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Automobile – quo vadis? The Auto MegaTrends

Guest Post: Today’s blog is from Dr. Sven Beiker, founder and managing director at Silicon Valley Mobility, LLC. He was a featured speaker at our Automotive Mastermind event held earlier this month in Silicon Valley. Silicon Valley Mobility is a mobility consulting and advisory firm in Palo Alto, CA. looking at the trends of automation, communication, electrification, and commoditization.

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“Automobile – quo vadis?” or “where are you going?”

That’s easy to answer right? The car is becoming 'autonomous, connected, electric, shared' and the automotive industry is now becoming the mobility industry and everything will be fine. Easy enough? Well not really – let’s take a closer look.

We will start with the motivation for those new trends. There are quite a few challenges with the automobile today. Much of which results from the fact that cars are too easy and convenient to use, so that there are too many in the same place at the same time. This causes congestion, accidents, consumption, and emissions. Or in other words – and maybe we are getting a bit drastic here, the automobile hurts, stinks and gets stuck.

To get started, we need to make automobile usage more efficient and automated so that utilization is improved.

This is where 4 trends come into play which we shorten to: ACES

What Lies on the Road Ahead?

Now, at this point I can imagine you might be thinking one of two thoughts:

1. Ok, what’s new? Everyone knows that! 2. Great, so we are all set. Problem solved!

However I would like to offer a third thought, which is:

3. Really, is it all that easy?

The answer to 3. is: No! Actually we need to take a much closer look to figure out what is realistic and what is at this point just a great vision; And while doing that, we will uncover appropriate deployment timelines and actually figure that those 4 ‘ACES’ are actually connected and building on one another.

AUTONOMOUS – cars will be self-driving, but it will be an evolution delivered in different steps. The different generations of technology will first allow drivers to take their hands off the wheel, then the eyes off the road, and eventually completely check out from the driving experience.

This evolution is starting now with the Tesla Autopilot, but the ultimate scenario, i.e. the human is just a passenger from start to finish and will not engage in the driving process at all, might still be over 20 years out for large-scale deployment.

Not so clear however are the prerequisites to make this a reality. In my mind, infrastructure will be key, which comes in three forms:

(1) built infrastructure, i.e. autonomous vehicles might require dedicated lanes or driving areas;

(2) communication infrastructure, i.e. autonomous vehicles will need to exchange position / heading etc. among one another to avoid collisions (see also following paragraph);

(3) legal infrastructure, i.e. autonomous vehicles need to be embedded in the general policy framework for liability and tort aspects, but also regulated on a local level where they may be operated. This basically tells us that the existing system, i.e. traffic as we know it, is the biggest challenge in deploying autonomous vehicles, as much of this infrastructure doesn’t exist yet and the mixed traffic might not fulfill safety, efficiency, and convenience expectations.

CONNECTED – cars will talk to one another and be centrally controlled, which is very similar to the concepts of air, water, and rail traffic. There we see that every other form of transportation is using communication technology to exchange position, heading, etc. of vehicles to assign right of way and collision avoidance procedures.

Is it any wonder then, that the only non-connected traffic model (i.e. road traffic) is the most dangerous by number of accidents and casualties? The challenge now with connecting road vehicles is that it is a mix of basically unknown, decentralized, and often outdated cars, buses and trucks that cannot become connected overnight. In the U.S., the Department of Transportation has worked on such vehicle-to-vehicle communication concepts for about 20 years with only limited success. As a first step a basic concept will be implemented into new vehicles as of 2019.

One needs to keep in mind that the vehicle fleet on public roads turns over only every 20 years, which means we won’t see significant benefit from vehicle-to-vehicle communication until well into the 2020s.

ELECTRIC –Electric cars might be the future, but the delivery and adoption has still been slow. While Tesla for instance has been creating some very desirable products and launching them in a similar way as smartphones, at the same time millions of conventional gasoline cars are sold and are outpacing electric challengers from all brands, at a ratio of about 100:1.

If we open the aperture a bit more and include hybrids, plug-in hybrids, and fuel-cell vehicles in electric (which we should for completeness reasons), then we might just reach a 20:1 ratio but we do see that electrification is a continuum with hydrogen as it ultimate solution.

The challenge with sales is that electric vehicles are still somewhat unpredictable for consumers (range, resell value) and quite frankly the ‘old’ system is still very affordable. And even if the cost equation changes, consumers might still value convenience, style, or independence so much more that they still don’t switch to electric. Therefore, regulation in form of incentives and mandates are very important to lure consumers into electrified vehicles as ‘doing something good’ (i.e. better overall energy efficiency) might not be effective with the whole population.

Some experts say we are getting close to cost parity for electrics and that the growth in brands and vehicle styles may mean that an inflection point is near. Therefore several trusted forecasters see a 10:1 ratio as realistic for the early 2020s.

SHAREDThe average car is only used about 6% of the time and parked for over 90%. It is a bad investment when one looks at the numbers. Therefore we are observing a lot of business model innovation, i.e. car- and ride-sharing services that offer mobility when you need it. The primary difference between car- and ride-sharing (think Zipcar vs. Uber) is obviously whether or not the shared vehicle comes with a driver.

Ultimately one would think that the car without a driver (car-sharing, think Zipcar) is cheaper than the car with a driver (ride-sharing, think Uber), but that is not entirely true as ride-sharing only bills the user for the actual ‘use miles’ while car-sharing puts the ‘use time’ down. While it sounds like almost the same thing, one needs to appreciate that ‘use time’ for many car-sharing models also includes parking at the destination as the vehicle needs to be returned to the pickup location (round-trip model).

While there is quite some push toward one-way models, the equation for the operator’s profitability does not improve with that (cars need to be redistributed constantly to meet demand) so that there is not a clear tend at the moment. However, an interesting trend is that the traditional car manufacturers are innovating quite intensively with those new business models as they don’t want to be caught flat-footed once consumer start to move away from ownership at large. This might take some time as well, but with the arrival of the driverless car, car-and ride-sharing converge and ownership ultimately becomes a much less preferred mobility model for consumers. Here again, a trend will evolve over the next decades.

The outlook – everything connected, much unknown, all exciting

As we saw from the four trends 'ACES' are shaping the automotive industry deck. They are all interdependent and probably all need to be played at some point. We do see the established car companies being involved in all of them, aiming for more certainty and consequently evolving their products and organizations.

In the end it will be partnerships that drive the broad evolution from the automotive toward the mobility industry and those partnerships will be forged between new and old players, small and big firms, but also among competitors as we see that infrastructure will be key, which is a shared resource by definition. With all this uncertainty, one thing is for sure: the future won’t be anything like grandpa’s automobile and getting around will be very exciting indeed!

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