How Self-driving Vehicles To Save Annually $488 Bln in US
The automobile industry has seen massive changes and shifts in the market in last 5 years. Trends like Shared Mobility, electric vehicles, and autonomous vehicles have emerged out to be the new fuel to overhaul the not too distant future of the automotive industry and mobility sector.
Have a look at these numbers - after seven years of growth, U.S. vehicle sales dropped 1.8% in 2017. Forecasts for 2018 are also not optimistic, with sales projected to continue declining. Similarly, China’s car sales fell the most in last seven years; according to China Association of Automobile Manufacturers (CAAM), vehicle sales slumped by 11.6% to 2.39 million units in September, which is the third straight decline.
At the same time, according to McKinsey Shared mobility has quickly reached a global market value exceeding $60 billion across China, Europe, and the United States. This rapid growth is expected to continue as self-driving taxis, and shuttle-buses become more common, bringing 20% annual growth through 2030.
Shared mobility as a new global wind of change
Self-driving car tech is emanating out of recent developments of machine learning and AI, well supported by the overcoming limitations of semiconductors to handle massive amount of compute, and is resulting in realization of enormous opportunities for AI and blockchain to make a desirable proposition for which the tech companies, traditional automakers and Tier-1’s are running high to take their share in autonomous electric shared mobility.
But before reaching out to the technology, the key business disruptions laid the foundation of viable technology absorption in opening up opportunities for next generation mobility. “Shared mobility” has caused a real global wind of change. In last 5 years, providers of shared mobility like – Uber, DiDi, Lyft, Grab - have caused a massive change in consumer preferences, leading to rapid drop of car ownership. According to American Automobile Association (AAA, 2017), the convenience of owning a car comes at a high cost, considering that the average vehicle in the U.S. is utilized at an astonishingly low rate of 4%. The other 96% of the time, it sits parked; hence it is becoming a strong reason for millenials not to own a car but use ride hailing services, instead.
These trends are challenging automakers` well established and proven business model of selling vehicles in B2C segment and making it gradually shift to B2B selling or looking for other innovative business models. The impact of this change is massive because of the customer, as his requirements is completely changing, and hence the automotive OEMs will have to take major and bold moves to cater to such requirements.
From traditions to innovations - the consumers’ demand dictates
It’s a bigger need today for both tech companies and automakers to understand consumer behaviour at scale, faster than ever before, as shared-mobility isn’t all over bad for the automotive industry, but only if automakers and the other mobility players take steps to position themselves for it. The Shared Mobility has become a pivotal point wherein it is providing substantial business viability for electric and autonomous vehicles at scale.
Combining the business viability success of Shared Mobility with electric and autonomous vehicles has become a highly attractive direction for technology companies and automakers to move forward. According to Mckinsey, roughly 45% of the costs of operating an e-hailing vehicle relate to the driver; taking him or her out the equation offers early adopters a huge competitive advantage.That’s the reason why the technology companies have made significant and successful attempts to position themselves in autonomous e-hailing vehicles, but the traditional automakers are also making attempts and have started placing multi billion dollar bets since last couple of years to reinvent and reserve their leadership for future.
The technology companies, like Tesla, Uber, Waymo etc. are foraying into these key directions and are making rapid successes however the traditional automakers and component suppliers are slow to make significantly higher investments to cope up with the trends as they have the legacy business to run as well.
GM jumps into a new age
A classical example of handling both traditional businesses and betting on new technology is General Motors. In 2016 they announced a billion dollar acquisition of an autonomous driving startup with less than 40 employees called “Cruise”. In 2018 Softbank's Vision Fund would invest $2.25 billion into the GM Cruise, along with another $1.1 billion from GM itself. GM also became the first automaker to mass produce 130 Chevy Bolt which were completely autonomous for testing in San Francisco, Scottsdale, Arizona, and southeast Michigan. As of today GM Cruise with more than 1000 Self Driving Car tech talent is working towards a firm and looking forward the execution strategy for GM in robo-taxi market.
At the same time, GM is shutting down of its existing production plants in the North America and increasing production in Mexico and China plants. This move clearly indicates GM strategy to invest heavily on electric and autonomous cars and minimize expenses in current business to carve out ways to invest in new technologies.
All this massive movement within this sector is emanating from the fact that it took only 8 years for Tesla to topple giants like Mercedes in the US by registering higher sales in the third quarter; that's not all - they are very close to topple BMW as well.
Self-driving as a challenge for the industry
The challenges for traditional automakers is multifolds: on one hand, automakers have to manufacture the cars that they won’t be selling in next decade from now and on the other hand, these automakers like Ford, GM, Fiat Chrysler ect. have to make “huge investments” in technology and manufacturing facilities for electric and autonomous vehicles to be future ready and chase the rapid growth of silicon valley based technology companies.
One of the Morgan Stanley’s report clearly estimates that replacing traditional automobiles with autonomous cars in the United States alone could contribute $507 billion to the economy as a result of increased worker productivity. Moreover, traffic and congestion will largely disappear, adding another estimated $138 billion in annual savings as people are able to get to where they want more efficiently. On top of that self-driving cars could save the economy up to $488 billion in annual savings from reducing traffic accidents.
The impact of these advances in mobility are massive and the challenges to sustain enterprises in this rapidly changing business and technology domain is even more severe. Although the opportunity for disruptors in this space is always there to create the new market niche but for the incumbents like traditional automakers and suppliers there are huge gaps to keep up with the rapid changes in the industry, and this FOMO will give the market and early disruptors a good opportunity to be part of the ride.