WIRED FOR THE ROAD AHEAD
Consumer attitudes to the automobile are evolving. That could drive fundamental changes in the way cars are designed, bought and used.
Since its invention 130 years ago, the mythology of the car has been one of freedom and independence, power and status. It is a story that the industry has worked tirelessly to promote. In TV commercials the latest models are shown sweeping along deserted cliff-top roads, exhilarating their occupants as they carry them swiftly and safely from one glamorous adventure to the next.
For most of us, the reality is not like the myth. Most cars spend 95 percent of the time sitting unused in garages and parking lots or on driveways and roadsides. They spend a lot of the rest stuck in traffic. In 2014, for example, urban drivers in the U.S. spent 6.9 billion wasted hours in their cars due to the effects of traffic congestion – around 42 hours per commuter. Cars have an image problem, too. Exhaust pipes emit carbon dioxide and other harmful by-products, sometimes in far greater quantities than consumers and regulators expect.
The automotive industry has responded to many of these criticisms. Downsized engines and hybrid powertrains are steadily chipping away at fleet-wide emissions. Lightweight materials are helping too. In the U.S., Ford’s decision to switch from steel to aluminum in the construction of its F150 pickup truck has been rewarded with record sales. And there are plenty of parts of the world where access to a vehicle is providing real – and potentially life-changing – new freedoms to millions of people. While sales in key emerging regions like China, India and Latin America have been bumpy in recent years, the long-term trend is strongly upwards.
Carmakers are facing another challenge, however. Wherever they are in the world, the vast majority of their customers see vehicles not as an escape from their everyday lives but as an integral part of it. Increasingly, they are demanding products that fit into their lives in better – and sometimes radically different – ways.
The Connected Driver
Perhaps the most obvious manifestation of that change among wealthier customers is the desire for improved connectivity. Consumers – especially younger consumers – are used to ubiquitous internet connections in other parts of their lives. They increasingly rely on cloud-based technology to organize their work, conduct their social relationships and provide them with entertainment. They don’t want those connections to stop when the car door slams.
Increasingly, they don’t have to. Carmakers are working with technology companies to make existing services available in a format that is suitable for use on the move. For example, Mercedes-Benz has announced a collaboration with Microsoft to make data such as contact addresses and calendar appointments seamlessly available in the vehicle. Connectivity offers plenty of benefits for the carmakers themselves, allowing them to monitor vehicle performance and reliability, deliver software fixes and upgrades remotely and offer a host of online services, from navigation tools to entertainment systems.
Technology analyst Gartner predicts that automotive “infotainment” technologies will become the second largest consumer application of internet-of-things technologies, after personal health and fitness tracking. Wireless network technologies are rapidly trickling down from high-end luxury vehicles to the mass market, and Gartner estimates that one in five vehicles will possess such technologies by 2020 – more than 250 million vehicles in total. By then, the market for the connected car sector is forecast to grow more than fourfold, from $37.5 billion in 2015 to $151.8 billion.
The Ultimate Self-driving Machine
Easier online access obviously benefits drivers when they are stuck in traffic jams. And well-designed user interfaces should also increase safety by providing a less distracting way to access information in a moving vehicle. But this evolution could just be one step in a more fundamental move away from the historical focus on the driving experience.
Automation has been quietly creeping into cars since the mid-1990s, with the introduction of adaptive cruise control technologies that use radar or laser sensors to warn the driver, control the throttle or apply the brakes to maintain a safe distance from the vehicle in front. Today many drivers have the opportunity to switch on devices that can control the vehicle over its full speed range and provide steering inputs too, reducing the driver burden in a range of situations including highway driving, traffic jams and parking maneuvers. Collision avoidance systems can automatically execute an emergency stop when a crash looks likely.
The next step is the elimination of driving tasks altogether. High-profile experimentation by a new generation of technology companies – notably Google – has spurred mainstream carmakers to accelerate, or publicize, their own research into vehicles capable of fully autonomous operation. Today, there is broad consensus among manufacturers that the first totally self-driving cars will be ready for sale in around 2020, although it may be another decade before the technology becomes widespread. Market research group IHS expects global sales of autonomous vehicles to reach 600,000 by 2025, and to continue to grow at a compounded annual rate of 43 percent for the following decade.
