The automotive industry is entering a period of deep disruption that will make it unrecognizable, according to a new analysis from Morgan Stanley.
“The auto industry is a century-old ecosystem being ogled by outside players hungry for a slice of a $10-trillion mobility market," warns Adam Jonas, the lead auto analyst at Morgan Stanley Research. "Many want in. It’s just beginning. And it won’t stop.”
Already Google is experimenting with robotic cars, and tech giant Apple is reportedly eyeing the electric car market. Upstart Tesla Motors is slowly building a business by selling only electric cars.
In a report to investors, Jonas wrote that the two most important technological trends in automotive transportation are the sharing economy and autonomous driving. He said those trends will fuse into what he calls “shared autonomy” or what is essentially a world of competing robotic taxi services.
Jonas has boiled down the massive change the automotive world faces into four stages, or phases of disruption. The horizontal axis illustrates the transition from individual vehicle ownership to an era where cars are shared assets. The vertical axis shows the transition from human to robotic driving.
The first stage represents the auto industry model for more than 100 years, Jonas said. High-tech is limited to gadgets for driver convenience or entertainment.
In this current phase, 35 auto manufacturers globally are all trying to steal market share from each other. Software is still pretty minimal, accounting for less than 10% of the value of an automobile. Cars are used only about one hour a day and site idle in a parking space or garage most of the time.
“The car, on our estimates, is the world’s most underutilized asset,” Jonas said. “We believe it's the most disruptable business on earth.”
The next stage shows how people are starting to use Uber and other services to slowly relinquish their ownership and control of the car. This is an era during which taxis (including so-called car-sharing services like Uber) could become “so cheap that only rich people own cars.”
This allows for hundreds of new entrants into the fleet management business, Jonas said. The biggest impact will be felt in dense mega-cities that can support these services.
Stage three depicts how people will give up control of the automobile to a computer, using steering wheels and pedals less over time.
During this phase, most cars are still owned by individuals, but the rising competition from mega-fleet managers operating human-driven vehicles with automated driving features gains momentum, Jonas said. At the same time, society will benefit from improvements in vehicle safety and efficiency.
Finally, stage four depicts the "shared autonomy."
Jonas envisions “roving fleets of completely autonomous vehicles in operation 24 hours a day, available on your smartphone.”
An individual’s transportation cost per mile falls to as low as 25 cents a mile, or roughly 1/10th that of a traditional taxi, Jonas said. These automated taxi systems get launched in the megacities of developed countries, spread to the close suburbs and then become connected to other cities in a hub-and-spoke network of autonomous highways, Jonas said.
Human driving will face obstacles such as laws that permit it only on select areas of public roads.
Finally, huge new swaths of real estate -- former parking lots and garages, at homes and businesses -- would be put back into more productive commerce.
Jonas calls this predicted era "Autopia."
Gradual or Moonshot
If you want to build self-driving cars, you have two routes. One is to build autonomy piecemeal: Give a car adaptive cruise control, then teach it to stay in its lane, then teach it to change lanes, and so on. The car can go anywhere, as long as a human can drive when the car encounters a situation it can’t handle. Most big automakers favor this approach. “We will take it step by step, and add more functionality, add more usefulness to the system,” Thomas Ruchatz, head of driver assistance systems at Audi, has said. You can already buy cars that handle highway driving for you (from Tesla and Mercedes, with others soon to follow).
Then there’s what Google calls the moonshot approach: Build a car that’s so capable, it doesn’t even have a steering wheel and pedals. But if that’s going to work, you have to create the kind of spaces where the car can drive, and not let the cars go anywhere else. That’s called geo-fencing.
Edwin Olson, a University of Michigan researcher who works on Toyota’s autonomous efforts, calls geo-fencing a “scalpel for carving away the tricky areas.” The car doesn’t encounter terrain it might have trouble with, and you can give it extremely detailed maps of its known world. Throw in things like school speed zones and right turn only lanes, so the car can focus its sensors and computing power on temporary obstacles like cars, pedestrians, and cyclists. The maps even double as a tool for determining the car’s exact location, since GPS isn’t precise enough to handle driving on a busy road.
Building those maps takes time and effort: LIDAR-equipped cars must shuttle through the area of interest, usually multiple times. Software and humans must translate the sea of data into maps cars can easily understand and companies can easily update. So it makes sense to start with a constrained area—say, a few neighborhoods in downtown Pittsburgh—and build from there.
Start As Taxis In Big Cities
Current limitations in fully self-driving vehicles could make it appealing for Google or other companies to initially roll the technology out as a service, rather than selling cars to consumers.
Thursday at a Volvo self-driving car event in Washington, a California DMV official pressed Google’s Ron Medford, the safety director on its self-driving car project, about when and where the car could drive itself. Because Google is removing the steering wheel and pedals, the human driver in the vehicle would not be able to take control in a difficult situation, such as a snowstorm or heavy rainstorm.
“What you’re developing, if it’s at a situation where it can’t go, what am I supposed to do?” asked California DMV deputy director Brian Soublet during a lively panel discussion. “Just wait for it to clear up so it can go?”
“There are lots of ways we can deploy this technology. You’re talking about vehicle ownership,” Medford answered. “That’s one possibility of a model, but there can be other models in which you wouldn’t own the car, and you’d have other available transportation, if for some reason our car wasn’t able to do it today the way you wanted it to.”
“That will work in a massive urban setting. But does that work in rural Kansas?” Soublet countered.
“Right so, no, it doesn’t work in rural Kansas,” Medford replied. “We’re not ready to service rural Kansas. We’re not ready to go into the snow belt, and we’re talking honestly about what the limitations of the car are.”
The technology behind a fully self-driving car would add a significant expense to a vehicle’s price, which may be a cost customers don’t want to pay, especially when it couldn’t be used in the toughest weather conditions. With a ride-sharing service, an operator could have the vehicles running 24-7. With a fleet of vehicles going nonstop, they’d almost constantly be generating profits and covering the costs of the technology.
Their inability to operate in a heavy snowstorm would be less of a drawback, as consumers wouldn’t be relying on the service exclusively for their transit needs. So far Google has tested its cars in Mountain View, Calif. and Austin, where there’s rarely snow.
Medford stressed it seemed unclear yet what was the best business practice for the technology, and that the current focus is on getting the technology right.
“The car that we are continuing to work on and develop is not one that you can drive everywhere, anywhere, all the time,” Medford said. “I would love for us to take where we are today and leapfrog, and we’ve solved all the problems, but we’re solving many, many of them now. And will continue to solve them.”
His remarks on the business potential echoed what Google co-founder Sergey Brin said in late September at a demonstration for journalists.
“It remains exactly open how we’re going to roll it out,” said Brin, who added that in the near term the upshot of making a service was letting a lot of consumers try it out, and being able to back-up and refine the technology.