These are the stakeholders - legislators, regulators, insurers, car companies and drivers
Google has been talking to the first four groups for a decade. The last one, not so much.
The first four can see the major financial advantages of these cars, and are doing all they can to make them happen.
Car Companies
Can see the future coming and realize they have a stark choice - they can be part of it, or they can be dinosaurs.
The ramp up in autonomous drive models will lead to an increase in shared mobility, allowing many people to use cars without owning them.
That trend will be both good news and bad news for automakers.
The good news is that annual vehicle sales are expected to increase by 750,000 annually as more people have a chance to gain mobility.
The bad news is many families will need fewer vehicles and consumers may opt to not own a vehicle, hitting the mass market brands hardest.
"This is the reason every automaker is being so aggressive developing autonomous drive vehicles, they all know the train will soon leave the station, and they want to be on it, because if they aren't, they won't survive."
So car makers around the world are innovating....
Car Companies
Silicon Valley and Detroit are in a race to create our driverless future. And for the first time ever, the car may take a backseat.
My brain knows that this demonstration has been carefully staged and will work exactly as planned, but the rest of my body tenses up as I step on the gas of a Ford Fusion sedan and accelerate directly toward the “parked car” in front of me.
Rear-ending cars on purpose is not a natural act. It takes a metric ton of concentration to resist slamming on the brakes, so I play the role of distracted driver. To the right, a parking lot packed with brightly painted Ford vehicles sparkles in the afternoon sun. In the distance, an American flag waves from its pole. Ford’s iconic blue logo is painted into the side of a grassy hill.
I hear a warning beep from the car’s dashboard. A red light flashes on the display panel. I imagine that I’m a character from the movie Mad Max: Fury Road, chanting in my head, “I live, I die, I live again.” Inches from the decoy car, I let out a shriek as the automatic brake kicks in, jerking the Fusion to a sudden halt.
From the passenger seat, Scott Lindstrom, manager of driver-assist technologies at Ford Motor Co. F -6.42% , assures me I’m not the first person to scream during this demo. I ask how he simulates accidents day after day. “It is very nerve-racking,” he says. Also, he’s hit the decoy plenty of times. In 2012 he even did it in front of Ford’s board of directors.
Back then the idea of self-driving cars looked, to Ford’s leadership, like a frivolous Silicon Valley moonshot. Four years later things have dramatically changed. Today Ford’s vehicle lineup features more than 30 options for semiautonomous features, including the automatic brakes I tested, and the company is aggressively working on cars that fully drive themselves. By year-end the company expects to have the largest fleet of autonomous test vehicles of any automaker.
Ford is not alone. The entire automotive industry is in the midst of a radical transformation that is reshaping the very definition of what it means to be a car company. There is hype, hope, fear, and insecurity—and at the center of it all is the self-driving car. Thanks to cheap sensors, powerful machine-learning technology, and a kick in the butt from the likes of Google GOOGL -3.45% and Tesla Motors TSLA -2.39% , driverless vehicles are becoming a sooner-than-you-think reality. General Motors, Toyota, Nissan, Volkswagen, Fiat-Chrysler, BMW, and just about every other auto company are wading—some cautiously and some with big, headline-grabbing moves—into territory that executives in Detroit and elsewhere not long ago considered a science-fiction fantasy.
Everything changed in March, when GM spent $1 billion on a tiny self-driving startup called Cruise Automation. For months tech companies, startups, and automakers circled one another, unsure of whether and how to partner. In an industry moving this quickly it’s hard to know if a friendly partner will turn into a competitor. It happened when Google’s venture capital arm invested $258 million in Uber in 2013; now the ride-hailing company is poised to directly compete against its investor with its self-driving project.
But the hesitancy ended after GM’s deal. In May, Toyota struck a partnership with Uber, Volkswagen invested $300 million in ride-hailing company Gett, Apple poured $1 billion into China’s Didi Chuxing, and Google partnered with Fiat Chrysler to outfit 100 Pacifica minivans with self-driving technology. All in the span of one month.
