In a new BluePaper from Morgan Stanley Research, a cross-section of the firm’s equity analysts detail how investment in autonomous flying aircraft is accelerating, with implications for the future of passenger travel, military and defense applications, and freight and package transportation. The report projects a total addressable market of $1.5 trillion for autonomous aircraft by 2040, creating opportunities for investors and benefiting a host of sectors along the way.

“The intersection of many technologies, such as ultra-efficient batteries, autonomous systems, and advanced manufacturing processes are spawning a flurry of activity in this space,” says Adam Jonas, Head of Morgan Stanley’s Global Auto and Shared Mobility research team.

Although the idea of flying cars may seem fantastical, much of the ecosystem is already in development in complementary technologies. Military drones have been around for years, and electrified, autonomous vertical takeoff and landing vehicles (VTOLs) are gaining traction. In logistics, drone package delivery is in active testing. Improvements in batteries, artificial intelligence and satellite communications are also expanding the possibilities.

These considerations, coupled with large amounts of capital infusion, should accelerate the adoption of autonomous, electrified urban air mobility.

“We see the development of the urban air mobility ecosystem as extremely long-dated, with up-front capital allocation, testing, and development in the short term,” says Jonas. Aerospace & defense majors have been making investments, startups are attracting capital, and megatech platforms are actively involved.

NASA even entered the game in November, 2018, funding an industry contest aimed at accelerating urban air mobility development and instilling public confidence in the technology. The first challenge was for participants to “demonstrate the safe operation of a piloted or remotely piloted aircraft capable of carrying at least one adult passenger within a simulated, challenging urban environment.”

The potential for flying vehicles comes from their ability to solve vexing problems for companies and consumers. Shipping goods would likely be the first use case because of the lower degree of technological barriers (weight, size, etc.) as well as fewer regulatory hurdles. Benefits would include improved package delivery service to rural areas, decreased shipping costs and reduced congestion in urban areas.

“Companies are scrambling to figure out last-mile delivery, sometimes even incentivizing the customer to pick up from the store. Drones and VTOLs could be part of the evolving solution of last-mile parcel delivery challenges,” says Ravi Shanker, equity analyst covering the North American transportation industry.

But the ultimate goal of industry leaders is moving people. “We’re seeing opportunities for a growing fleet of electric, shared, and autonomous VTOL aircraft or other large terrestrial drones,” says Rajeev Lalwani, lead analyst covering U.S. Airlines, Aerospace & Defense, and Aircraft Lessors. “The market could likely begin as an ultra-niche add-on to existing transportation infrastructure, similar to how helicopters operate today. They could later transform into a cost-effective, time-efficient method of traveling short to medium distances, eventually taking share from car and airline companies.”

Toward that end, the CEO of a major airplane manufacturer announced in September, 2018, that the company is investing in urban mobility and “flying taxis.” Additionally, an aviation company has begun investing in a helicopter ride-hailing service.

It’s still early days for urban air mobility, but Morgan Stanley Research believes that autonomous aircraft could be common by 2040. Battery technology, processing and computing power, and advanced composite systems all overlap with eVTOL aircraft manufacturing.

Limitations remain, primarily related to batteries and propulsion technology. As of now, there are few battery-powered drones that can carry much more than 10 pounds. Reducing the cost, decreasing noise and creating aircraft that essentially levitate—not takeoff via a runaway—are also key considerations.

However, the Morgan Stanley team doesn’t believe technology will be an ultimate limiting factor. Instead the regulatory and societal concerns surrounding the technology will need to catch up to the tech itself, Jonas says. As expected, addressing safety will be at the top of regulators’ lists.