Don’t Underestimate the Importance of 3D Mapping for Autonomy

As you drive down the road, you make countless subconscious micro-decisions and calculations built on past experience. You know what 40 mph feels like by observing how fast the trees are passing by, how hard you can hit the brakes to comfortably slow down at a traffic signal, and that you should coast down a steep hill to avoid speeding. Even if you are on an unfamiliar road, driving experience has built foundational expectations and awareness, so that you are not hurdling into the unknown waiting to react to situations that arise. In the case of autonomous vehicles, however, these decisions are made by software. Simply adding sensors like LiDAR and cameras to a vehicle allow it to perceive its surroundings, but, on their own, would fail to enable a safe ride. Enter 3D maps – a critical element of autonomy that is often overlooked.

Detailed, 3-dimensional, continuously updated maps are essential to true widespread adoption of self-driving cars. This is what separates a system that needs to be overseen by a human focused on the road, and one where you can fall asleep and wake up at your destination. While it is technically possible for a car to navigate an unfamiliar setting without a digital map, the information that 3D maps provide is critical to building the trust necessary for widespread adoption of autonomy. Maps effectively teach a self-driving vehicle the rules of the road. The car’s AI can learn the mechanics of driving like a human, but the map introduces things like bike and HOV lanes, speed limits, construction zones, train tracks, and pedestrian crosswalks. Maps also ease the burden on the car’s computers by giving them foresight and adding redundancy to its understanding of the situation it faces.

Civil Maps CEO, Sravan Puttagunta explains, “Radar and cameras cannot always recognize a stop sign if pedestrians are standing in the way or the sign has been knocked down. But if the map knows there is a stop sign ahead, and the sensors just need to confirm it, the load on the sensors and processor is much lower.”

Reducing the load on the car’s computing power must be considered, because a fully autonomous vehicle could produce as much as a gigabyte of data every second. By building an accurate and up-to-date, digital representation of the world around us, a car is able to process this data in conjunction with the data created by its sensors to create a safer, smoother, and more reliable driving experience. Maps allow a vehicle to see into the future – further than human drivers can see – anticipating instead of reacting to changes in their environment.

Maps allow a vehicle to see into the future – further than human drivers can see – anticipating instead of reacting to changes in their environment.

Maps are an important aspect of vehicle-to-vehicle (V2V) communication as well. Using maps as an extension of a car’s sensors requires a reliance on other cars for input information. This presents us with the consortium conundrum that we wrote about here. In the realm of V2V communication, where it does no good to ‘out-communicate’ the competition, we believe company collaboration would be beneficial, if not a requirement. Maps that are shared through a single cloud-based platform are updated frequently, adding exponentially to their utility. The minute details of roads are constantly changing – construction zones, fallen trees, or damaged roads are all things that must be mapped and updated to reflect current conditions. This can be accomplished using the cameras and sensors on each car including some element of automated Waze-like crowd sourcing from the vehicles, too. As a vehicle drives, its sensors are constantly comparing their inputs to the map. When a discrepancy is detected, it is corroborated by other vehicles and changed in the cloud, so every car in the network is up-to-date. Take, for example, the scenario pictured below.

Here, there are three layers of safety that come from V2V and mapping. As the black car drives by the wreck, it observes a discrepancy in its map and relays that message. The cars involved in the accident share their location and that their speed is zero, and the car blindly approaching the wreck knows to avoid its current lane and switches lanes accordingly. Sensors alone, which have limited range and therefore reaction time, would not have been able to detect and prevent a collision.

Navigation apps like Google Maps provide more than enough detail to find your way from A to B, but these maps are only able to locate your car within a margin of several meters – 3D maps must be accurate within centimeters. They must show the precise location of all street signs, lane markings, curbs, and even deep potholes that should be avoided. Moreover, if we want autonomous vehicles to be able to take us anywhere, we have to have detailed maps everywhere – and there are more than 4 million miles of roads in the U.S. How do we tackle such a monumental task? This question has provoked the attention and innovative efforts of a host of companies.

Lvl5, a startup from former Tesla and iRobot engineers, aims to crowdsource mapping data with their app called Payver. While not all cars are equipped with cameras, nearly all of their drivers carry smartphones with them. By mounting your phone aiming out the windshield, you can earn between 2 and 5 cents per mile depending on whether or not the road is common or uncharted. The process, which relies heavily on machine vision to stitch together and label every fragmented video, is a logical way to build maps early on, leveraging the user base of smartphones and the sizable number of people who drive for a living for a ridesharing, delivery, or freight service.