No one is sure how our driverless future will look. Will we be able to scroll through our Instagram feeds from the backseat while our cars drive us to work? Will we even need to own private cars anymore? Some people expect that regulation will limit self-driving cars to closed-off areas in major cities. Others believe that the first driverless fatality will set the whole effort back by a decade. Predictions as to when fully autonomous vehicles will actually hit the road range from 2050 to as soon as next year. (The answer for Tesla owners is last fall—they have been posting “Look, Ma, no hands!” videos online since October, when Tesla updated its software with an “autopilot” feature that steers the vehicle on highways—not fully autonomous, but a strong start.)
Automakers, technology companies, and ambitious startups all agree that this transformation isn’t just headlines and hype, but inevitable. Every person I interviewed for this article deliberately pointed out that, no, really—this is happening. Even regulators are onboard. “We’ve got a clock ticking,” U.S. Transportation Secretary Anthony Foxx told Reuters in April. “This technology is coming. Ready or not, it’s coming.”
Sure, there are hacking fears and privacy issues and ethical questions and infrastructure challenges and concerns about lost jobs. But those will all be worked out, the industry’s thinking goes, once everyone realizes how many lives could be saved with this technology. Car accidents cause more than 1 million deaths and 15 million injuries globally each year. Over 90% of them are caused by human error. For some executives, the argument is so obvious it’s worth blowing a gasket over. “How could you accept that? Why is this not a national crisis?” bemoaned Eric Schmidt, executive chairman of Google’s parent company, Alphabet, at a shareholder meeting in June. “I am, frankly, beside myself over the lack of consensus on how important this problem is.”
Beyond saving lives, consider the money saved (traffic accidents cause $500 billion in economic damage worldwide each year), the benefits to cities (parking lots become green spaces), the increases in productivity (commuters can work in transit; truckers can sleep without pulling over), and improvements in accessibility (the elderly, blind, and disabled get affordable robot chauffeurs!).
But most important from a business perspective, driverless vehicles are poised to threaten the $570 billion that Americans spend each year on new cars. For 125 years U.S. auto companies made their money on the manufacture of motor vehicles. Now they must be in the business of ride-hailing apps, shuttle buses, 3D maps, and computers on wheels that drive themselves. They’re no longer automotive companies either—they’re now calling themselves “mobility” companies, just in case all those predictions about the end of car ownership come true. At stake is a transportation services market that Ford believes is worth $5.4 trillion, a sum that makes you wonder why it took the auto industry so long to go after it.
It’s telling that ride-hailing leader Uber got its start while the auto industry was facing bankruptcy in 2009. Now Uber is worth more than GM and Ford by tens of billions of dollars, despite generating approximately $145 billion less in revenue. Alphabet has enough cash lying around to buy Ford or GM outright if it wanted to. Apple AAPL -2.59% , which is widely rumored to be working on its own car, could buy them both plus Fiat-Chrysler in a Big Three value pack.
The Silicon Valley invasion has not gone unnoticed. “There are enough people working at legacy companies in Detroit who have read The Innovator’s Dilemma. They know all the business school case studies about how incumbent organizations can’t sit around and ignore innovators,” says Brian Johnson, a Barclays analyst who has argued that the economy will reach “peak car” ownership in the next year. “The incumbents are willing to move more quickly than I would have expected. There is almost an eagerness to show they’re not dinosaurs.”
Ford president and CEO Mark Fields, for example, has taken to declaring that his company needs to “disrupt itself” before Silicon Valley players get the chance. The sentiment raises several questions: Does he really mean it? And does he understand what that takes? Even if the answer is yes to both, a much bigger question looms: Can he?
For six years Anthony Levandowski worked on Google’s self-driving car project, developing sensors, creating policies, and testing technology. He’s credited as one of the architects of the company’s famous driverless vehicles. In turn Google, the online advertising giant that’s increasingly known for its ambitious research projects, is credited with showing the world how fast this loopy curiosity could become a business reality. Despite that progress, Levandowski and Lior Ron, a product lead on Google Maps, couldn’t stand the idea of waiting any longer to bring autonomous driving technology to market. In January they left to launch Otto, a startup that retrofits commercial big rigs with fully autonomous driving systems.
