Advancements in self-driving car technology will eventually result in full-scale autonomous transportation. Considering the level of investment from deep-pocketed tech and auto companies and the caliber of human capital that accompanies it, the space has become “too big to fail.” This note explores three key questions we’re working through as we consider the autonomous future:
- What will an automaker of the future look like?
- What will the future of transportation look like for consumers?
- Who is going to win in the future of transportation?
What will an automaker of the future look like?
In order for an automaker to succeed in the transition to autonomy, we see three core competencies: manufacturing capability, autonomous systems, and services.
Despite all the work going into and the hype around autonomous systems, expertise in manufacturing cars can’t be overlooked. We’ve seen the challenges Tesla has had scaling their production. Technology companies are at a significant deficit here and will likely rely on partnerships with traditional auto to bring a product to market.
Tesla is trying to solve the manufacturing problem on its own. Elon Musk said, “The biggest epiphany I’ve had this year is that what really matters is the machine that builds the machine, the factory, and that this is at least two orders of magnitude harder than the vehicle itself.”
To tackle this problem, Tesla has made acquisitions in the manufacturing space and has chosen to develop software and sensors in-house. We’ve written a lot about Tesla’s efforts (and shortfalls) in manufacturing the Model 3 at scale. We think they’ll get there.
Software is the brains behind autonomous vehicles. This is both the most complex element and where the true value lies in autonomy. The winner in this space will have a good chance at owning the operating system of the car.
A few notable investments in this space: GM’s acquisition of Cruise, Ford’s investment in Argo AI, and Delphi’s acquisition of NuTonomy. Autonomous software investments are typically the largest in the space. We expect this trend to continue as traditional automakers, who already possess manufacturing skill, attempt to acquire or partner with the tech that will keep them relevant as the industry transitions.
Sensors are the eyes and ears of autonomous vehicles. We break the sensor category into LiDAR, radar, and cameras. Most autonomous solutions today require all three, but Tesla thinks it can reach full autonomy without LiDAR.
Many auto manufacturers and tech companies have made hardware acquisitions. Above and below are some of the investments that major auto companies have made in autonomous software and sensor companies:
A significant part of current automakers’ revenue comes from servicing and maintaining the vehicles they have sold. As EV and autonomy play out, and ride-hailing fleets reduce car ownership, these service revenues will need to be replaced by software services. Down the road, connected cars will resemble a platform much like a mobile device. Owning the operating system and/or providing software services through that OS could more than make up for lost maintenance revenue.
One of these services could be in-car entertainment. With steering wheels, and eventually the need for driver attention, going away, the interior of a car will look much different. Seating arrangements and space will not resemble the current layout, but more importantly, we’ll be free to spend our time differently while in transit.
Tech companies will all be vying for the opportunity to provide in-car entertainment to consumers. Similar to smartphones today, there will be those that own the operating system (Apple, Google) and those that build on top of it to deliver content (Netflix, Snapchat). Outside of these opportunities, companies will also leverage the connected car platform to deliver targeted advertisements to riders. Imagine being prompted with a coupon for Starbucks while on your way to work. Companies will be able to target individuals with location-based advertisements much easier than through smartphones.
What will the future of transportation look like for consumers?
Electric Vehicles will be prevalent. Electric vehicles currently account for ~1% of all vehicles today, but will reach 35% by 2030. As battery technology improves, range anxiety decreases for consumers. We’ve also learned that EVs can be fast.
Cars will drive themselves. Today, 99.9% of all vehicles have little to no automation. By 2040, 90% of vehicles sold will have Level 4 or 5 autonomy. Our transportation experience won’t change dramatically until autonomy becomes more prevalent.
Car ownership will decrease, giving way to more ride-hailing. Today, the current household has an average of 2.0 cars. We think that over the next 15-years, this number could go down to 1.25 cars per household and, longer-term, decrease even further. While some individuals may not like the idea of giving up ownership of a vehicle, there are plenty of benefits. For starters, people would not have to pay car insurance, worry about maintenance, store a vehicle, or for those of us in less favorable climates, scrape windows in the winter, or worry about parking during a snow emergency.
As ride-hailing networks become more reliable with autonomous vehicles, more people will be willing to decrease or give up household ownership of vehicles. Traditional auto and tech companies are making large bets on it, as outlined above and below:
Who is going to win in the future of transportation?
If the connected car is a platform like the smartphone, who will be the Apples and Googles of transportation? Waymo, Uber, and Tesla are early candidates for winning the operating system of the car, with each taking their own unique approach. Waymo has focused on building autonomous systems first and will seek to launch or partner with a ride-hailing network second. Uber has built a ride-hailing network first and is now racing to catch up in autonomy. Each will seek to partner with existing car manufacturers for producing vehicles. Tesla decided to manufacture vehicles first and is narrowing in on autonomy second; believing that a ride-hailing network is the last hurdle that needs to take place.
There are plenty of other entrants that could compete in this space including OEMs, who have invested large amounts in autonomy and certainly have the manufacturing scale component already solved, as well as a host of tech companies that could provide autonomous systems or software services to manufacturers. The bottom line is that the value chain in the transportation industry is being disrupted, and the massive opportunity to capture value in an industry transition will create a number of new winners.
At this point, it’s clear that one winner will be the consumer. With access to more ubiquitous, clean, and affordable transportation without the burden of car ownership, mobility will be more accessible than ever.
Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.