Waymo, who has a longer history of mapping tech and a large budget thanks to parent company Google, is taking the opposite approach. In its usual ‘do everything ourselves’ fashion, Waymo is building their maps by driving around in vehicles equipped with spinning LiDAR units. LiDAR provides a much more detailed image of its surroundings than a camera, but still requires substantial human input to label each object. Labeling things like traffic lights, street signs, and buildings is tedious, but is necessary so that a car can tell the difference between a tree and a yield sign. There is also promise of automation of this process by AI tech similar to Google Lens.

Here Mapping and Mobileye have combined many of their efforts around building, maintaining, and distributing maps to become the defacto leader in the space early on. Here, owned by a consortium of German automakers, (Audi, BMW, and Mercedes-Benz) has ambitions to build a digitized version of our world that can be interpreted by autonomous vehicles and other machines with what they call an open location platform. Here has built out their maps with LiDAR-equipped vehicles and will maintain them with an extensive network of cars outfitted with Mobileye hardware. Mobileye, purchased by Intel earlier this year for $15.3B, offers a range of services for self-driving cars like sensor fusion and camera tech, but has recently been focusing on mapping. The combined result will be a comprehensive 3D map that is aggregated in the cloud and maintained in near real-time by crowdsourcing data from a network of connected cars. The maps will be sold as a service that automakers with autonomous systems can subscribe to.

Tesla has a distinct advantage stemming from the sheer number of cars they have on the road equipped with the hardware necessary to build maps (cameras, RADAR, and ultrasonic sensors). 3D mapping presents a textbook network effect and Tesla, with thousands of vehicles already in play, is in a great position to take advantage of that market force. The question will be one of communication with other cars as more automakers begin to develop and test autonomous systems.

While the method of building sufficiently detailed maps varies, their importance in the self-driving equation is almost universally agreed upon. In contrast with lively debates over the correct combination of RADAR, LiDAR, and camera sensor arrays, or countless chipmakers jockeying to provide cars with computing power, mapping seem under-appreciated and underinvested. As Mobileye co-founder Amnon Shashua suggests, there are three core elements of self-driving cars – sensing the road, mapping the road, and negotiating your position on the road. 3D maps will be a key determinant of the long-term winners in autonomy.

Thanks to Will Thompson for his work on this note.

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.

UTM Deep Dive: A Multi-Billion Dollar Market You Can’t Ignore

Legislation and infrastructure are two of the biggest hurdles facing the unmanned aircraft industry. An Unmanned Traffic Management (UTM) system is an important solution. We recently had Jim Williams, who has deep expertise on the subject, guest author a piece about the importance of UTM (here). This post is a deep dive on the UTM opportunity that will identify the core UTM technologies, quantify the market opportunity, and discuss how UTM will facilitate the emergence of autonomous technologies. 

Quick Overview of UTM

Unmanned Aircraft Systems (UAS) Traffic Management (UTM) is a concept created by NASA to safely integrate manned and unmanned aircraft into low altitude airspace. In more basic terms, UTM is a system that allows drone operators to connect to a central coordinating service that manages unmanned operations at low altitudes (under 400 feet). This type of service is important for the future of unmanned aircraft because the FAA does not manage airspace below 400’, except near large airports, leaving the majority of the country’s low altitude airspace as uncontrolled.  UTM is a global initiative to offer an interoperable solution that will ultimately allow for routine beyond-visual-line-of-sight (BVLOS) flights and highly automated operations. The exhibit below highlights how information might flow between a UTM system and other airspace constituents:

Source: Loup Ventures

Key Technologies Enabling UTM

There are many technologies that are required to support the UTM concept. Each function will provide massive market opportunities for large individual companies as well as emerging startups. The 4 key technologies that will enable UTM include UAS Service Suppliers (USS), drone tracking and remote identification, vehicle-2-vehicle (V2V) communication, and detect and avoid (DAA) sensors.

UAS Service Suppliers (USS) – The core functionality of a UTM system will be managed by a UAS Service Supplier (USS). The role of the USS is still evolving, but we know that USS will be commercial entities with approval and oversight by a government agency, such as the FAA.  The USS would be the central hub, where all other stakeholders (drone operators, hobbyists, air traffic control, law enforcement, and the public) come for situational awareness regarding unmanned aircrafts. USS will also provide crucial information for commercial drone operators, which include airspace authorization, UAS identification, real-time aircraft tracking, conflict advisors, and geo-fencing.

The ideal USS will provide an independent, highly automated and scalable system that will manage and monitor drone flights, as well as factor in inputs from external sources such as terrain, weather, air traffic control, making this data available to all commercial drone operators or service providers. In addition, the USS will send notifications to external stakeholders like public safety and state agencies.