After only five months of development, the founders made their first public demonstration, sending an 18-wheeler barreling down California’s 101 highway at 55 mph with no human interference. There’s a sense of urgency at the company. “We’ve been moving as fast as we can,” says Ron. “It’s not going to be a 10-year or even a five-year horizon. We intend to bring the technology to market faster.”
However soon you believe that driverless vehicles are coming, Silicon Valley innovators want them even sooner. Big and small tech companies alike have decided that transportation is the next frontier in need of disruption. They’re not adopting Detroit’s historical approach of incremental improvements, deploying ever more semiautonomous features until the robots finally take over. Rather, they’re plotting revolution. Google’s self-driving pod-cars don’t even have a steering wheel or pedals. (The National Highway Traffic Safety Administration defines this as “Level 4” autonomy—the agency’s highest level.)
Google argues that revolution is the safest option. Requiring a licensed driver be able to take over from the computer actually increases the likelihood of an accident because people aren’t that reliable, the company says. (Plus, keeping a human element in the driving mix destroys the economic and accessibility benefits that autonomous technology promises.) Chris Urmson, Google’s director of self-driving cars, made the case for full autonomy—in vain—to California regulators earlier this year. GM, meanwhile, is pro–steering wheel and pedals, according to recent comments made by CEO Mary Barra. The U.S. Department of Transportation plans to announce a new set of guidelines in July.
Zoox, a Menlo Park, Calif., startup, is firmly on the revolutionary side of things. According to a snazzy computer rendering from the company, it’s building perfectly symmetrical, bidirectional, neon-green-and-black robo-taxis that look like giant remote-control toys. The vehicle is not really a car, founder Tim Kentley-Klay likes to say. “It’s what comes after the car.” That’s because Zoox is not bothering with incremental, semiautonomous features like the automatic brake I tested with Ford. That approach is “not going to give us the changes we want to really solve mobility issues in our cities going forward,” Kentley-Klay explained at a 2014 conference in Berlin. Zoox has not yet shared its progress beyond the early rendering, but it has big plans. The company is currently raising $252 million in funding at a reported valuation of $1 billion.
Many people assume Zoox, Google, and Uber (which revealed its own driverless test car in May) will eventually launch their own urban fleets of on-demand autonomous vehicles. Basically robo-taxis. For Uber, reducing or eliminating its army of more than 1 million contract drivers would slash the unprofitable startup’s costs. Uber currently pays about 75% of its income to drivers. Eliminating that outlay would likely make up for the new expense of buying, maintaining, and storing a fleet of driverless cars.
For Google, a ride-hailing service allows the company to turn one of its most expensive moon shot projects into a real moneymaking business. Google will reportedly make its driverless car project a standalone subsidiary this year. Executive chairman Schmidt told investors the company believes the cars will be commercially available in “some years, not decades.” But first Google needs to reduce the cost of its sensor-covered vehicles from around $170,000 today to less than $30,000, according to a person familiar with the company’s plans.
And that’s a key problem in Silicon Valley’s robo-taxi plan: The nerds have little experience bending metal. Tesla, the one Silicon Valley company that’s managed to actually make a car, has been late to deliver every new model it has released since the launch of its very first vehicle (the Roadster, thrice delayed) in 2008. Tesla operates at a much smaller scale than its established peers in Detroit, Japan, and Germany, but its manufacturing problems aren’t just normal growing pains. For its latest Model X sport-utility vehicle, Tesla blamed a components shortage in part on its own hubris. It tried to add “far too much new technology” to the vehicle, the electric-auto maker said in a statement.
When Google unveiled its fleet of zippy little pod-cars in 2014, executives in the automotive industry could barely hide their smirks.
“No automotive manufacturer would ever have dared to show such an ugly potato in public,” said Ulrich Weinberg, a professor at the Hasso Plattner Institute in Germany, in an interview published in Audi’s 2014 shareholder letter. Auto critics had a similar reaction. (Google’s first self-driving concept looked “like a vintage Japanese cartoon character had an illegitimate child with a computer mouse,” wrote Andrew Krok.) “People were literally laughing at Google and Tesla,” says Lars Reger, chief technology officer of NXP Semiconductors, a supplier of self-driving vehicle technology.
