Autonomous/connected vehicles are all the rage at the moment with many industry pundits asserting and forecasting that self-driving cars will fill our streets in the near future. But there are some important realities that need to be considered before we can kiss our steering wheels goodbye.
Competing Flavors of Automotive Transportation
Let’s face it, we aren’t going to have autonomous cars on our roads in mass for a while. Why? There are four competing flavors of automotive transportation suggested by the confluence of two key trends that we at neXt Curve believe will shape the future of automotive transportation: digitally-enabled car sharing and autonomous driving technology. Each of the four flavors of transportation has appeal and utility to consumers that are not likely to fade away or replace that of the other flavors in the near future. We can expect that the global, regional and local mix of these four flavors of automotive transportation will differ and shift over time with a propensity toward the upper-right hand corner of the quadrant diagram below.
So, what will it take for us to reach this utopian vision where manual driving is illegal or made so cost prohibitive by government policy or insurance companies that all vehicles on the road will drive themselves? We need a big picture value case. Is it saving lives, alleviating traffic congestion, improving our productivity on the road? It will have to be asset optimization.
Waste Is The Problem And The Opportunity
If you believe in the promise of the Internet of Things, then you will believe that with great waste comes great opportunity. An individually owned car is parked 95% of the time on average – tremendously low utilization for an asset that consumes about 14% of the annual income of the average U.S. household ($59,039/household according the U.S. Census Bureau) based on average cost of ownership of a car of $8,000 per year based on the Department of Labor’s 2015 BLS Report on Consumer Expenditures. Consider that most U.S. households have more than one car. This is one of the “big picture problems” to be solved. The other big problem to be solved, of course, is the environmental problem, which we won’t address in this article.
As mentioned earlier, car sharing and autonomous driving technology are the key drivers in the evolution of automotive transportation. Based on our research, car/asset sharing has and will continue to have a more profound impact on the asset optimization of the approximately 260 million registered vehicles on the road in the U.S. as of 2015 according to the National Transportation Statistics Report 2017 published by the U.S. Department of Transportation. When we consider the more than 1.2 billion vehicles estimated to be operating throughout the world today, the problem to solve is an order of magnitude larger than the one that the United States presents.
What is the role of autonomous vehicles in addressing the asset underutilization problem? Simply put, it is a force multiplier of asset sharing. Autonomous vehicles can stay on the road longer than a human-operated vehicle, assuming that the vehicle operating time is not extended by multiple shifts of drivers during the course of the day to increase utilization of a vehicle. We can also assume that eventually autonomous vehicles will become more economical over time and present a power cost of operation versus shared vehicles operated by human drivers.
Even if we consider the best case scenario, we need to reconcile our assumptions against some very real headwinds that will challenge autonomous vehicle and car sharing adoption. The five primary headwinds to consider:
- Strong Global Car Culture – I recently had a heated conversation with a German friend of mine who loves to blast down the Autobahn in his Audi A6 at 280 km per hour about the prognosticated demise of driving. I asked him what he he thought of a world where human-operated vehicles were illegal. He leaned forward with a stern look and said, “Over my dead body.” Okay! Let’s face it, people around the world love their cars and they love to drive – a significant barrier to realizing a driverless vehicle utopia. For decades the American auto industry has been selling the culture and the dream of the car to billions around the world. The auto industry spent 44 billion in advertising globally in 2015 promoting messages such as BMW’s “Sheer Driving Pleasure” and Dodge’s “Don’t Dream It, Drive It.” NASCAR with cars driven by autonomous systems is not much of a sport, much less a marketing event.
- Cost of Autonomous Systems – The cost of systems that enable “fully autonomous” driving vary in range from $80,000 to $250,000. Vehicles that come equipped with these systems are currently way out of the range of the average consumer household. Near term, we will likely see fully autonomous systems deployed in vehicles used in autonomous car-hailing services such as the one announced by General Motors on the 30th of November, 2017.
- Massive Installed Base of Non-Autonomous Vehicles – Today there are literally no “fully autonomous” vehicles on the road other than the few test vehicles and those operating in controlled environments. Given that the average age of a household vehicle is 9.5 years, it is difficult to argue that people-operated vehicles will disappear anytime soon unless a very cheap, aftermarket autonomous driving system is developed to retrofit the massive number of “legacy” vehicles. Assuming that all new vehicles sold are fully autonomous, it will take more than a decade, likely decades, to take “legacy” vehicles off the road.
- Income Inequality – At what point will all buyers of cars be able to afford a vehicle with fully autonomous capabilities? While global income equality has been gradually improving due to fast-rising economies in India and China, income inequality in major auto markets such as the U.S. continue an exacerbating trend as wealth continues to concentrate among the top 10 percent of income earners. Average income and wealth distribution will be important considerations as you look at the viability of an autonomous driving and car sharing utopia for each market of interest.
- Industry Resistance to Change – We can only anticipate that the current players in the auto industry and ecosystem will resist, particularly in the United States where you have thousands of dealerships, aftermarket and service businesses. Auto aftermarket services constitute 2.0 percent of the GDP of the United States employing 4.2 million people according to the AutoCare Association. The political and economic policy reactions are yet to come as we are in early days of autonomous driving and digitally-enabled car sharing. Though some automakers seem to see the writing on the wall, we can be sure they will continue to pump vehicles off the assembly line to make shareholders happy until a viable alternative business model can replace the status quo that is today’s auto industry.
Implications For Business Leaders
There is a tremendous amount of hype and marketing-driven haze that shrouds the future of the automobile. Business leaders need to acquire clarity on the imminent threats to their business and formulate an effective and timely pivot strategy. Startups looking to be part of the industry “disruption” need to get a clear view on the opportunities presented by the convergence of autonomous driving technology and digitally-enabled car sharing in order to validate the value proposition of their offerings against dynamic and variegated customer needs and preferences.
One thing is for certain, car sharing and autonomous driving technologies will change the auto industry and consumer behavior with broad consequence. The question of timing, scale and scope of change can be better answered with a clear, robust understanding of the technology and business model innovations, and their rate of progress, maturity and economic viability.
neXt Curve can help you and your team develop a well-informed and rationalized hypothesis on how the market for complex digital applications such as the autonomous and shared vehicles will evolve by applying our Inflection Point methodology for market forecasting and scenario analysis. Please contact us if you would like to find out more about how neXt Curve can help you acquire deep insight into the future of the car.
by Leonard Lee
Managing Director, neXt Curve
December 14, 2017
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