Drone Tracking & Remote Identification – For a USS to provide real-time situational airiness, it will need to be capable of tracking and identifying drones in-flight, which is attainable through familiar commercial wireless broadband solutions. These communication channels include LTE, radio frequency, Automatic Dependent Surveillance – Broadcast (ADS-B), and wifi. While the industry is still exploring which of these technologies is the best solution, we anticipate UTM will lean on a combination of radio frequency transmission and cellular networks. ADS-B is currently used to track manned aircraft and this technology will be mandated in all manned aircraft by 2020. ADS-B modules have historically been too large to fit on commercial grade drones, but recently a few companies have brought drone-tailored ADS-B to market. Given ADS-B is already standard aviation equipment, we see this as a practical solution for tracking. However, when the manned ADS-B system was built, it was not meant to incorporate millions of drones on the same network. Due to spectrum bandwidth saturation, we do not believe ADS-B will be mandatory in every drone, but only for more advanced autonomous applications. Telecom providers such as Verizon and AT&T have built their LTE networks to handle this type of density, and while LTE is not standard aviation approved equipment, we see LTE as a viable complementary solution. In areas where LTE coverage is poor, some combination of ADS-B, RF and wifi can fill the gap.

Currently, there are no established requirements or voluntary standards for electrically broadcasting information to identify an unmanned aircraft while it’s in the air. To help protect the public and the National Airspace System from “rogue” drones, government agencies, such as the FAA, have set up a new Aviation Rulemaking Committee (ARC) that will help create standards for remotely identifying and tracking unmanned aircraft during operations. The ARC will identify, categorize, and recommend available and emerging technologies for the remote identification and tracking of UAS. Based on conversations with industry contacts, we believe the technologies previously discussed are all applicable solutions for remote ID.

V2V Communication – Not only will unmanned aircrafts need to be able to communicate with the USS, but drones will also need to be able to communicate with other drones, which is better known as vehicle-2-vehicle (V2V) communication. While the same technologies that enable drone tracking, such as LTE and ADS-B, will likely be used to communicate with other drones, we believe there will be additional solutions available for shorter reach communication like DSRC (dedicated short range communication). DSRC based on radio frequency that will likely be used by self-driving cars to communicate with other vehicles on the road. We believe it makes sense for UAS Service Suppliers to communicate with all drones as well as other autonomous technologies such as self-driving cars, marine vehicles, and other mobile robots. While enabling information transmission between vehicles is important, we view the crucial aspect of V2V as cyber-security — making sure drones, self-driving cars and other autonomous systems can communicate with each other on a secure network.

Detect and Avoid (DAA) – UAVs’ ability to talk with each other via LTE, ADS-B, and other communication technologies will allow for autonomous drones to avoid obstacles known to the USS – but what does a drone do if it loses all connectivity? Many drones are now coming equipped with sensors such as LIDAR, radar, and 3D imaging. These sensors, coupled with advanced machine learning capabilities, allow drones to sense and avoid other UAS and manned aircraft without the need to be connected to a network. Though the sense and avoid technologies brought to market thus far are impressive, there is still a large opportunity for startups to bring better DAA solutions to market.

Regulation (Not Tech) Remains Biggest Hurdle For UTM

While innovation is still needed on the technology side to support the UTM concept, we believe the largest hurdle to full drone deployment in most countries remains regulation. In the US, commercial drone operations are limited to applications that are within visual line of sight, not over people that are not directly related with the drone operation (i.e. over crowds), and flights during the day. While the FAA allows for drone operators to file for waivers to perform these more advanced drone applications, this process is not efficient. Allowing for beyond-visual-line-of-sight (BVLOS) flights is the most important potential regulatory change. The US and other countries are working on bringing more favorable drone regulation to market; however, due to the time it takes to enact a policy, we don’t expect any meaningful regulatory changes to occur in the US until 2018 at the earliest.

UTM Key to Enabling BVLOS Applications

Implementation of UTM will positively impact the aircraft community in many ways; most importantly, UTM will enable new and larger market opportunities. Specifically, it will allow for routine aforementioned beyond-visual-line-of-sight (BVLOS) flights. Flying BVLOS, for example, is required for companies like Amazon to deliver packages via drones. That said, once a UTM system and favorable regulations are in place, it does not mean all drones will be able to fly BVLOS. Drones will likely need to be Type Certified with the FAA or other regulating bodies to perform BVLOS applications. While the current Type Certification (TC) process is costly (~$2M) and takes 2+ years to finish, we believe there is a new process currently being reviewed internally by legislative leaders that will significantly lower the cost and speed up the process. While this could be an important change, we do not believe the new process will be in place for at least two years, which gives current companies progressing through the traditional Type Certification process a near-term competitive advantage.