The dismissal shows just how different the two industries’ worldviews are. In a vehicle, Google saw “a robot that by accident has four wheels,” Reger says. Traditional car manufacturers saw “a horse carriage with a combustion engine.” Tech companies launch ideas and iterate on them with continual improvements. “That doesn’t work in our business,” Ford’s Fields says. “You can’t hit control-alt-delete when you’re going 70 miles an hour.”
It’s easy to be dismissive when times are good, as they have been for Detroit lately. For the past three years the auto industry has delivered record sales, profits, and growth. GM and Ford are still Fortune 10 companies.
Yet Ford’s stock has fallen by 12% in the past year. GM’s stock has dropped by 19% despite an announced $9 billion of share buybacks. At Ford’s annual shareholder meeting in May, a frustrated investor even asked about bringing former CEO Alan Mulally out of retirement to boost the company’s share price. The existential threat facing automakers is compounded by investor fears that the automakers’ recent boom is as short-lived as today’s low interest rates and cheap gas prices.
Worse, analysts have long speculated about the coming of peak car, comparable to the peak in horse ownership in 1920. With cheap robo-taxis available to chauffeur people around cities, households that spend an average of $9,000 a year on transportation could lower that outlay to just $2,000. “Can the mobility sector capture all of that? I think no,” says Robin Chase, co-founder and former CEO of car-rental company Zipcar. “Car companies will still make money selling cars, but the whole market will shrink because we’ll use those vehicles more efficiently.”
Meanwhile, young people are increasingly uninterested in driving. The percentage of people between the ages of 16 and 44 who obtain a driver’s license has been steadily declining since 1983, according to a study by the University of Michigan Transportation Research Institute. Automakers bristle at the notion that millennials hate cars—GM president Dan Ammann calls it an “overly cliché story written by lazy journalists”—but it’s clear that automakers are no longer laughing at Google’s ugly potatoes.
The U.S. auto industry has been caught flat-footed before. In the 1980s, Japanese imports came to quickly dominate the low end of the North American market as European brands secured the high end. The specter of Google, Apple, Uber, Tesla, Lyft, or even Zoox cornering the future market of How Americans Get Around has created two kinds of paranoia in Detroit: a fear of taking on too much risk and a fear of not taking on enough. “Nobody wants to go too far and pull a Time Warner–AOL,” one exec told me. On the other hand, “nobody one wants to get iPod-ed like the music industry,” said another.
That fear is driving the great mobility transformation. In early 2015, Ford CEO Fields was preparing to deliver a “change the world”–style speech at CES, the annual consumer electronics trade show, spanning urbanization, the middle class, air quality, and millennials. It included lines like, “Mobility is about far more than motion—it’s really about progress. Human progress.”
Preparing for that event was the moment Ford’s executives realized they needed to shift, says Ken Washington, Ford’s vice president of research and advanced engineering. “It kind of jelled for us that, wow, this is really about being a mobility company,” he says. “Over the last year that messaging has gotten more and more crisp.”
That epiphany led to the creation, in March, of Ford’s Smart Mobility subsidiary, a separate LLC that will develop software, tech services, and business models related to transportation in the same way Apple makes software like iTunes and the App Store to complement its hardware businesses. “We’re viewing ourselves as the kind of company that gets that there’s more than one way to be mobile,” says Washington, adding that he doubts Ford’s Smart Mobility subsidiary “will have the famous Thursday business process review meetings that Ford is known for.”
GM president Ammann had a similar revelation two years ago. Ammann is a car person; he likes to drive his 1961 baby-blue Cadillac Series 62 convertible. But he found himself increasingly relying on a company-provided driver to chauffeur him to work and back because it freed up an extra hour and a half each day to get work done. “There’s this significant opportunity cost of the time people spend driving,” he says. GM’s customers were also telling the company that they wanted to use cars without the cost and hassle of actually owning them—the same need that gave rise to on-demand ride-hailing services like Uber and Lyft. “We see our customers behaving in this way,” Ammann says. “We need to move with them.”
