There are so many news, articles and events happening in the automotive world that it’s easy to ignore and become immune to them. That’s okay, since not much has been happening. If you follow automakers ads it’s the similar messaging from past many decades – better fuel efficiency, some extra leg room,jazzy infotainment, extended warranty support and many such likes. Its only in past few years that some interesting reports have started to trickle which can completely disrupt industry from how we know it. Let me quote a couple of examples to build thehypothesis.
First at Tesla where Elon Musk unveiled Roadster 2.0 prototype in Nov’17. It boasted features like 0-100Kmph in 1.9 seconds, 400+Kmph top speed and a 1000+ Kms range. Twitter was soon abuzz with cynics calling it a pipe dream,and probably rightly so, considering current limitations of Electric vehicles (EV). Clearly, most of Auto OEMs don’t agree with these skeptics and recently conducted Geneva Motorshow (March 2018) is a proof, where loftiest future concept vehicles revolved around EVs.
Second, apress release by GM that it will launch its first driverless car in 2019. And behold, after building cars centered at human driving experience for more than a century, this GM model will give away steering wheel and gas pedals, key component of driver’s user experience. GM is among the dozens of incumbents and start-ups working rigorously to launch autonomous vehicles (AV) by 2020.
Now if we combine these emerging mega trends, embed it with the alreadyfast adoption of ride-sharing application like Uber in urban youth,and fast forward to a not so distant future – a very exciting movement seems to be emerging – Absolute autonomy, a fleet of autonomous electric vehicles serving consumers on demand. Before digging into the impact of this shiftlet’s explore these incipient technologies in some detail.
Building blocks of absolute autonomy
The rise of Electrical Vehicles
In its August 2017 edition, the Economist wrote an obituary to Internal combustion engine (ICE) based vehicles quoting ‘It had a good run. But the end is in sight for the machine that changed the world’. A tall claim, which seems unfair to the field of technology thatstill commands more than 99% of automotive sales in the US. In 2016, EVs sold only 0.75 Million unit worldwide which is less than 1% of global automotive sales.In fact, its sales were more than 1% of total sales in only six countries, with China leading the pack.Then why has the Economist made such a radical assertion?
Electric carshad around 28% of market share in the early 1900s when the auto industry was set to take off. However, EVs lost to ICE because it performed poorly on keyparameters: cost and performance. Over past 100 years, these factors have been the nemesis of EVs as at every stage EV had beendearer to build and had a much shorter range than ICE. Things started to shift in EVs favor from the early1990swhen Lithium ion was found to be an efficient replacement of lead acid or alkaline based batteries.
Cost ofLithium-ion battery has been significantlyreducing,a battery which used to cost $1000 Per KWh in 2010, now costs around $130-150 per KWh and poised to reduce to $73 by 2030 as per Bloomberg estimates. With falling battery prices (which is the costliestpart of an EV) manyexpertsconceive that EV prices will be competitive to ICEs by as early as 2025 without considering government subsidies.
Another important aspect of EV is its radical simplicity. In contrast to the ICE with thousands of complex moving parts in a vehicle, EV typically has less than 100 moving parts. This impliesimproveduseful life, increased reliability and fewer requirements of aftersales services.
On top of these, there are many countries where the governmentis setting up regulations in favor ofzero-emission vehicles. Further, there is a niche customer segment that genuinely believes in the clean energy and sees EV as a most viable option.
Clearly, EVs renaissance is happening. Bloomberg April 2017 article says that even oil companies agree that EV boom is real and by 2020 there will be over 120 different models of full EV across the spectrum. Bloomberg has forecastedthe year 2038 when EVs sales will outnumber that of ICEs and EV fleet will be around 33% of the overallglobal fleet of the automobile.
Whatever moves can be automated: Automated vehicles (AV)
Technology has made a hugeleapfrogfrom the first self-driving competition arranged by DRAPA in 2004 when none of the competing cars could complete the course to today when we have many successful trials of self-driving cars by incumbents, technology companies,andstart-ups.
In fact, we have dozens of cars with partialautonomous capability already running on streets. The listincludes likes of Mercedes Benz E and S class with drive pilot, Honda civic with sensing suite, BMW 740i with driver assistance, Tesla Model S, X and 3 with autopilot and Nisan leaf with propilot to name a few.
Combination of many technologies such as heavy electronics and sensors in cars, ubiquitous connectivity, advancement in computer vision and Machine Learning, simulation of driving patterns to train algorithms etc. has fuelled the recent advancement in autonomous vehicleperformance.
A key enabler for AV technologies is the moving part LIDAR, which is basically multiple lasers (generally 32 or 64) mounted on rotating gimbal that spun around 360 degrees and has been proved to be most accurate in identifying objects, distances& velocity. Another alternate technology is to use multiple high-resolutioncameras;however,it’s typically difficult to measure velocity with images. Cameras are typically supplemented with radar to measure distance and velocity.
Next few years will be quite interesting to watch out in this space. As per CB insight report, Autonomous vehicle ecosystem claimed 76% of total auto tech start-up funding (~$4Bn) in 2017. For faster adoption,many state’s leaders are encouraging to run trials for self-driving cars in the city limits.