Industry Coming Together to Create a Global UTM

Due to the number of drones that will be operating in any given locale, the industry is going to need several UAS Service Suppliers for a single country, as well as hundreds across the globe to support the situational awareness needed for manned and unmanned aircrafts to operate together. While each nation will regulate drone use as it chooses, the industry needs to collaborate to set standards and protocols for drones to communicate with USS in different countries. The Convention on International Civil Aviation, also known as the Chicago Convention, established the International Civil Aviation Organization (ICAO), which is a specialized agency of the UN charged with coordinating and regulating international air travel. All countries that comply with the Chicago Convention have access to routinely fly into and out of other countries that comply. While this convention currently centers around manned aircraft, we anticipate certified drones will be treated the same way. The Global UTM Association (GUTMA) is a non-profit consortium of worldwide Unmanned Aircraft Systems Traffic Management (UTM) stakeholders, and is an example of an important industry collaboration to help bring safe, secure, and efficient integration of drones to national airspace systems across the globe.

Drone Registry Is A Key First Step To UTM

While it will take time until we have a global connected UTM system, we believe the first step will be creating a global registry for unmanned aircraft. At the 2017 Drone Enable ICAO’s UAS Industry Symposium, the ICAO suggested a compelling solution. Given the ICAO currently operates the Aircraft Registration System, which is used to register all manned aircraft across the global, ICAO recommend they also host an international drone registry system. This will allow all drone registry systems to connect with each other, as well as create a plug-and-play solution for countries that don’t have registration system in place. In the exhibit below, we demonstrate how we see an international drone registry connecting into the UTM.

Drone registration has been a significant topic of debate within the U.S. drone community after the U.S. Court of Appeals barred the FAA from requiring hobbyists to register their unmanned aircrafts. Until May 2017, when this decision was made, the FAA required all drone users to register their drone online, which cost $5 and only took minutes to complete. The registry was designed to help law enforcement identify rogue drones, but looking longer term, a registry establishes an early solution to remote identification. While we believe the U.S. will implement new regulations requiring all drones to be registered, it would be a headwind to UTM development if registration requirements were delayed.

Source: Loup Ventures

USS An Investable UTM Opportunity

Although we believe there are going to be many significant opportunities related to UTM, we view the UAS Service Suppliers as the most investable and sustainable theme. There are currently no companies that have stepped forward to take on the role of a USS, but several drone software companies have partnered with NASA and the FAA to support the development of the concept. These companies that are helping create the UTM solution and contributing to writing drone regulation have a large competitive advantage once UTM goes live. While there are many early stage startups that have the technology to make USS and UTM a reality, we anticipate companies like Amazon and Google will also have proprietary USS systems for their own vehicle networks. It is likely there are multiple USS providers, thus multiple winners in the space longer term.

How Big Can USS Be?

The pieces that will make up the UTM will represent a multi-billion-dollar market opportunity, but we anticipate the UAS Service Supplier market to represent one of the largest components of the system. We believe a USS would charge for their services as a monthly/annual subscription-type fee with providers charging businesses per drone connection. While early, a reasonable fee maybe anywhere from $100 – 300 per drone connection on an annual basis. We expect over 414k commercial drones will be sold globally in 2020, at which time we expect most UTM systems to go live. Over the following 10 years, we believe commercial units sold will increase on a 12.5% CAGR, and by 2030 we expect the industry to ship over 1.6M units annually. Based on our 14.6% CAGR assumption for commercial units leaving the base, we believe over 10.8M commercial drone units will be in the national airspace by 2030. A USS will also coordinate with manned aircraft, and based on FAA, as well as proprietary forecast we believe their will be ~280K manned aircraft regularly flying.

Based on a $200 and per connection fee USS will charge drone operators, we believe the commercial market opportunity is ~$261M in 2020. However, over the next 10 years as the install base grows we believe the USS market will generate $1.7B in revenue by 2030, representing a 20% CAGR over that time frame. That said, this estimate only factors in commercial drone units.  USS providers could charge as much as 2x more for manned aircraft to connect to the USS. When incorporating manned aircraft, the market opportunity expands in excess of $2B annually. However, we believe the USS will provide many other services but given the infancy of this market it is hard to quantify the exact dollar amount.

