The Future Arrives ... And Nobody's at the Wheel
The auto industry is doing well. Profits are up, sales are surging. And yet everyone is on edge. Disruption is coming. Autonomous vehicles are coming.
This week, Fortune reported Cruise Automation, a plucky startup acquired last year by General Motors (GM) for $1 billion, is testing a mobile application that summons self-driving Chevy Bolts.
The program is still very modest. In San Francisco, the electric Bolts shuttle only a handful of Cruise employees between their homes and the office. Yet, it’s the future. And it’s going to change the entire business of making and selling cars.
It’s a future that car companies would rather avoid. Sort of like a bus driving the wrong way on the freeway. Times are good. General Motors just announced profit sharing for its 52,000 employees of up to $12,000 each on record sales.
But automakers can’t avoid the future because it’s already here. Self-driving vehicles are no longer science fiction. The tricky engineering is now a solved problem. The research is out of the lab and on the streets. The last barriers to mainstream adoption in the new Gilded Age are public perception and political will. And don’t kid yourself. They’re the easy part.
Surging traffic fatalities, especially among distracted young drivers, should hasten the shift toward autonomy sooner than later. Of the 33,000 annual traffic deaths, 94% are caused by human error, reports indicate. Most of those fatalities could be avoided by autonomous driving systems.
Safety can be sold. Carmakers know this. Insurers know this. Politicians know this, too.
Initially, the front lines will be commercial. Technology leaders like Alphabet (GOOGL) are pushing self-driving vehicles into mass transit, trucking and logistics. Ride-hailing startup Uber is another major source of research, too. Its fleet of self-driving Volvo SUVs – equipped with sensors, cameras and radar – are being pressed into service as conventional taxis, starting with low-speed, tightly controlled tests.
The Obama administration championed autonomous vehicle development, and the Trump administration has reached out to both Tesla and Uber executives for regulatory guidance.
In fact, Tesla (TSLA) cars already enjoy advanced driver-assisted features through the company’s Autopilot software. Through the end of 2016, Tesla drivers had racked up more than 1.3 billion miles using the program. And all of Tesla’s future vehicles will come equipped to reach full autonomy, with the software running on and Nvidia (NVDA) hardware.
The next step: Self-driving vehicles are going to come alive with communications. They will chat with traffic lights, pedestrians, massive data networks, and other vehicles.
BMW (BMWYY), Mercedes (DDAIF) and Audi (AUDVF) jointly own HERE, a mapping software company founded by Nokia (NOK). They plan to use that software as a hub for a massive platform that will store, organize and share traffic data. Their vehicles will start learning from shared experiences without human intervention.
Waze, a mobile application owned by Alphabet, is already doing some of this. It uses sensors in subscribers’ smartphones along with crowdsourcing to make sense of traffic conditions, police radar traps and even road closures. The results are shorter and safer commutes, eerily devoid of major traffic jams.
The HERE platform will use front-facing cameras on vehicles to read road signs for construction or lane closures. It will use windshield wiper sensors to detect the intensity of inclement weather. It will use anti-lock brake sensors to tell the tale of slower traffic.
And that is just the start. In the future, data from connected cars with ultrasonic and LiDAR sensors will bring to life Vehicle-to-Everything (V2X) communication systems aimed at removing line-of-sight limitations altogether. This data will help ease the transition from assisted-driving systems to legitimate driverless cars.
At the consulting firm McKinsey & Co., researchers expect the global market for vehicle-connectivity components alone will reach $220 billion by 2020.
That’s the kicker: Tesla is literally miles ahead. It’s not bound by the conventions of older, less-nimble automakers. It doesn’t even care about profits. And it is not going to wait for the rest of the auto sector to ease into the self-driving future.
Tesla’s a true startup, pushing technology and radical business models like Mobility-as-a-Service (MaaS) relentlessly forward.
Founder Elon Musk imagines a future where owners will be able to have their Tesla drive them to work, then convene with other idle vehicles to form an upscale ride-sharing fleet. Fees earned could be applied to offset the cost of the vehicle. It’s crazy, but compelling.
And that is pushing the rest of the industry toward mobility models. General Motors bought into Lyft. Volkswagen (VLKAY) partnered with Gett in Germany. Apple (AAPL) invested in Didi Chuxing in China. And everyone from Toyota (TM) to Alphabet is involved in some way with Uber.
McKinsey & Co. surmises that new automotive business models could expand industry revenues by 30%, adding $1.5 trillion by 2030. Unfortunately, in the interim, there could be a drastic contraction in traditional sales as consumers break from the ownership model.
Autonomous vehicles are as inevitable as the move from horse-and-buggy to the Model T. And they will have just as big an impact. They will slash traffic and cut fossil-fuel use. They will reconnect communities and reduce lands now devoted to parking. They will also turn the $570 billion automotive industry on its head.
The idea of autonomous cars, trucks and buses – all connected by and communicating with a giant network – might seem like science fiction. A few years ago, it was. Not anymore. Soon it will become a critical piece of the new Gilded Age.
Buckle up. With big changes come both big risks and big opportunities. Investors need the wisdom to know the difference – like the wisdom I share with the subscribers to my services, Tech Trend Trader and Pivotal Point Trader.
Best wishes,
Jon Markman
