GM CEO Mary Barra underscored this earlier this year when she said during a keynote presentation at the 2016 Consumer Electronics Show (CES): “The auto industry will change more in the next 5 to 10 years than it has in the last 50.” This succinctly summarizes the impact technology is having on this sector, from the Internet of Things (IoT) which connects our homes, cars and bodies to the Internet, to cloud computing and more.
The 130-year-old auto industry, engineered for success based on “millions of units sold,” is facing unprecedented technological disruption from shared, autonomous and electric mobility, and has begun to rethink and remodel its business strategies.
Shared and autonomous transport addresses significant inefficiencies in the current industry model. Cars are among the most expensive things most people own, yet they sit idle, on average, 96% of the time. Cars consume finite resources (cars consume 500 billion gallons of fuel a year, accounting for 45% of global oil demand); and public safety (roughly 3,500 traffic fatalities per day globally). It could also unlock more than 600 billion hours per year of driver and passenger time currently spent in vehicles.
Incumbent manufacturers are recognising the double threat posed by technology, as car-sharing takes off and driverless vehicles come closer. First, some people who might hitherto have wanted to own a car may no longer do so, cancelling out the growth the motor industry might otherwise have expected from the rising middle classes in developing countries. Second, technology firms may be better placed than carmakers to develop and profit from the software that will underpin both automated driving and vehicle-sharing. Some of these firms may even manufacture cars of their own.
Morgan Stanley, an investment bank, said the motor industry was being disrupted “far sooner, faster and more powerfully than one might expect.” It predicted that conventional carmakers would scramble in the coming years to reinvent themselves.
The switch from horse-drawn carriages to motor cars provides an instructive analogy. Cars were originally known as “horseless carriages”—defined, like driverless cars today, by the removal of a characteristic. But having done away with horses, cars proved to be entirely different beasts, facilitating suburbanisation and becoming symbols of self-definition. Driverless vehicles, too, will have unexpected impacts. They will look different. Early cars resembled the carriages from which they were derived, and car design took some years to escape its horse-drawn past. By the same token, autonomous vehicles need look nothing like existing cars. Already, Google’s futuristic pods are on the public roads of California, and some concept designs, liberated from the need to have steering wheels and pedals, have seats facing each other around a table.
Transition from horse-drawn carriages to cars came quickly. Here is photo of New York City 5th Avenue in 1900 showing street full of horse-drawn carriages:
Same street 13 years later, complete transition to cars:
Yet any transition will not come easily as some of the largest, many powerful companies in the world would be disrupted:
Automotive:
Oil & Gas:
Car makers know disruption is coming, they are even trying to make light of the situation:
Carmakers also have lots to learn. Most are working on making their vehicles either fully or partly self-piloting, and a number are running their own car-sharing experiments.
Yet if the tech firms have much to gain as they muscle in to the motor business, the carmakers are wary of what they have to lose. Profits may seep away towards the producers of the software and the owners of the data, and away from the makers of the hardware. Hitherto, new cars—even quite modest ones—have tended to be bought as status symbols and expressions of personal style, but if consumers become more interested in what software and entertainment systems a car can run, rather than what it looks like, the industry’s whole business model may come apart.
Ride-sharing, car clubs and other alternatives to ownership are already growing fast. Young city-dwellers are turning their backs on owning a costly asset that sits largely unused and loses value the moment it is first driven. But the pronouncements of motor-industry bosses suggest that doubts are creeping in. At CES Mark Fields, Ford’s CEO, said that it would in future be “both a product and mobility company”.
Big changes are coming for the automobile industry, and everyone in the industry knows it. Here is a sequence of deals linking car and tech companies together over the past year:
http://www.bloomberg.com/graphics/2016-merging-tech-and-cars/
The proliferation of deals represents a growing realization among car companies that they are going to need help navigating the major changes of the next decade.
In the early days of automobiles, carmakers had to wage a fierce PR battle to win. Vox's Phil Edwards learned about the early battles between the car and horse:
Traditional car makers are reluctant to move to self driving cars as it completely changes their existing business model and any significant change carries risk. The initial investment into self-driving cars will cost the automotive industry, undoubtedly cutting into their profits. The biggest conflict is competing with their existing products. If they made a more compelling electric car it would likely harm their existing sales in that class, more than it helps. Car companies will try to protect traditional high profit margin business, fear of cannibalising their legacy high profit margin business. Many investors are not happy to see profit margins decline as company plays catch up to change their business, such investors refuse changes required to progress the company. Shareholder are driven by quarterly earnings.
Self-driving cars also have the potential to reduce the number of cars needed per household, as well as the number of vehicles within other transportation businesses. This will likely hurt the bottom line as well for many automotive manufacturers. But with fewer accidents, cars may ultimately be less expensive to make long range, as features and other components will not need to be as robust. Digital transportation such as ride-sharing have already moved car makers to invest in technology, opening up new opportunities that may have real benefit.
Automakers, technology companies, and ambitious startups all agree that this transformation isn’t just headlines and hype, but inevitable. Every industry insider deliberately pointed out that, no, really—this is happening. Even regulators are onboard. “We’ve got a clock ticking,” U.S. Transportation Secretary Anthony Foxx told Reuters in April. “This technology is coming. Ready or not, it’s coming.”
The specter of Google, Apple, Uber, Tesla, Lyft and string of AV startups cornering the future market of how people get around has created two kinds of paranoia among car makers: a fear of taking on too much risk and a fear of not taking on enough.
And Wall Street shows scant respect for automakers and their global manufacturing prowess: The market value of Google, which is building a driverless car, is more than double that of BMW, Daimler and Volkswagen combined.