UTM Will Manage Much More Than Drones

Although UTM’s primary focus will be managing drone traffic, we believe these platforms will eventually manage other autonomous technologies, such as flying-cars and self-driving vehicles. Uber is working closely with NASA and FAA because they plan to operate their urban mobility aircraft without a pilot on board.  Their business model is to have their taxi aircraft operate autonomously similar to the way Amazon plans to operate their delivery aircraft.  In our Auto Outlook, we estimated that 95% of all new vehicles sold will be fully autonomous by 2040. For the auto industry to move to full autonomy, a similar UTM-like hub will need to be in place that monitors known environmental data, V2V communication, and detect and avoid, just like the UAV solution. It seems to make logical sense that there could be a centralized UTM that communicates with both unmanned aircraft as well as self-driving vehicles and other autonomous systems to maximize traffic efficiency. Factoring in the autonomous vehicle market leads us to believe the UTM and USS opportunity has significant upside optionality.

Where UTM is Today

Over the past two years since NASA launched its UTM project, the organization has conducted two technology demonstrations and plans two more to test the concepts described here. The third demonstration is planned for early 2018 and will focus on testing technologies that maintain safe spacing between cooperative aircraft (equipped with transponders or ADS-B) and non-cooperative aircraft (only detectable by primary radar) over moderately populated areas.  The final demonstration has not been scheduled, but should be close to an actual commercial application of the technology.  The plan is for the FAA to take over the program in 2019 to establish the policy needed to approve operations.

Many other countries are also testing UTM concepts. Europe seems to be the furthest along. They refer to their UTM project as U-Space, which is a set of new services and specific procedures designed to support safe, efficient, and secure access to airspace for large numbers of drones. While initial U-space services are expected to be operational by 2019, initial test partners suggest that half of the U-space services could be deployed today. For a deeper dive into U-Space see here.

Bottom Line

While the industry has advanced UTM in meaningful ways, there is still a lot that industry and government constituents need to do in order to make this concept a reality. Improvements are needed on the technology front, but the biggest challenge remains regulation. We believe the autonomous vehicle industry and governments across the globe see the benefits of UTM, and we anticipate favorable regulation will eventually be put in place. Based on NASA’s progress and the effort those participants are investing in their technical demonstrations, we believe the first implementations of UTM will go live around 2020. The time is now to invest in core technologies that will enable UTM, because it will play a major part in our automated future.

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.

Tesla Semi Truck Hauls Heavy Disruptive Potential

Tesla’s announcement of an electric semi-truck is a big deal – not only does it have the potential to disrupt one the nation’s largest industries, but it marks another leap forward in making Tesla’s grand vision a reality. That said, we caution that it will take years for the Tesla Semi to come to market.

Based on Tesla’s history, the most logical go-to-market approach would be staggered: Within about 3 years, Tesla could target short haul trucking (think of UPS or Fedex trucks that return to a depot to be charged at night). Then in about 5 years, Tesla could target long haul trucking, and, in 6-10 years, offer a fleet of trucks as a service. We expect the Oct 26th event will be short on details (we don’t expect details on pricing or  delivery date) and long on the opportunity. That opportunity is ripe for Tesla’s taking, considering legacy truck manufacturers’ past struggles with innovation.

In his 2016 memo, Master Plan, Part Deux, Musk elaborates on this vision (which we detail here) and explains Tesla’s ambition to “expand to cover the major forms of terrestrial transport.” This includes heavy-duty trucks and high passenger-density urban transport, among others. By electrifying more forms of transportation (roughly 30% of our energy consumption), Tesla would advance their vision of accelerating the world’s transition to sustainable energy. Although many of the details surrounding the truck have yet to surface, the implications are clear – and they are widespread.

The trucking industry is downright massive. Upending an industry with such deep roots that touches a sizable portion of our economic activity is not a simple or a swift process, but its core elements are ripe for today’s disruptive forces. Let’s put the industry into perspective:

  • Trucks move roughly 70% of the nation’s freight by weight, and 82% of it by value.
  • It takes 54.3 billion gallons of fuel to move this freight each year.
  • It employs 7.3 million people, 6% of the U.S. working population, or 1 in 17 workers.
  • Truck driver is the most common profession in 29 of 50 states.
  • As of 2016 there were 1.5 million trucking companies in the country, 97% of which operate fewer than 20 trucks.

sources: American Trucking Association, Trucker Path

All of this equates to a massive logistics operation that is optimized down to details like tire pressure. As former GM vice chairman, Bob Lutz says, “these are people that operate by spreadsheets,” and the cost savings attainable with electrification and autonomy are too large to ignore. Fuel and driver labor make up 65% of the per mile cost of moving goods on wheels, so discounts on both fronts could have a measurable effect even on the end cost of goods.