At the Los Angeles Auto Show in November, Ammann watched Lyft president and co-founder John Zimmer deliver an ultimatum to the automotive industry: “You can fight [the end of car ownership], and that will probably not turn out well. Or you can acknowledge that this is happening. This is real, serious, and going to change your world.” The room, full of insurers, regulators, auto dealers, and parts manufacturers, was silent for a moment before a “slow golf clap” began to build, Zimmer says.
After the speech Ammann pulled Zimmer into a hotel suite, where the two quickly hashed out a deal for GM to invest $500 million into Lyft, valuing the company at $5.5 billion, investment included. The meeting, which Zimmer kept secret from his entourage, went for three hours. Zimmer has had plenty of meetings with auto executives over the years, but it was strange to explain his vision of the future and have one respond with “I agree,” he says.
A few months later Ammann met with Daniel Kan and Kyle Vogt, co-founders of Cruise, a 2½-year-old startup building a software platform for autonomous vehicles. As with Lyft, they shared visions, Ammann said “I agree,” and boom—a big, splashy deal. The companies considered merely partnering but realized they could move faster with an acquisition. “Every time we visited, they’d moved along another nine steps,” Ammann says. At the time, Cruise didn’t even have a plan to bring its technology to market. It had explored everything from pizza delivery and package transport to semitrucks and ride sharing, Kan says. Ammann was still convinced, and GM plunked down $1 billion for the 40-person firm in March.
The three companies plan to work together—using Lyft’s ride-hailing service, Cruise’s self-driving technology, and GM’s vehicles—to launch an on-demand driverless ride service to compete with Google, Uber, Zoox, and anyone else that comes along. Says Ammann: “We feel we have the three key pieces we need at this point.”
It matters little that the motivations of automakers (fear of being iPod-ed) and tech players (desire to change the world) stand in opposition. More important is that both parties share a goal: to get driverless cars on the road. Indeed, a lobbying group called the Self-Driving Coalition for Safer Streets formed in April, linking Google, Uber, Lyft, Ford, and Volvo. Digital transformation makes for strange bedfellows.
In the 1930s a driverless Tin Lizzy called the Phantom Auto toured the country to dazzle crowds with its self-driving capabilities. Imagine, gushed the Free Lance Star of Fredericksburg, Va., an empty automobile traveling the streets: “No one touching it, no wires or strings attached to it, weaving in and out of traffic, climbing hills, turning corners, stopping for traffic lights, just as though there were an invisible driver at the wheel!”
The glory lasted until 1932, when the Phantom Auto mowed down 10 people, hospitalizing two and fracturing numerous limbs (and a skull) at a demonstration in Hanover, Pa. The car’s operators, who remotely controlled the vehicle from a trailing car, were arrested on charges of assault and battery, and the driverless vehicle was retired.
Just as the thrill of self-driving cars is not new, neither is the fear of them. Eighty years later, in Google’s hometown of Mountain View, one of its pod-cars ran into a bus. In May, Google posted job listings for test drivers in Arizona, which tech bloggers painted as a dream job. Who wouldn’t want to make $20 an hour sitting in a car doing nothing for eight hours a day? But the social media reaction from nontechies was a glimpse into the public’s fears of robot cars. “You’re gonna have to pay more to get me in that tin can with a mind of its own,” wrote one Facebook commenter. Fueling the fear, Google filed to patent a grim-looking “human fly paper” material for the outsides of its vehicles in case one of its cars hits a pedestrian, complete with images of bodies stuck to cars.
Silicon Valley is great at building hype. Trust is a different story. Yet just about everyone working on self-driving vehicles believes that people’s fears will dissipate once they experience the technology in person. Regardless of whether they’re skeptics or enthusiasts, riders always react in the same way, according to Ziv Aviram, whose company, Mobileye, provides collision-avoidance systems to 25 automakers. During that first nervous minute, riders position their hands above the steering wheel and their foot above the brake, poised to take over in the event of a glitch. By the second minute they relax, and by the fifth minute they take their eyes off the road and chat as if they weren’t in the driver’s seat. After that, “there’s no way back,” Aviram says.