The trouble is, history is against them. None of the traditional office equipment manufacturers made the transition to computing. None of the music labels captured the market for online streaming, and none of the newspaper companies made a great success of the Internet. None of the traditional cell phone makers made the transition to smart phones.
A self-driving car is not really an adaptation of the old-style human-driven one. It will, in reality, be a completely whole new class of product, just as the PC was completely different from a typewriter, a TV channel was completely different from a chain of film theatres — and so on. And while it is not impossible for companies to completely re-invent themselves — IBM has done it several times — it doesn’t happen very often.
A self driving car includes the following components:
Input:
Camera(s)
Lidar
Radar
Ultrasonic
GPS location
Mapping data from the cloud
Touchscreen
Voice Input
Self driving Computer based on machine learning AI
Output:
Electric steering
Acceleration
Braking
Audio
Touchscreen
Mapping data to the cloud
Software is at the heart of self driving cars using sophisticated Artificial Intelligence Machine learning which gets computers to act without being explicitly programmed. AI systems, which continuously learn from experience by their ability to discern and recognize their surroundings, have the potential to be highly beneficial when integrated into an autonomous vehicle's software architecture.This is very different to traditional software based on algorithms (with components such as if-then statements and loops). The software takes inputs from the cars many sensors and controls the car using electric steering, braking and acceleration. Some observers believe that this can be purchased from traditional OEM vehicle suppliers and bolted to existing cars, yet the change is far more complex due to the heavy integration of component. Furthermore there is no industry standard for sensors or integration to the cars electronics to control the vehicle.
Building a car that can handle any situation requires a lot of teaching. Google is the acknowledged leader here: Its fleet of 60 self-driving cars has covered more than two million miles, mostly around a few cities. But Tesla claims a significant advantage: Its cars have covered over 222 million miles in Autopilot mode, all over the world, collecting data the whole time. This data is used to map roads and provides far greater details than traditional mapping data and GPS, this is required details for cars to navigate.
The auto sector is so huge that a transformation of the industry will, at least in part, shape the economic future of whole countries. Take Germany for example, right now the star performer within the eurozone, and the nation most heavily dependent on its auto sector. Manufacturing cars is its single largest industrial sector, accounting for 2.7% of gross domestic product by itself. Cars and parts account for 20% of German exports. The industry employs 775,000 people. That is the most extreme example, but France, Italy and Spain are all major car manufacturers as well — the French industry might be declining as costs rise, but it still makes 2.5 million vehicles a year.
The future of Germany as an industrial nation depends on how companies succeed in bringing the car manufacturing and digital worlds together.
The future of Germany as an industrial nation depends on how companies succeed in bringing the car manufacturing and digital worlds together.
To be competitive car makers must lead with software of self driving cars, yet europe doesn’t have anything like the strength in technology that the U.S. does — and if it were to create a substantial competitor it would be more likely to come from Britain or Scandinavia than from Germany.
Car makers like BMW recognise the changes require heavy internal investment in software. "For me it is a core competence to have the most intelligent car," Klaus Froehlich, BMW's head of development told Reuters in an interview at the Geneva auto show. "Our task is to preserve our business model without surrendering it to an internet player. Otherwise we will end up as the Foxconn for a company like Apple, delivering only the metal bodies for them," Froehlich said. "We have some catching up to do in the area of machine learning and artificial intelligence,” Froehlich said. Today, software engineers make up just 20 percent of the 30,000 employees, contractors and supplier staff that work on research and development for BMW. "If I need to get to a ratio of 50:50 within five years, I need to get manpower equivalent to another 15,000 to 20,000 people from partnerships with suppliers and elsewhere," Froehlich said, adding that German schools are not producing enough tech engineers for BMW to hire them all in house.
Mercedes, BMW, GM, Ford & Co. are in grave danger of becoming contract manufacturers for the digital behemoths.
Just as a comparison: five of the six largest US companies are digital companies, all located on the US West coast. Amazon, Microsoft, Apple, Facebook and Alphabet/Google. The combined market value at the end of April is 2.7 trillion dollars. The DAX 30 companies in Germany are worth all together 1,1 trillion dollars, with SAP as the largest digital company being worth $100bn. GM and Ford were worth less than $100bn, the German car makers approx. €180bn. One more fact: Apple and Microsoft are a bit over 40 years old, Amazon, Facebook and Alphabet/Google less than 25 years.
Car-lovers will doubtless mourn the passing of machines that, in the 20th century, became icons of personal freedom. But this freedom is illusory. The empty roads seen in car advertisements are not most people’s experience of driving. In a driverless future, people will come to wonder why they tolerated such a high rate of road deaths, and why they spent so much money on machines that mostly sat unused. A world of self-driving vehicles may sound odd, but coming generations will consider the era of car ownership to have been much stranger.
This is a turning point in car history. The car is undergoing a transformation, moving from a means of conveyance to becoming a data center on wheels. Some car makers will adjust, some will not survive the massive transition, yet all of them will face the the trap known as the Innovator's Dilemma.
Which car companies will survive?
Slides from Morgan Stanley analyst, Adam Jonas, presentation - a fascinating look into "Shared Autonomy"
19 companies racing to put self-driving cars on the road by 2021
- Tesla - 2018
- Uber
- Google - 2020
- Toyota - 2020
- BMW - Project i20 - autonomous capabilities in late 2021. By 2025 i20 will be fully autonomous. Announced alliance with Intel, Mobileye
- Volvo - deathproof by 2020
- Nissan - 2020
- Ford - 2021
- GM (with Cruise Automation)
- Daimler - truck by 2020, EQ car 2025
- Audi
- Baidu - 2018
- Honda - 2020
- Hyundai - driverless features by 2020
- Bosch - releasing fully driverless software within the next 10 years
- PSA Groupe - 2020
- Faraday Future
- LeEco
- Apple - autonomous software
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