Lately, I've been having a lot of discussion with various folks on my thoughts on the future of the automotive industry.
Within the next 10 years, we will see a huge transformation in the industry and how consumers use cars.
Every manufacturer has announced or is working on some variant of ride sharing and autonomous driving.
Driverless cars could imminently be operating on London's streets, after Nissan announced it had been cleared by the UK government to commence limited trials.
While Google has been testing its own autonomous vehicles on public roads near its Californian headquarters, Nissan claimed that its driverless cars will be the first to hit public roads in Europe—if, that is, the Japanese manufacturer receives final approval from an undisclosed local authority in the UK's capital.
DETROIT—Volvo is among the leaders of the pack of automakers when it comes to autonomous driving. The various advanced driver assists in its current XC90 and S90 are some of the best we've tested, and the carmaker recently linked up with Uber to develop redundant systems in self-driving cars. But before there was the Uber collaboration, there was Drive Me, a multiyear research program that the company will use to look at how it, as a car maker, can contribute to a "sustainable society." In the video above, we speak to Trent Victor, senior technical leader of crash avoidance at Volvo, about the program.
Volvo chose this year's North American International Auto Show to hand over the first set of keys in the Drive Me program. It's in the process of recruiting 100 families in Gothenburg, Sweden, but the first lucky family is the Hains. Over the next few years, the Hains and the other participating families will be testing out a number of different research vehicles like the XC90 SUV seen in the video. In addition to testing out new iterations of self-driving systems, the vehicles will also be fitted with sensors and data loggers in the cabin to monitor the occupants.
GM and Lyft, in whom they invested $500m:
General Motors Co. and Lyft Inc. within a year will begin testing a fleet of self-driving Chevrolet Bolt electric taxis on public roads, a move central to the companies’ joint efforts to challenge Silicon Valley giants in the battle to reshape the auto industry.
Cadillac (GM) has started their BOOK program:
A flat monthly fee of $1,500 eliminates the hassles of car ownership so members can experience uninhibited driving. Membership is month-to-month with no long-term commitment required. Members can use a mobile app to reserve vehicles that will be delivered to their specified locations via a white-glove concierge service. Certain location restrictions apply. Members will have access to the current year Platinum Level Trim Cadillacs, including the XT5, CT6, Escalade and V Series. Registration, taxes, insurance and maintenance costs are included in the monthly rate and there is no limit on mileage.
And of course, there is Tesla, Google, Nvidia.
While there has been a lot of skepticism with many whom I've talked to, the reality is that we are at a convergence of technology and engineering that will transform the automotive industry -- and many ancillary industries -- in the next 10 years. Leaders in the auto industry really deserve some credit given that we've seen industries like music and television wholly unprepared for the transition wrought upon them by technology; by and large it seems clear that the industry can see the shift and have invested in shaping their futures.
This moment is the convergence of computer vision, improvements in mobile computing, and maturity in the field of neural networks and deep learning -- the latter two are now commodities that anyone can take advantage of for pennies on either Amazon or Azure. As we saw with the shift with enterprise infrastructure once compute became a commodity, so too will we see a shift in the prevalence of "AI" given the advancements and commoditization of these capabilities.
There are powerful business drivers, of course. From the perspective of companies like Google, it allows them to achieve higher engagement and serve more ads. It also opens up new models of revenue and advertising; imagine a smart car that can suggest "sponsored" restaurants in the area if you are heading out for a meal. For companies like GM, Nissan, Volvo, etc., it is an evolve or die scenario as the industry is transformed.
The degree of transformation in this industry will be massive. The first wave will be an increase in programs like BOOK that will continue the trend of unbinding the need for transportation from the need of ownership. We are already seeing this with the tremendous growth of Uber and Lyft in the last few years. BOOK is currently only available for Cadillac's most premium cars with "white glove" concierge services -- and the price reflects that! However, I think we will see this model move downmarket.
One might fairly ask how this is any different from renting a car. I think there's one key difference: the model is to "rent" directly through the manufacturer and this is a precursor to an all new model. In a future when autonomous driving is mainstreamed, these services will reach their full potential whereby manufacturers will sell services directly to consumers. You won't buy or lease a car, but rather summon an autonomous car from a local hub that will come and transport you for your trip in much the same way that you would hail an Uber ride. It is this transformation that every manufacturer sees and it is this inevitability that they are prototyping and investing in.
In some sense, Tesla has been at the forefront of some aspects of this model. Obviously, Autopilot is one of the most competent semi-autonomous driving systems currently on the market. But beyond that, Tesla has already done away with the traditional dealership model, though it has been as a result of legal challenges from entrenched dealerships. While Tesla has been fighting these legal battles, traditional manufacturers like GM, Renault-Nissan, Ford, etc. have been sitting on the sidelines, waiting to see the result and observing. After all, there is no logical reason why Toyota can't sell directly to you except that there is an entrenched model and legal framework that prevents them from doing so. But they have been preparing, learning, and now experimenting as we see with BOOK.
With the inevitable reduction in car ownership, we can expect quite a bit of fallout across many industries.
For starters, the model of automotive insurance will need to change. Consumers may carry additional personal injury insurance, but the cost of insurance will be shifted to the service provider in much the same way that the insurance on your Uber ride is the responsibility of the Uber driver.
Automotive dealerships will also need to evolve. It is likely that we will see dealerships transform into hubs that largely provide service and maintenance as well as a central distribution point (though a fully distributed model is certainly also possible). Many dealerships will likely go out of business in this process as profitability drops and more competitive options arise for manufacturers.