Can Tesla pull it off? With concerns mounting about Tesla meeting its existing demand with limited manufacturing volume, many criticize the company for overextending into distracting business lines like energy storage and semi-trucks. Remember that this has been on Tesla’s to-do list since the beginning, and that this vehicle will likely not be commercially available for several years, by which time their manufacturing output will be formidable. Not to mention, Musk says the semi will be made mostly from Model 3 parts.

Further, critics of electric trucking point to range as its number one shortcoming. However, almost a third of all trips made by semi-trucks are regional outings within 100 to 200 miles. In other words, Tesla’s truck doesn’t have to go very far to access a huge market. After working closely with the trucking industry during the design process, Musk said, “they already know that it’s going to meet their needs, because they’ve told us what those needs are. So it’ll really just be a question of scaling volume to make as many as we can.”

Don’t count Tesla out of true long-haul trucking, though. While a traditional truck can travel over 1,000 miles on a single tank of diesel, the combination of electric and autonomous trucking could change routes and infrastructure if it gains traction. Tesla has filed a patent for a battery swapping mechanism that could cut recharging time well under that of filling up 300 gallons of fuel. They have also expressed interest in platooning, where autonomous trucks are synced together drafting a lead vehicle which, in addition to being safer, can also improve range.

Electric offers better performance. Medium and heavy-duty trucks account for about a quarter of all greenhouse gas emissions in the transportation sector today. Electric rigs will not only cut down drastically on emissions, but power from the grid is also cheaper (not factoring in any of Tesla’s future goals concerning energy). Furthermore, electric trucks are far more powerful than their traditional diesel counterparts. This is due to the flat torque RPM curve delivered by an electric powertrain, which offers much quicker, smoother acceleration and eliminates the need for slow and cumbersome 10 or 12-speed transmissions used today. In a recent interview, Musk said, “if you had a tug of war competition, the Tesla semi will tug the diesel semi uphill.”

The larger, longer-term opportunity is autonomy. We have written at length in the past about self-driving cars for human transport, but autonomy will not stop there. Long-haul trips on straight interstate highways – this is the low-hanging fruit of autonomous vehicles. If Tesla succeeds in enabling these trucks to drive themselves, it is easy to imagine a future where other vehicles like busses, delivery trucks, or waste collectors operate autonomously, opening up a substantial market opportunity. Trucking routes and charger networks could transform as autonomous platoons move goods faster and cheaper than ever before. Thousands of small trucking companies with fixed routes could be replaced by fleets of on-demand autonomous semis. Removing the driver also increases safety as semi trucks, while only representing 1% of traffic are involved in over 10% of fatal accidents. With a semi truck several years away and fully autonomous trucking even further down the road, the concept may seem like a dream for Tesla – but we would urge caution in betting against Musk and Co. in turning those dreams into reality.

Special Thanks to Will Thompson for his work on this note.

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.

UTM: What is it and why should you care?

Legislation and infrastructure are two of the biggest hurdles facing the unmanned aircraft industry. An Unmanned Traffic Management (UTM) system is an important solution. With nearly 30 years of experience in the Aviation sector over his career at the Department of Transportation, Federal Aviation Administration (FAA), and the FAA’s Unmanned Aircraft Systems (UAS) Integration Office, Jim Williams is an important influencer in the drone space.

Written by guest author Jim Williams, founder and President of JHW Unmanned Solutions.

What is the UTM? Unmanned Aircraft Systems (UAS) Traffic Management (UTM) is a concept created by NASA to safely integrate manned and unmanned aircraft into low altitude airspace.  If you are interested in the details you can take a look at NASA’s excellent website for UTM:  NASA UTM Home Page.  NASA’s goal for UTM is “Enabling Civilian Low-Altitude Airspace and Unmanned Aircraft System Operations”.  They are using lessons learned from previous research projects where they developed software to help improve the efficiency and safety of terminal area operations at major airports and applying it to low altitude unmanned aircraft operations.  They are building a system to allow operators like Amazon, Google, and now Uber to connect into a central coordinating service to manage unmanned operations at low altitudes (probably no higher than 400 feet above the ground).  Uber is included in the conversation because they plan to operate their urban mobility aircraft without a pilot on board.  Their business model is to have their air taxi aircraft operate autonomously similar to the way Amazon plans to operate their delivery aircraft.

Why is this capability needed?  Currently the FAA only manages airspace below 400’ near large airports which leaves the vast majority of the country’s airspace below 1200’ as uncontrolled.  Managed airspace is much easier for unmanned aircraft operations since the air traffic service provider can maintain safe separation between aircraft.  Low altitude uncontrolled airspace safety depends on manned aircraft pilots to see and avoid other aircraft near them.  Since the unmanned aircraft pilot is on the ground, she must rely on sensors in the UAS to allow her to detect and avoid other aircraft.  This adds cost and complexity to the system than can be reduced or eliminated by a functioning UTM system.