Who wants to own a vehicle: Shared mobility
On an average, a personal vehicle owner utilizes vehicle for less than an hour in a day.Still car ownership is so rampant sincepossessing a car is much more reliable, convenient and less costly than looking for cab service.In recent time with the advent of aggregators like Uber, Lyft, Ola etc. taxi services have got huge facelift since it addressessome of the core challenges of traditional cab services.
Rethinkx in its report titled “Rethinking Transportation 2020 – 2030” clearly pitches for future enabled by transportation as a shared mobility service.Story suggests that cost for shared mobility which is almost double today to owned vehicle(cost per mile for shared vehicle is roughly $1.5 compared to $0.75 of owned vehicle) will be lesser by 2030 (when a shared vehicle may cost $0.5 per mile compared to $0.75 per mile of owned vehicle).
The key factor in the rise of shared mobility is the inclination of millennial. According to Motor insurance survey done by BCG and Morgan Stanely, people aged 18-24 chose to opt for a cab aggregator 13% daily and upto 50% at least once in a month.In fact, as per University of Michigan Transportation research, this trend is not limited to onlymillennial.The rate at which people are opting for driving license is on the constant decline across the age group.
Electric car and Autonomous vehicle: A perfect mix for shared mobility
The concoction of these emerging megatrends has a potential to completely disrupt and redefine entire automotive value chain. Though there is a big question when that cusp of inflection point would come, that’s not what I want to focus. I want to explore if that future does come what it holds for entire value chain and all other related disruptions that it can bring along. Let’s dig into some of the most likely impacts.
Disruption in operating model
When we plan to book an airline ticket do we bother if the craft is made by Boeing or Airbus? For most of us, barring few avionics enthusiasts, it doesn’t matter. We care more about the carrier’s reliability, cost, convenience and overall service. In contrast, for vehicle usage, we make very personal choices of which model and make suits our need. It may change with the advent of EVs, driverless car technologies and increased adoption of shared mobility.
In this new world, companies like Uber / Lyft may take a lead, or OEMs themselves can own fleet business in association with dealers/rental companies. A combination of any of these will dominate the market. Nature ofcar sales will shift towards B2B, where purchase criteria of fleet owners will be completely different than end customer. Used car sales will see a sharp decline considering no one will buy a car for personal usage.
Change in the product itself
When Daimlerintroduced its firstHorseless carriage, it was nothing but a horse-drawn carriage purchased from another manufacturerwith the added engine. Soon auto maker realized that vehicle needs to be redesigned to allow control to a human driver.
Once the transition to full autonomy is over, we may see radical changes in auto design yet again. Steering wheels, clutches, breaks may go, the windshield may be used for some other purposes, and special purpose vehicles can be designed.
Ideo which is a leading design firm (famous for their design thinking approach) has designed many interesting car designs on their “automobility” webpage. They have also designed special purpose vehicles of future like a supermarket on the wheel, meeting room on wheel etc. Ford has patenteda touchscreen windshield entertainment system and a retractable conference table with air bag.
Future vehicles may look completely different than how they appear today just like the today’s cars are completely different than the horse carriage.
Impact on tier 1 supplier, spare parts business,and Dealers
According to UBS report, LG a new entrant in automotive sector provides 56% components of Chevy bolt, first mass-market EV with a range over 200 miles. LG provides entire electric powertrain and infotainment module. Same UBS report suggests that currently, highly profitable auto spare parts market may shrink by 60% in a decade once EV overtakes ICE vehicles. Electronic system would constitute over 50% of BOM of vehicle’s cost of production.
With significantly less moving parts EVs require very less aftersales service. Additionally, many electronic parts can be repaired/upgraded remotely over the air. Tech companies willhave a prominent role in spare parts business in the EV / AV world because of increase in electronic and software content.
Dealership model would get impactedhardas wellsince car ownership would be a thing of past – new sales, used car sales and car services won’t be a consumer business. Dealers may need to change their business focus to stay relevant. They may begin to serve the fleets, provide space and services to the autonomous cars, provide battery charger network etc.
Impact on auto insurance and leasing companies
Globally over 1 million people die in road accidents and the primary cause is a human error while driving. According to USDepartment of transportation 2010 report, total economic cost of car accident including property damage, medical, police, insurance etc in 2010 was around $242Bn which was about 1.6% of US GDP. No doubt, auto insurance premium has been steadily increasing over time.
However, this may change in the absolute autonomy future. It has been established that AVs will be a lotsafer and predictable because of fast on-going learning,quicker adoption,anddissemination of learning across the entire fleet. BCG / Morgan Stanely report says that fully autonomous car will reduce collision by 95%. This would have an adverseimpact on auto insurance premium.
Also, ownership of insurancepremium will shift from consumer to fleet companies. Insurance companies have started to foresee this future, the annual report of Allstate quotes that driverless car can have a disruptive impact on their business.
Leasing companies willcease to function or should change business model since most of the sales will be done by the fleet. There will be significantly less used car sales since no one will own the vehicle. Car rentals will also have a similar fate in this time to come.
