With ever smarter cars already on the road and semi- and fully autonomous vehicles in large-scale trials, the automotive industry gears up for battle against a host of challengers. Big tech companies and smaller dedicated startups in the fields of AI, mapping and autonomous driving seem to make rapid progress, but there may still be a role to play for the incumbent hundred-year-old industry. What will the automotive landscape look like in a few decades?

Our observations

• A host of companies is working on autonomous vehicles, i.e. AVs. Virtually, all the car manufacturers have R&D programs and run prototypes of AVs, often in cooperation with traditional and new suppliers. From the generic tech side, companies such as Apple, Google/Waymo (together with Fiat-Chrysler) and Baidu (together with Ford and Daimler) have also entered the race together with ride hailing giants Uber (together with Volvo) and Lyft (together with GM).
• While most car manufacturers strive to develop their own software, almost all of them also partner with tech companies (e.g. Waymo, Amazon, Mobileye, and Nauto). Other partnerships concern hardware, high-definition maps, and fleet servicing through which car manufacturers try to control the full technology stack from infrastructure to maintenance.
• Global investments in software and smart systems for vehicles have skyrocketed from USD 1.5bn in 2016 to almost USD 4bn in 2017. Within this space, autonomous vehicle solutions were dominant and amounted to USD 3bn.
• In the midst of all the hype that surrounds AVs, several companies have already retracted earlier statements. Volvo extended its AV deadline from 2017 to 2021 and lowered expectations to only semi-autonomous features. Google did not meet its 2017 deadline either (set in 2012), and Ford made clear that its 2021 target does not include fully autonomous vehicles either. Cited problems include hard and software costs, remaining challenges with varying road and weather conditions, and the inherent unpredictability of other (human) road users.
• The automotive business model, based on selling cars, seems to be doomed as consumers will probably be sharing most of the AVs. While this implies the decrease of vehicle sales, total demand for mobility is bound to increase, if not explode. One estimate predicts a 65% increase in vehicle miles traveled towards 2040.

Connecting the dots

As we noted it before, the ideas of self-driving cars have come and gone since the first automobiles entered our lives. Today, it seems as if the technology, both hard- and software, have finally reached a threshold of performance and price levels to turn those ideas into reality. This does not mean that fully autonomous vehicles will see commercialization soon, this will take another five years at least, but virtually all car manufacturers and large tech firms are now developing and testing their prototypes to fine-tune systems and train their algorithms. It will be interesting to see how the struggle between these old and new industries will evolve. Will the old giants continue to dominate or will tech companies take over the industry? Will traditional manufacturers be reduced to mere suppliers of white-label cars? Daimler CEO Dieter Zetsche, for one, has already expressed that his company will never become a supplier of white-label cars for the tech industry.The plethora of collaborations between both sides suggests that these competitors need one another and their competences seem rather complementary indeed. Car manufacturers are great at mass production and the assembly of (many outsourced) parts. They also have a deep understanding of their consumers (and regulators) and will be extremely focused on building reliable and safe vehicles. Tech companies clearly understand software but, as demonstrated by Tesla’s ongoing struggles with the upscaling production of batteries and vehicles, lack expertise in the mass production of the hardware. Ride hailing companies like Lyft and Uber also understand software, and perhaps more importantly, they have introduced tons of customers to the mobility-as-a-service model and understand their needs.Together, these businesses could cover the full stack from the car’s body, powertrain, sensory hardware, data infrastructure, and software. They could even operate fleets of shared vehicles themselves. That is, operating those fleets across the globe will be a highly capital-intensive business as actual revenues would follow years after vehicle production. Besides technological competences, capital will thus be crucial to the realization of the AV dream.So far, these strange bedfellows have managed to work together, but several ‘breakups’ suggest that diverging ideas (and industry cultures) may stand in the way of long-term cooperation. Once AVs become a commercial product, a battle is likely to ensue as all sides want to put their badge on the final product, harvest consumer data, and offer a range of new in-car services.

Implications

• The rise of the AV is unlikely to disrupt the automotive industry in general, but several manufacturers will miss out and either close shop or be taken over by their more successful peers or tech companies. While the focus is on technology today, eventual winners may be those who understand best what consumers need and want once they are in a self-driving vehicle. This could range from high-end entertainment systems, digital personal assistants to (human) emergency support.
• Besides the production and operation of the vehicles themselves, adjacent sectors will be affected by AVs as well. This goes, amongst other sectors, for insurance and parking, furthermore, self-driving cars will still require maintenance, cleaning, and possibly even such things as sensor calibration. These issues present opportunities for smaller nations such as the Netherlands, which are unlikely to spawn domestic AV makers, but present themselves as living labs to gain hands-on experience with AVs and their requirements.