The reality of course is that while the direction of travel may well be towards the use of more and more autonomous automotive tech, there are still enormous regulatory and legislative challenges to be ironed out. For example, KPMG’s recent 19th annual Global Automotive Executive Survey reckons that it could be 2040 before there’s a robust driving policy and regulatory regime in place in the US. It also picks out safety concerns about mixing autonomous and non-autonomous traffic on the same roads, concluding that driverless cars will need their own “islands of autonomy” with all the resultant infrastructure challenges and investment that would demand.
Then there’s the question of commercial viability for such tech. If it’s bleeding edge, then it’s bleeding expensive. Hau Thai-Tang, Executive Vice President-Product Development at Ford Motor, makes the point that there’s a need to keep an eye on when a sustainable price point can be reached:
It's sort of like, if you were a surfer…if you paddle too slow, you missed the wave and if you're too far ahead of it, the whitewash will eat you up. So for us, if we're too slow and it becomes a regulatory mandate, like [with] seat belts or ABS brakes, you have no pricing power, very limited pricing power. If you're too early and the technology is still not mature enough and the cost is too high, no one's going to buy it.
So for us it's all about finding that sweet spot of being ahead of the regulatory mandate, but at the scale and price point, where customers will find value in it. Autonomous technology is a fantastic test case of this. There are systems out there that are really good in terms of function. Some of our competitors across the street have fun, but if you look at the price point and the package, it's like $5,000. There are very few Ford customers that would pay $5,000 for a feature…you have to start with the market demand and use that to drive the technological solution. You can't engineer a Rolex watch and then try to figure out how to price it in the marketplace.
That said, Ford, like all major ‘legacy’ automotive firms is putting down some skin in the autonomous tech game with an eye to the long term. Earlier this week it announced a tie-up with Volkswagen to “investigate collaboration” on autonomous vehicles, mobility services and electric vehicles. The emphasis though is placed on setting an agenda for the next era of motoring, but “over time”.
Thai-Tang identifies three key trends that will shape the automative industry over the next decade -electrification, increased connectivity and then more autonomous driving technologies:
There’s no doubt connectivity is here to stay, it’s going to be persistent. We view it as a wonderful opportunity. Historically the business model in our business is we sell you a car, you drive it off the lot and we hope to see you in six years to buy another one. The only time we deal with you in between is when something bad happens, like we have a recall. Now that the vehicles are connected, we have the opportunity to own that relationship throughout the life of the product and for us it’s a profound shift. It’s no longer thinking about a transaction model. It’s now a use model.
And the ability now to provide services through that pipe and then also provide over-the-air updates is game changing for us. So we’re very excited about that. Electrification, it’s not a question of when, it’s just how fast. And certainly we have to do our work to help build the demand and educate the consumers and then drive the cost down. [Autonomous vehicles] is a tremendous opportunity in terms of the profit pools. We just have to solve the little technical challenges.
Over at General Motor, CEO Mary Barra is talking about a trillion dollar market opportunity if approached correctly - and the key word here is safety:
What allows you to participate in that market is to have the technology that can be deployed safely? And that's why we've worked so hard on that. We are the only one approaching this where we have everything under one roof. So that allows us to move quickly. We don't have friction losses. We don't have arguments about which piece of the pie which partner gets. And I think that's really allowing us to get the rate of improvement, the rate of iteration.
She points to GM’s Cruise range of autonomous vehicles as a case in point, the result of a $1 billion acquisition of Cruise Automation in 2016:
They've mastered many of the manoeuvres that others are struggling with. And we think that's because of deep integration and bringing auto expertise along with the software expertise…we have really left that start-up mentality and that start-up structure intact. And they can just reach in and get what they need from General Motors.
It’s also important to think about the context for autonomous tech, explains Barra:
If you step back and say, ‘Once I have that technology, what does that look like?’. You've got to put the customer in the center of it. So think about driving in a dense urban environment. It's expensive to park a vehicle when you get your vehicle that probably isn't always the most convenient [in terms] of where you parked it. Now when you drive from point A to point B ,you’re in congestion. So it's not exactly enjoying the open road and then you get to where you want to go if you can find a place to park that's expensive. Those are all customer pain points that autonomous vehicles, safe autonomous vehicles, can solve, can help with urban congestion overall. And so it's a focus on solving those customer pain points that we think opens up the market.
But as with Thai-Tang’s point, cost ratios are a work-in-progress. Barra says:
We're not only working on the technology, but we're aggressively working on the cost curve because when you can get-the cost-per-mile under a dollar, you really do start to change the whole equation of how customers will choose what they want to do based on an ease of moving from point A to point B.
It is in the end a long road to travel, she concludes:
There are a lot of unknowns of how it will evolve, how adoption will evolve, how customers and cities [adapt] etc So there are a lot of unknowns…What I will say is we're not going to be motivated by a short-term prop. We're going to be looking at and what creates the value from a long-term perspective because we see this very large market. We also see down the road an opportunity for personal autonomous vehicles as well as kind of a second chapter.
So when you look at all that opportunity we want to be very careful that we don't do something that maybe is good for the short-term, but doesn't create the right long-term value potential…we’ve got this frictionless environment that people are developing. Our teams are developing the technology, but once we get to that point we're going to assess what's happening across several dimensions and then make the right decision from a long -term perspective. We will unlock that value, but we want to unlock significant value not just a short-term type of response.
It’ll be a good while yet before I get into a driverless car, but it’s encouraging to see some pragmatic long term planning on show from leading automotive players.