Auto execs understand this phenomenon well, rattling off examples of vehicle features that the public initially resisted: seatbelts, airbags, antilock brakes, cruise control, even automatic transmission. “I don’t want any computer stomping on the brake for me,” says Ford technical leader Jim McBride, remembering pushback from drivers of the past. “I don’t want an airbag blowing up in my face and I can’t see out the front window.” Even today, Ford’s self-driving test vehicles contain giant red fail-safe buttons next to the gearshift that are essentially for looks. (No one has ever used them, the automaker told me.)
Despite all this—the technological advancement, the sudden rash of dealmaking, the this-is-happening clarity stretching from Motor City to the City by the Bay—self-driving cars today remain a Phantom Auto curiosity. Our self-driving future requires interstate cooperation, ubiquitous connectivity, regulatory approvals, and buy-in from ancillary players like parking garages, insurance providers, and dealerships. “It’s not enough to throw some sensors and software on a two-ton projectile and say ‘Look, Ma, we made it smart,’ ” says Jamyn Edis, CEO of Dash, an automotive software startup based in New York City.
Many experts don’t expect that the world will adopt Level 4 autonomy—the ability to summon a car that goes from point A to point B without human interference—for 25 years, or a full generational change. But partial autonomy arrived much sooner than anyone expected. Google already has demonstrated “A to B” technology that works. By 2021, one of Mobileye’s automotive clients (Aviram won’t say which) will have it too. Five years may seem like forever to the hoodie-wearing tech crowd, but “in our industry,” Aviram says, “2021 is like tomorrow.”
Until then GM, Ford, and other auto giants will endure investor skepticism over whether their investments in apps and robo-taxis can ever become profitable businesses. Disruption, by definition, requires making one’s existing business smaller. It’s why so few Fortune 500 companies have managed to pull off what Mark Fields is attempting with Ford: disrupting themselves. That challenge is not lost on Big Auto executives. “Will Ford as a company be the size and scale it is today in 15 years?” asks Zipcar founder Chase. “Probably not.”
That doesn’t mean they won’t try like hell. Next year GM will launch a semiautonomous Super Cruise feature that allows for hands-free driving in its Cadillac CT6 at the same time that it develops “straight to Level 4” technology within its subsidiary Cruise. Ford is also trying to strike a balance between evolution, with its vehicle lineup’s semiautonomous features, and revolution, with its test fleet of driverless cars. Ford executives insist it is not totally contradictory to protect the company’s existing business while also building technology that will make it obsolete.
I think about that conundrum as I accelerate down a ramp along Interstate 94 on my way out of Detroit in my non-self-driving rental car. I squint and stare at the tractor-trailer in front of me while a reckless driver swerves between lanes at 80 miles per hour to my left. I realize that everything around me—from the radio ads for auto dealerships and cheap car insurance to the billboards for accident settlement attorneys—will be completely transformed by the self-driving car. And then I nearly rear-end the truck.
Google/Apple Threat
WHETHER or not Apple’s secretive car project ever leads to an actual automobile, the technology company has already had a profound effect on the vehicle business.
The mere knowledge that Apple has a team of several hundred people working on car designs changed the conversation this week at the Frankfurt International Motor Show. Along with Google, Apple has focused the minds of auto executives on the challenge posed by new technologies that have the potential to disrupt traditional auto industry hierarchies.
This year, “connectivity” has supplanted “horsepower” or “torque” as the prevailing buzzword in Frankfurt. The talk is of self-driving cars, battery-powered cars and information technology designed to link cars with data networks to make driving safer and more efficient.
As cars increasingly become rolling software platforms, Apple and Google have depths of tech expertise that the carmakers would have trouble duplicating. And those Silicon Valley companies have financial resources that dwarf those of even behemoth companies like Daimler and Volkswagen. Google, which began working on self-driving cars in 2009, is valued by the stock market at more than five times the worth of either of those carmakers. Apple is worth eight times as much. That gives them an advantage in a business that requires huge investment in research and development.