The core functionality of a UTM implementation will be managed by a UAS Service Supplier (USS).  There are currently no companies who have stepped forward to take on the role of a USS.  Several drone software companies have partnered with NASA to support the development of the concept (e.g. Skyward and Airware).  The role of the USS is still evolving but we know that the USS would be a commercial entity with approval and oversight by the FAA.  The USS would provide services like:

  • Command and control communications between the UAS Pilot and the aircraft
  • Ground based radar to detect manned aircraft and provide the location to the unmanned operators
  • High density weather sensors to provide critical environmental conditions to operators
  • Coordinate with the FAA air traffic control facilities when unmanned aircraft need to operate in controlled airspace
  • Control access to the airspace to approved operators and help identify unapproved aircraft to the FAA
  • Manage contingencies that alter routine operations (e.g. a severe weather event)

As you can see from the diagram below there are many functions that are required to support the UTM concept.  Each green box represents a service that could be provided by one or more companies working together.  Each USS could provide opportunities for individual companies to provide one or more of the functions listed above.

Notional UTM Architecture from the FAA NASA UTM Research Plan

The USS would be able to charge for their services to cover their costs but it is unknown if they would charge per flight or a monthly fee.  The FAA’s role would be strictly regulatory oversight but they would work closely with the USS to make sure the service was safe and fair to all operators.  The NASA concept envisions the USS would provide service to all operators like Uber, Amazon, and Google and does not envision that each operator would have to set up these shared services.  However, the actual business and regulatory model is still evolving.  Congress supported the concept by directing the FAA to participate in the NASA UTM program in the “FAA Extension, Safety, and Security Act of 2016” by creating research plan and creating a pilot program.  The plan is available on the FAA website FAA NASA UAS Traffic Management Research Plan and the NASA demonstration in 2018 is the “Pilot Program” mentioned in the law.

Current visual line of site operators would be unaffected by the implementation of UTM.  The service is directed at enabling UAS flights beyond visual line of site.  It is also intended to enable highly automated operations that would allow multiple UAS to be operated by a single person.  Many companies in the industry (e.g. Amazon and Uber) believe high levels of automation are essential to their business models.  NASA has conducted two technology demonstrations and plans two more to test the concepts and learn from issues that may come up.  The third demonstration is planned for early 2018 and will be the most ambitious.  The focus will be on testing technologies that maintain safe spacing between cooperative (aircraft equipped with transponders or ADS-B) and non-cooperative (aircraft only detectable by primary radar) over moderately populated areas.  The final demonstration has not been scheduled but would be close to an actual commercial application of the technology.  The plan is for the FAA to take over the program in 2019 to establish the policy needed to approve operations.

Amazon and Uber have both stated publicly that they believe UTM is a key enabler for achieving their business plans.  There are several other large corporations who are participating in the UTM program because they see the potential benefits for improving UAS integration into low altitude airspace.

However, there are still many unknowns that make the true business potential of the concept uncertain.  The central question is can the USS return their investment in software and infrastructure based on a cost-effective fee structure?  I believe the answer is yes and we will see the first implementations of UTM by 2020.  This opinion is based on the participants in the NASA program and the amount of effort those participants are investing in the demonstrations.  Many obstacles remain, but the work is continuing with enthusiastic support from the UAS industry.

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.

Take Cover: Collateral Damage from Next Transportation Wave

Special thanks to Austin Bohlig for his work on this note. 

Last week we introduced our 2040 Automotive forecasts, available here, detailing our projections for electric vehicles, autonomous vehicles and fleet services. We believe the global automotive industry is quickly approaching a transformation during which we expect to see three themes emerge: 1) the transition to electric, 2) fully autonomous vehicles and 3) a higher percentage of people relying on ride sharing services as their primary source of transportation. While we believe these three themes will create enormous market opportunities, we also believe this transformation will upend many multi-billion dollar industries:

  • Traditional car OEMs
  • Oil companies
  • Auto parts suppliers
  • Insurance companies
  • Ride sharing drivers

Traditional Car OEMs. While we believe some traditional car OEMs can and will transition to the autonomous future, we anticipate the road ahead will be bumpy for most and the automotive competitive landscape with see a complete overhaul. Companies such as Tesla and Waymo are meaningfully ahead in the race to fully autonomous systems, and see them as the leading players over the next 20 years. That said, we expect a handful of traditional carmakers to compete on strong brand recognition and leverage their car manufacturing expertise. While some of these traditional car companies will be able to develop self-driving systems internally, we believe the more effective strategy will be to enter the space inorganically.