Used car dealerships and the entire infrastructure supporting that will need to evolve as there will be less buyers of used cars. The value of used cars themselves may take a large hit as the market of buyers shrinks and the cost of ownership increases.
Municipalities will need to rethink their model of infrastructure planning. A township in New Jersey just last year piloted a program that reimbursed for Uber rides instead of investing in a new parking lot. What effect will a new model have on bond commitments related to existing infrastructure? How will it affect zoning and planning? Municipalities will also have another challenge: how will autonomous vehicles affect their revenues from traffic violations when these cars will obey posted speed limits and stop at every stop sign and red light? What happens when no one needs to park at meters because the cars will operate on-demand? How will they make up this gap in their revenue stream?
Small businesses like car washes and even big businesses like auto parts stores will need to plan for a future where ownership decreases. It is likely that most will go out of business, but more likely in a time span of 15-20 years.
There will be new industries and new opportunities as well that will transform local businesses. For example, an autonomous food or parcel delivery vehicle can be configured very differently from any typical vehicle designed to transport humans. Will we have a need for pizza or takeout delivery drivers when an autonomous vehicle can deliver the food more cost effectively? It is not likely that a small local restaurant would buy these vehicles, but rather rent them from a vendor that specializes in these vehicles and increase their delivery capacity on demand.
Manufacturers themselves will need to figure out how to shift their business and resource models in a future where the ratio of cars to riders is significantly lower. How will it affect their current investments in manufacturing facilities? What about their commitments to their human resources? What will the effect be on their current real estate investments be? What types of resources will they need in the future when they transition into not only a manufacturer, but also a service provider? Or will the model be altogether different and will they spin off the service provider from the manufacturer? Uber will be redundant when manufacturers can provide the services directly without a middleman much like how streaming has shifted the relationship between content produces and consumers. Perhaps Uber will become more like a Hulu where it provides a consortia a platform for managing services. Tesla is already heading down this route.
Maybe a more important question for manufacturers is how will the market shift once ownership is a thing of the past? Will people still care about brands? Or will they care more about the purpose? I need to transport 6 adults. I need to transport sheets of plywood and drywall. I want something a bit flashier for my date. By and large, I think most folks don't care what their Uber driver is driving; rather they care about the class of vehicle: luxury for a high end experience, mini-van or SUV for carrying people and luggage to the airport, typical sedan for lowest cost. Perhaps we may see the death of a few brands as the market contracts in reaction to this new model.
The fossil fuel industry will also be impacted as transportation models become more efficient (forget about electrification) and less cars are needed to meet the same demand. For example, we could see lower priced services that allow multiple riders per vehicle based on smart routing. We could even see models like we see in the airline industry where smart routing will pool and "transfer" riders to maximize efficiency and provide a lower cost service. Google already has a patent for smart pickup and dropoff locations. It's not difficult to make the leap that they could more intelligently route pickups and dropoffs to maximize efficient routing of the vehicles matched to demand. "Passenger Charles Chen, please exit the vehicle here. A blue Prius with license plate 247X3K will be here shortly to continue your trip. Thank you for using Google Transit; you saved $3.50 and 4000 grams of CO2 by using Google Transit Eco today! You should arrive at your destination in 15 minutes; you are still on time for your 6:00PM appointment; would you like to stop at Starbucks for coffee first?"
In discussions with skeptics, one argument that comes up is the ownership experience. There are various aspects of this such as status or pride of ownership (Americans do have a strong history of sentiment attached to their cars) or even conveniences such as keeping your things in your car. But I think that this, too, will change culturally as a matter of convenience in much the same way that we have shifted on from physical media for music and video. My 2016 Mazda CX-9 doesn't even come with a CD player. How did this happen? After all, there is a deep culture associated with physical media from vinyl to mix tapes even to CD jackets. The same with books; there is a certain experience associated with reading a physical book that is strongly ingrained into our culture. Libraries, the smell of books, taking notes and putting dog ears in pages of a book, passing a book down from generation to generation. And yet, e-books are here to stay despite their limitations and restricted ownership models (Amazon can wipe your account at any time, after all). The answer is part convenience and how it is enabled by technology; with the availability of always connected devices, the need to even carry digital media around is redundant. Why do so when you can stream any song, wherever you may be? I've seen a shift even in flights where airlines are no longer investing in screens on their planes and instead investing in streaming to personal devices.
It is not the extension or progression of a model such as renting a car, as suggested by one of my counterparties, but rather an all new model. In much the same way, Uber is not an extension of the model of taxis; it entirely disrupts the business model by removing the barrier of medallions and licenses. Even if you slapped the Uber app on top of existing taxi businesses, it would not be the same model. Likewise, Airbnb is not an extension of the hotel business model; it is an entirely new model that disrupts the existing business model. The shift we will see in the automotive industry is not an extension or progression of an existing model, it is a wholly new model which will come to dominate how we consume transportation services.
It will be far more convenient for a generation of consumers who have no interest in maintaining cars. For parents that are too busy to shuttle their kids around to this practice or that lesson. For business travelers who need a vehicle all over the country but don't want the hassle of booking rentals. For restaurants who can rent delivery capacity on demand instead of hiring drivers. For a generation that will grow up with devices and have no desire to suffer boredom and tediousness when they have a choice. The spaces that we reserve for parking cars can be used for better purposes. Townships will not need make heavy capital investments in wasted "dead zones" like parking decks.
I look forward to this future and it will be interesting to observe what other types of fallout we see from this shift in the next decade.