City planners will have a tough time to redesign the infrastructure to support smooth transitioning of owned vehicles to autonomously driven Electric vehicle’s fleet. We may see many innovations to reuse existing infrastructure with things like dedicated lanes for AV or dynamic shifting of lanes. There will be a lot of space freed up since parking lot will not be needed and auto service centers will be less required. Traffic lights and regulation will not be necessary once we have complete autonomy and V2X (Vehicle to everything connectivity) technology in place.
Charging network would need to be built just like we have gas station ubiquity currently. Tesla has beenbuildingits charging network across the US and likewise in Europe Ford, BMW, Daimler,and VW have united to launch a charging network program called IONITY.
Once complete autonomy gets in we may even see a prohibition on human-driven cars considering safety concerns. Car ownership won’t begone, it will be more like a fun thing than utility. Humans may be allowed to drive cars for the recreational purpose at the only designated area.
Energy-hungry combination of EV and AV
Complete electrification of the vehicle will need an enormous and sustainable energy source. Heavy power consumption by AV cars adds to the woe and can have a bad impact on a range of the electric car. Electricity intake of AV increases mostly because of the computer, added weight, and power needed for many sensors like LIDAR, camera etc.
Currently,transportation takes around 1/3rd of energy consumption of US and is primarily sourced from gasoline. Now with the rise of the autonomous Electric fleet, this consumption will go away and can, in fact, be routed to create an energy source for the battery charging. Advancement in sustainable energy sources like solar and wind will also boost the energy requirements needed for EVs.
Impact on other industries
Overall the impact will be profound and not limited to automotive andtransportation-related industries. For eg, the Low demand of gasoline will have a severe impact on Oil & Gas industry and may trigger a devaluation of dollars causingan economic impact on multiple industries. Convenient stores and shopping malls may start to disappear with car ownership gone and everything delivered at door. Real estate may get impacted, as property prices can go down since people could afford to live far away from work considering they don’t need to drive to work. On the other hand, consumers can potentially save equivalent to upto 10% of wage increment giving them more option of spending.Possibilities are boundless.
This future remains precarious with immense technological issues confronting
Cheap battery with higher range essential for mass market EV adoption
Cost of Lithium-ion battery has been reducing over the past decade, but it is still significantly dearer which results in high cost of ownership of EVs. Cobalt, which is used as Cathode, is the scarce element in Lithium-ion battery and results in sustained high price. Cobalt is highly concentrated in Congo where the unstable political situation and use of child laborimpinge its production.
John GoodendoughProfessor at UT Austin, who is behind Lithium-ion battery invention, seems to be working on a substitute for Cobalt by using glass electrolyte made of sodium. Another promising invention is by a team from Bristol University and Surrey University by using supercapacitor for EVs which has extremely-fast charging capabilities.
These are still early days for breakthrough considering technical challenges. Many start-ups and major players are working on making next big discovery on electric storage.Further to make mass scale battery production, facilities like Tesla’s Gigafactoryare taking lead.
Innovations to make AVs cheap, reliable, secure and scalable
LIDAR is the central component of AV which at the current price of around $60-70 k is quite expensive and impractical. There are a lot of research happening to convert this moving part to solid state and within 2-3 years its price may fall dramatically to under $250. Another alternative and cheaper technology is the use of multiple high definition cameras with Radar and currently, Tesla is pioneering it.
There are various other technology advancements happening in AV space including standard platforms for AVs, ensuring V2X interface compatibility, the requirement for HD maps to assist computers in driving, simulation of driving to train computers with millions of miles driving in the virtual world, training to adopt localization of driving pattern in different countries.
To address high power consumption by AVs, chip makersare working towards special chips for AV electronics which will consume lesser electricity.Data ownership and security remains another area of major concern.
When will this happen
Smartphones meteoric rise hasshown that in this technology-driven world if a radical innovation suits the economics of masses,it’s adopted in market instantly.
Obviously sheer fun, pride and experience of driving and owning a vehicle will not vanish,however, as a society we may see one of the biggest transformations in the transportation system. Auto industry veteran Bob Lutz sums up the feeling in the industry circle by quotingwithin 20 years human-driven vehicles will be legislated off highways. Certainly,next decade will see lots of exciting things materializing in this space.
Sanjeev Kumar Jha
Principal Consultant, Infosys Manufacturing Domain Consulting Group
Sanjeev Kumar Jha has 12.5 years of experience working with global Automotive OEMs on areas related to Digital transformation, Strategy development, Telematics and AI enablement. He holds PGDM from IIM Indore in Strategy & Operations and B Tech from IIT BHU in Chemical Engineering
(Rethinkx Rethinking Transportation 2020-2030 : https://static1.squarespace.com/static/585c3439be65942f022bbf9b/t/591a2e4be6f2e1c13df930c5/1494888038959/RethinkX+Report_051517.pdf, n.d.)
(Morgan Stanely and BCG Motor customer insurance survey 2016 : http://ficci.in/spdocument/20883/BCG-FICCI%20Insurance%20Report%20-%20Final%20-%20for%20Distribution.pdf, n.d.)
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