Gazing at the crystal ball of connected cars – Part I

2016 was a vibrant, productive and profitable year for companies having anything to do with autonomy and connected vehicles. This report examines the current state of the industry and what we can expect 2007, with an emphasis on four areas:

·       The evolution of the autonomy concept

·       The changing view and business models for mobility

·       Legislation and regulation of mobility and autonomy

·       Whether DSRC or 5G will become the standard for connectivity

1. A new view of autonomy

Back in 2014, 2020 – the target date for the production of autonomous vehicles by many carmakers – seemed comfortably in the future. Now, it seems uncomfortably close. Is this really doable?

Many manufacturers are sticking to that 2020 date for the production of autonomous vehicles; some now say it is 2021; and Tesla would insist that it’s already accomplished.

It’s clear now that autonomy in 2020 does not mean self-driving cars sharing the highways. At the same time, a different path to autonomy has appeared: ADAS will become smarter and smarter but drivers will still need to keep their hands on the wheel, while true Level 4 autonomous vehicles will drive themselves without human intervention in limited scenarios.

“For Level 4 or Level 5 autonomy, you’re talking public transportation,” says Strategy Analytics’ Roger Lanctot. “We will see more enhanced cruise control, AEB and traffic assist – those functions where your car does for you what it should.”

A public transportation role

Ford, like others, has pushed back the happy day to 2021, when it aims to produce a Level 4, high-capacity vehicle to be used in a ride-hailing or ride-sharing service. The vehicles, sans steering wheels, accelerator and brake pedals, would operate in geo-fenced areas.

In fact, this seems to be the shape of autonomy to come for the next decade or two: bus- or taxi-like services operating along pre-determined routes in limited areas that are probably not open to private vehicles.

Navigant Research projects that there will be 4.5M Level 4 vehicles in production by 2025 and Abuelsamid expects some initial deployments of Level 4 in 2020 or 2021. “I think the numbers of vehicles we’ll see in that time frame will be in the low thousands, at most, globally,” he says. Over time, as people become more comfortable with autonomy and the vehicles have proven they can interact safely with human-driven vehicles, he believes the zones where they’re allowed will expand.

Nissan is promoting the no hands culture, although not, it says, for current models. In July, it announced that it would begin selling its Serena model with ProPILOT autonomous driving technology in Japan. The system is designed for highway use in single-lane traffic and its promotional video promises multi-lane highway driving in 2018 and autonomous city driving in 2020. That video also shows the driver doing hands- and eyes-off-the-wheel activities including talking with friends and reading a map.

Volvo is sticking with its intent to have a commercial autonomous vehicle on the commercial market by 2020, according to Marcus Rothoff, autonomous driving specialist. It plans two on-road tests, in the UK and Gothenberg, in the coming year. Regulators in Britain have not yet made a decision whether cars in the tests, driven by consumers, will need to be identified.

“We are aiming at not striping the cars which will be used by customers within the Drive Me trial,” Rothoff says. “The reason is that we are not seeking to get reactions from other road users on our cars, such people challenging them by doing really harsh braking in front of them.”

The tests will also look at the handoff between driver and car. “For us, it is of outmost importance that the role of the driver is crystal clear when he or she is in control of the car and when he or she has the freedom to do something else,” Rothoff says.

Toyota has officially said that human beings will be driving cars and in charge of the driving for the foreseeable future. Even if a vehicle is equipped with autonomous features, a human driver will have to decide whether they’ll operate.

Roger Melen, senior advisor, Toyota InfoTechnology Center USA, says: “I think there’s no doubt that autonomous cars will have more limitations and be less flexible. There will be more situations where people would not want them to operate.” Those situations include bad weather or roads without clear markings. And Melen points out that it’s not always possible to know when a trip begins whether car and driver will encounter such circumstances.

He also sees limits on what autonomous vehicles will be allowed to do. “The ones with no brakes or steering wheel will likely be going slower than human drivers for a long time,” he says.

Build or buy

While Google gets all the headlines for its adorable driverless pod cars, 2016 was the year that carmakers showed their stuff. “Automakers have been a lot busier working on higher-order ADAS and autonomous technology over the last five years than they were letting on,” says Scott Frank, vice-president of marketing for Airbiquity. “We’re seeing companies like Volvo debuting pretty aggressive autonomous driving programmes. The established OEMs have the manufacturing capacity, and they’re all on it now – and very competitive [with upstarts like Tesla].”

At the same time, Google and Apple drastically cut their vehicle development programmes – and lost top automotive talent. Like many, Frank thought Apple would move into car production: “Because they’re all about the device. It made perfect sense that they would look at car as giant i-product.”

Google is, of course, much further along in its autonomous tech, although its path diverges from the carmakers. It certainly has the resources and cash to bring an alt car into production – plus the economic clout and social capital to get such cars into mobility programmes.

Frank thinks that Google’s primary play is still licensing the technology and bringing autos into the Android/data ecosystem. The question, he says is, how would a Google autonomous driving platform be integrated into an automaker’s production vehicle?

He says: “OEMs didn’t have issues bringing in the Google infotainment system but that came in at a very low price point and very low weight on the OEM side. I don’t think Google will give away the intellectual property behind autonomous driving. That will be a very interesting procurement discussion.”

Consumer confusion

Lanctot believes consumers are getting the wrong idea about terms like ‘autopilot’ and their expectations are being overblown. As a case in point, Tesla’s Autopilot concept was shown to be just that in the fatal Florida crash. That was a tragic illustration of the need for the driver stay engaged at all times – pretty much the opposite of a self-driving car.