Oil Companies. We estimate that by 2040, 86% of all new passenger and light vehicles sold will be purely electric, which is up from less than 1% today. Catalysts to the shift to electric cars will include affordability, OEMs focused on electric technologies, government intervention, and the rollout of fully autonomous vehicles. As we migrate towards these systems driven by alternative energy, the world will consume less gasoline. According to The WSJ, transport fuel accounts for ~50% of crude oil demand, with cars alone accounting for 25% of total demand. While leading oil companies such as Exxon and Chevron believe peak oil demand will not occur until after 2040, we believe the shift to electric puts oil companies at significant risk, given the amount of oil the Auto industry consumes. We also believe consumers will increasingly rely on ride sharing services, which could result in the number of total cars on the road to go down, and, in-turn, negatively affect oil consumption.

Funding Budgets. Taxes received on motor fuels is a key source of funding for road construction projects; however, as we consume less gasoline, states will need to find new ways to generate tax revenue. Political leaders have introduced bills and other legislation on ways to tax drivers on the road who are utilizing alternative energy systems. For example, some states charge an annual fee ranging from $40 – $300 to use electric vehicles on their roads. Other states have recommended taxing the number of miles one drives on the road, or we believe states could increase the tax applied to fleet service companies. Bottom line is states will need to be creative to implement new tax initiatives in order to fund infrastructure projects, but at the same time not be too much of a burden on the consumer.

Auto Parts Suppliers. We also believe tougher times lie ahead for auto parts suppliers such as O’Reilly Automotive (ORLY), AutoZone (AZO) and Advance Auto Parts (AAP). Electric vehicles have far fewer moving parts under the hood than internal combustion engine (ICE) vehicles; in-turn, they require less upkeep and maintenance. For example, we conducted a Tesla cost of ownership study in July and found that there are only 18 moving parts in Tesla’s engine, compared to about 20,000 in the average ICE vehicle. While Tesla may be a step ahead of everyone else, we believe other electric vehicles will also have significantly fewer moving parts than traditional cars. With fewer oil checks and other engine related issues, demand for auto parts and services will decline. Furthermore, as more autonomous cars enter the market with vehicle-2-vehicle communication technologies, we believe the number of accidents that occur annually will meaningfully shrink; lower demand for exterior work offers additional headwinds for the industry.

Insurance Companies. With self-driving cars reducing the number of accidents on the roads, not only will the need for body work reduce, but more importantly, the number of casualties caused by car accidents will decline, both of which will reduce insurance premiums for consumers. Additionally, fewer consumers will need to carry car insurance if they rely solely on ride sharing services for their primary source of transportation. While we believe it will take time for autonomous cars to be fully deployed on common roads, we believe 98k Fully Autonomous vehicles (Level 4 and 5) will enter the market in 2020, and soon after begin to ship in higher volumes. Although we believe Level 1 (Driver Assistance) and Level 2 (Partial Automation) systems will still be sold in 2040, we estimate the two groups combined will account for <6% of all new vehicles delivered and >94% of systems will take the form of fully automated vehicles.

Uber, Lyft and Taxi Drivers. As the transportation transition plays out, we expect consumers to increasingly rely on ride sharing services. We estimate that in 2016, 5% of all passenger cars and light vehicles were dedicated to ride sharing services. As ride sharing becomes more cost-effective and reliable, we believe that by 2040 68% of all vehicles in use will be dedicated to fleet services. For the foreseeable future, Uber and Lyft drivers alike will benefit, due to the increased demand for these services. However, eventually most fleet services will roll out fully autonomous systems and eliminate drivers from the equation. Both Uber and Lyft are investing heavily in fully autonomous driving technology; we also anticipate Tesla and Google’s Waymo entering the ride sharing market.

Parking Lots. With few car owners and more fleet service users, cities will no longer need the parking capacity to store these cars. While at first this will likely hurt companies that own parking ramps, we believe many of these locations lie on valuable real-estate, which may be sold to commercial and residential real-estate developers for an attractive premium. That said, parking lots will not completely go away because fleet services will need locations to store their autonomous systems when they are not in use.

Bottom Line. While the transition to electric vehicles, fully autonomous systems, and fleet services will create multi-billion and even trillion-dollar market opportunities, it will also come at the expense of other industries such as the traditional car OEMs, the oil & gas sector, insurance companies, and ride sharing drivers. However, we believe the emergence of these themes will be a significant net positive to society, because it will make our roads safer.

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.