That remains an ambitious target. Experimental self-driving cars have an admirable safety record, but the fact that the occasional accidents that have occurred make headline news around the world is an indicator of public concern over the issue. Many observers believe the transition will be a gradual evolution rather than a “big bang.” Forecasts by Exane BNP Paribas, for example, suggest that “fully automated” vehicles will account for only 15 percent of the overall autonomous vehicle market by 2035, with the majority of cars still relying on human inputs in some situations. There is disagreement between industry participants about the safest way to handle the division of responsibility between humans and computers, however. The most advanced semiautonomous systems on the market today still need an alert driver ready to take over control in an emergency. That may a be difficult thing to rely on if the driver is reading emails, communicating on social media, or even sleeping.
That's Not My Car
Alongside these technological changes, other approaches to mobility are threatening to do away with another age-old concept: individual car ownership. If you think of a car only as a way to get from A to B, ideally while still allowing you to get on with other things, the expense and inconvenience of owning a vehicle for the other 96 percent of the time has little appeal. That’s especially likely to be true in dense urban areas, where finding a secure place to park can be expensive and inconvenient. That logic is driving a host of new business models that attempt to offer mobility as a service rather than a product.
The highest-profile entrant into this market is U.S. technology company Uber, which now operates its app-enabled ride-hailing service in more than 500 cities worldwide. Uber’s growth has been startling. It carried its billionth passenger in December 2015, just five years after the company was founded. It is still struggling to turn growth into profit, however, has clashed with regulators and the traditional taxi industry in many markets, and it recently admitted defeat in its costly attempt to outcompete rivals in China. But the company’s success has certainly focused attention on the potential of the “sharing economy” model in personal transportation, as has growth in other sharing models, such as city-center car clubs or peer-to-peer ride sharing networks.
On a Collision Course
In the coming years it seems clear that these trends – increased connectivity, automation and new mobility models – are set to interact in varied and intriguing ways. Shared-use models are an obvious opportunity for fully autonomous vehicles, for example. U.S.-based nuTonomy has been conducting a pilot project in Singapore since April 2016 offering taxi services to members of the public in a fleet of adapted Renault and Mitsubishi electric vehicles. It’s not inconceivable that future autonomous cars could earn money for their owners by offering taxi services when not required by their owners.
With so many possibilities and so much to play for, carmakers, suppliers, established technology companies and new startups are engaged in a frenzy of acquisitions, alliances and deal-making as they jostle for position during the early stages of what may be a long and grueling race. A few examples: carmaker General Motors has taken a $500 million stake in ride-sharing company Lyft, with a plan to develop shared-used applications for autonomous vehicles. VW has made a $300 million investment in New York-based Gett, with similar stated aims. Uber has acquired Otto, a U.S. startup developing self-driving trucks , and has entered into a partnership with Toyota which, among other things, offers Toyota vehicles to Uber drivers on favorable lease terms.
And it isn’t just current automotive players who are entering the new mobility space. Technology giant Apple is investing $1 billion in Didi Chuxing, the Chinese ride-hailing service that has also taken over Uber’s operations in China. And Chinese internet technology company Baidu has been granted a license to test autonomous vehicles in California, part of a program that aims to develop a fully autonomous mass market vehicle by 2020.
So what does all this feverish activity mean for the business of actually building cars? Paradoxically, the answer may be "more of the same". Carmakers have become used to rising complexity as their markets fragment into a greater variety of niches and as the technology content of their products continues to rise.
While the potential long-term shift to the large-scale use of electric propulsion will create its own special challenges, autonomous vehicles or special products developed for shared-use applications just add additional elements to that complexity mix. Even a quite dramatic move away from individual car ownership may not require a tectonic shift in the structure of the industry. As Detlev Mohr, an automotive sector specialist with McKinsey & Company explained in an online interview earlier this year, cars used in ride-sharing applications tend to travel much further every year, meaning they wear out faster: “If you calculate it through with realistic use cases, the number of cars you sell is probably pretty much the same, but the lifecycle is much shorter.”
It’s a point echoed by Fathi Tlatli, President of DHL’s Global Automotive Sector. “Some consumers are still going to want power and performance, even if only for the weekend, and there are many parts of the world where car ownership levels are still less than 100 per thousand people, compared to 800 per thousand in the U.S.,” he says.
“For carmakers, the name of the game will be segmentation. They will need the right platforms to allow them to develop a diverse range of products for different consumers and use cases, and they’ll need the manufacturing and supply chains to deliver high-quality vehicles to all those different customers.”
– Jonathan Ward for Delivered. The Global Logistics Magazine