Sven Raeymaekers, partner at GP Bullhound, looks at how value is shifting in the value chain for driverless cars and what it means to whom as we move through a change as momentous as the combustion engine replacing the horse and cart.
The 1977 Vienna Convention on Road Traffic governs road traffic in over 75 developed countries and requires a driver to always be in full control and responsible for the behaviour of their vehicle. Yet Elon Musk has promised Tesla will be selling fully self-driving cars within the next year, while Waymo has already driven 10 million autonomous miles on public roads and is now preparing to launch its robo-taxi service.
In this new world of driverless cars, profits are expected to shift to areas where traditional car makers do not have a legacy, just as they did and in the mobile device industry, where value moved from hardware to software and ecosystems. BCG estimates the average profitability of classic vehicle components will only increase by 3% to 2035, while autonomous and electric vehicle components are set to increase by over 25%, and data and connectivity by over 27%.
The stakes surrounding autonomous driving are momentous. There’s the potential to rid the transportation industry of its single largest cost, human drivers, while at the same time making transport safer, cheaper and arguably more enjoyable. In less than half a century, we’ve gone from not daring to dream that driverless cars would be safe enough to drive on our roads, to being on the verge of at least partially autonomous vehicles become reality.
Much of this development is being driven by tech giants and new players in the automotive space. In August 2018, of the 56 companies who held a permit to conduct autonomous vehicle tests in the state of California, an astonishing 71% were native tech companies, all ready to seize control of the end user in this new era of mobility. They include tech titans such as Google, Apple, Intel and Samsung as well innovative start-ups such as Drive.ai, Zoox, and Pony.ai.
Who is winning the race to driverless? Despite Waymo (Alphabet) and Cruise Automation (General Motors) pulling out ahead, it’s important to note that the race to autonomous is won city by city and data model by data model, leaving ample time for smaller player, such Five AI in Europe and SenseTime in Asia, to claim their stake.
Cellular (C-V2X) or Wi-FI-based (DSRC/ITS) connectivity is the often-overlooked but crucial partner of autonomy. Cars that can connect to and communicate with each other, infrastructure, with pedestrians and with the network are integral to driverless vehicles being safe and efficient.
While ECM data has been used by manufacturers since the late 1990s, the few hundreds of kilobytes of service data can impossibly be compared to the volumes generated by tomorrow’s array of vehicle sensors, generally estimated to be coming in at around 4 terabytes per hour. This explosion of data, effectively turning cars into data centres on wheels, will require manufacturers to tread carefully if they are to avoid Facebook-Cambridge Analytica type of data scandals.
Irrespective of when fully autonomous vehicles will begin to hit the mass market – the consensus seems to be sometime between 2020 and 2025 – it will probably not be until 2050 that driverless cars are ubiquitous on our roads. Until that day comes, there are several issues that need addressing.
One of the biggest of these hurdles is consumer acceptance. Safety perceptions of autonomous vehicles has fallen in the past few years. Since 2016, the number of people who trust and would travel in a fully autonomous vehicle, with no human input, has decreased from 47% to 28%.
There’fs also an urgent need for regulatory clarifications regarding safety, insurance, and cyber security to remove barriers, set standards, and proactively engage in autonomous driving development. Stakeholders have called for regulatory clarifications and revised frameworks, to update legislation which could never have envisioned the pace of technological change over recent decades.
We are about to see the most fundamental change in terrestrial transportation since combustion engine vehicles replaced horse carts, but only once legislative frameworks are re-evaluated, can autonomous driving be given the green light.
The author of this blog is Sven Raeymaekers, partner at GP Bullhound