“As for Tesla, they have moved too quickly without being candid enough with customers about the true limitations of their system,” says Sam Abuelsamid, a senior analyst with Navigant Research. “Tesla never came right out and said, ‘This is a self-driving car’ but they certainly were in no rush to say it isn’t and it didn’t stop people from posting videos of them doing stupid things.” He’s referring, of course, to the Tesla “no hands” trending videos on Twitter and YouTube.

Tesla owners aside, a consumer study by Kelley Blue Book found that most people claim little understanding of the technology: six in ten said they knew little to nothing about it. Ride-hailing and ride-sharing services that employ autonomous vehicles could change that, getting consumers comfortable with the tech.

2. Mobility and the future of cars

It looks like autonomy could be a big part of mobility and, maybe, the best place for it. College campuses, office parks and urban centres where private traffic is barred would allow self-driving vehicles to operate in ideal conditions.

A case in point is Ford’s autonomous vehicle-sharing service, expected in 2021, that will be built around commercial mobility services operating within geofenced areas. In March, it created the Ford Smart Mobility LLC to act as a start-up in Dearborn and Silicon Valley. We can see how Ford has been putting these pieces together for a few years, with its various pilots on its corporate campuses and universities.

Chariot, the crowd-sourced and crowd-funded minibus service that Ford bought, is a likely model for how these services could evolve. Chariot already uses Ford vans. While Ford’s overall US sales were down 9% October, sales of Ford Transit grew 9%. It has found that such systems must be carefully designed with input from the cities – and cities are primed to do this thanks to the goosing they got from the government’s Smart City Challenge.

“Autonomy has to be done in partnership with cities. To have truly autonomous vehicle in these areas, you can’t just plop them and leave,” says Sudipto Aich, a principle researcher at Ford Research & Innovation Center.

Uber is firmly on the path of replacing its human drivers with machines. But this could actually increase capital expenses for the Ubers of the world, according to Navigant Research’s Sam Abuelsamid. Currently, he says, most of the capital expenses for ride-hailing services are borne by drivers. Uber et al must shell out for the servers to run their platforms, while spending big on marketing and R&D. He adds that the services lose money by pricing rides below market value to drive take-up.

Ten years from now, if drivers are replaced by autonomous cars, Abuelsamid says: “Those companies will have to spend to buy vehicles, and those cars will have much higher utilisation rates than we have today.” While most passenger vehicles see perhaps 10% to 15% use, he estimates that the take-up rates for ride-hailing cars will reach 70% to 80%. “So those vehicles will have a shorter life span.” He says: “It’s not clear that ride-hailing businesses are going to be sustainable just as mobility businesses. They need other ways to make money in order to be profitable. I don’t think they’ll work as standalones.”

That could be good news for automakers, and a good reason for them to either invest in or launch their own services. Most industry-watchers expect further investments and acquisitions of mobility-service companies by carmakers.

Automaker investments

Automakers have begun to act like VCs, snapping up start-ups to gain potential advantage and to be there first. Says Scott Frank, Airbiquity’s vice-president of marketing, “There are multiple top-tier automakers that are buying in. They’re buying companies to supplement their business models and to take assets off the table so other automakers can’t leverage them.”

He notes that the favourable economic environment has made this possible. Automakers are flush with cash these days. He wonders whether, if they didn’t have so much money, the ride-hailing companies would be putting carmakers in the position of being simple suppliers and not participants in the business model. In any case, he says: “We are in a position where the auto industry can be an active participant and they’re flexing that muscle.”

There’s still the build-or-buy question. Abuelsamid sees the barrier-to-entry for ride hailing as low. “It’s not hard to build that platform,” he says. “What’s hard is developing the vehicle. It makes a lot more sense for OEMs to add the ride-hailing component that for ride-hailing companies to expand into full-blown manufacturing.”

He thinks that even Uber, with its astronomical valuation, is likely to merge with a carmaker. One possible scenario is for it to merge with Zhejiang Geely, which would give it entry into China. “At some point, Uber investors are going to want an exit. It will be tough for a company with that kind of valuation to do an IPO.”

Hinting that Lyft might sell itself to General Motors, Robert Grant, Lyft’s director of government relations, told a conference audience recently: “We think deploying autonomous vehicles through a ride-share platform that’s OEM-owned is the right way. There is one individual company and one touch point.”

How mobility schemes will actually impact car sales is still unknown. The Boston Consulting Group thinks car sharing will have a limited impact on car sales in the next five years, reducing global sales by 550,000 in 2021, costing carmakers $7.4Bn (£5.9Bn). Yet, it believes the evolution of mobility services will proceed slowly and at a manageable pace for the industry. That’s partly because car sharing will meet the needs of only 40% of European city drivers and less than 20% of all drivers in the United States and Asia.

Lanctot points out that there is a possibility that some services may actually lead to more cars on road and draw people away from public transportation. A study of the impact of ride-hailing services on traffic in San Francisco launched in May 2016. There’s concern that cruising Uber and Lyft drivers are adding to congestion on city streets. But, honestly, no one knows.

There are potential impacts on how we drive, how we make overall transportation choices – and how society may want to and be able to push consumers into the choices that are best for the environment and the public, Lanctot says. “It’s a big test tube right now.”

Continued in Part II

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