expensive than repairing a Camry that you can probably source at a local mom-and-pop repair shop.

Sciple: Yeah, certainly. They’ve put some takes with Tesla because they run all their own service operations and make all their own parts and all those sorts of things. But certainly, as you put more tech in a vehicle, it stands to reason that the cost of repair goes up. Just an example to think about: We’re entering this world where many more cars are going to have a standard feature similar to Tesla Autopilot — advanced driver assistance systems for the highway and that sort of thing. Part of that is that you see lots of automakers putting things like cameras, and RADARs, and LiDARs in their bumpers and all around the car. It turns from a fender bender that damaged a cheap piece of plastic to a fender bender that damaged a cheap piece of plastic with LiDAR and cameras and RADAR embedded in it. Of course, auto companies are going to take steps to protect that type of technology, but again, that technology is sensitive, and mistakes still happen.

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I think one other thing to think about as well is as autonomous technologies roll out — one of the first places they’re going to be rolling out is to places like highways, so Tesla Autopilot highway, GM Super Cruise highway. Now, Tesla is trying to push out into some other areas, but predominantly, guided for use on the highway. Most accidents, the highway is much safer than the traditional surface streets. Makes sense: They were designed that way. You don’t get a curve over a certain gradient, you never make an unprotected left turn, all those sorts of things. I think there’s an argument to be made that in the near term, as some of these autonomous technologies roll out and their use case is applied in some of these areas that are already pretty safe, that on the margins, you see some net effects of total loss going up because people are still driving and making those same mistakes when they turn left in the intersection or what have you. Now, there is going to be a certain point, you would think, where crashes go down enough across the board that it impacts somebody like Copart. But I would say that in the near term, there may actually be a little bit of a tailwind to go off with what Luis just said about we’re on this long-term trend toward higher total loss rates for vehicles, and with more tech going into the vehicle, I don’t think that’s going to turn in reverse in the super near term, like the next five years.

Sanchez: Right. If you look at the data back 30, 40 years ago, the rate of fatality in a car crash was like 3x, 4x what it is today. If you look at just the past 10 years, we’ve started to have some of these safety technologies. The rate of accident doesn’t go down every year. I think it’s been pretty flat over the last few years. Maybe on the margin, as autonomous vehicles come online, like you said, it does ease lower, but this is already a headwind that the company has theoretically been facing for a long time. There’s actually some tailwinds to that because now, you have this whole issue of distracted drivers. Potentially, they’re using a Tesla Autopilot, but they’re misusing it because they are doing their makeup, or watching Netflix on their phone because they think the car is going to keep them safe, when as we just learned, Tesla is only a level 2 autonomous driving car at this point. Then the other factor too is just that it’s going to take probably a couple of decades once we have the technology to fully replace the fleet that’s currently out in the world of driving.

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Sciple: Absolutely. I think it’s something to monitor, but at least at the current trajectory of what it looks like the technology is playing out, I don’t think it’s something that’s pieces breaking for the company. I still think there’s opportunities in the future for Copart.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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