The main risk for carmakers is probably not so much that an Apple car would destroy Mercedes-Benz or BMW the way the iPhone gutted Nokia, the Finnish company that was once the world’s largest maker of mobile phones. Rather, the risk is that Apple and Google would turn the carmakers into mere hardware makers — and hog the profit.
Carmakers say they are determined to resist that danger by maintaining control of the software that is proliferating inside vehicles.
“What is important for us is that the brain of the car, the operating system, is not iOS or Android or someone else but it’s our brain,” Dieter Zetsche, the chief executive of Daimler, the maker of Mercedes vehicles, told reporters at the car show. IOS is Apple’s operating system for mobile devices.
“We do not plan to become the Foxconn of Apple,” Mr. Zetsche said, referring to the Chinese company that manufactures iPhones.
Even without competition from Apple and Google, the carmakers are under extreme pressure to change the way they build cars. Regulators in Europe and the United States are demanding that cars emit less carbon dioxide, a culprit in global warming. The only way the automakers can meet increasingly stringent emissions standards is by selling more hybrid vehicles, and eventually all-electric cars. Both technologies require more software than gasoline or diesel engines.
Technology that links cars to data networks, so-called connectivity, also plays a role in reducing emissions and satisfying regulators. Systems that help drivers quickly find a parking space or avoid traffic jams, besides being convenient, help limit unnecessary driving and save fuel. But the new technologies are expensive, and car buyers are not necessarily willing to pay. Electric cars account for a sliver of the market so far.
Those pressures have been building for several years, but they have intensified since word leaked out early this year that Apple was studying whether to build a car.
“What has been an evolution is going to be a revolution,” said Stephan Winkelmann, the chief executive of Lamborghini, the Italian maker of super sports cars that is part of the Volkswagen group.
“Starting from sustainability, going over to digitalization, and ending up at autonomous driving — these three big things are really something that is a game changer for the automotive industry,” Mr. Winkelmann said in an interview. “Everybody has to tackle these challenges.”
Volkswagen, previously regarded as a laggard in vehicle electrification, said in Frankfurt this week that it would introduce 20 new plug-in hybrid or all-electric models by 2020, and it introduced a battery-powered Porsche concept car. At the company’s preshow extravaganza for the media Monday night at a repurposed basketball arena, there was nary a mention of internal combustion. Instead, Martin Winterkorn, the Volkswagen chief executive, spoke of cars that would park themselves and eventually run completely on autopilot.
“By the end of this decade we will have transformed all of our new cars into smartphones on wheels,” he said.
It is not only the European carmakers closely watching Apple and Google. Anthony Foxx, the United States transportation secretary, in Frankfurt for a meeting on Thursday with his counterparts from other G7 nations, said conventional automakers were trying to roll out technology as fast as they can, while some in Silicon Valley were aiming to leap straight to self-driving cars.
“There is an interesting dialogue between Detroit and Silicon Valley on this,” Mr. Foxx said during a meeting with several reporters. “There is probably some tension there, but maybe that is good creative tension.”
One of the main guessing games at the auto show was whether Apple or Google would ever build a car. Both companies have met with German car companies as well as suppliers. Google executives have said the company will not become a carmaker. “Google is not a car manufacturer and does not intend to become one,” John Krafcik, a former Ford and Hyundai executive who runs Google’s self-driving car program, said in Frankfurt. But it was not clear yet whether he meant that Google would license self-driving technology to traditional carmakers, or use contract manufacturers to build a vehicle. A Google spokesman declined to elaborate.
Apple’s intentions are murkier. As is customary for Apple, the company has provided no information. But Timothy D. Cook, the Apple chief executive, reportedly visited a factory in Leipzig, Germany, last year where BMW manufactures the i3, an all-electric sedan with a carbon fiber body.
“We are not quite sure what Apple is prepared to do,” Friedrich Eichiner, the chief financial officer of BMW, said during a meeting with a group of reporters in Frankfurt. He said he thought Apple was still trying to understand the implications of getting into the car business. “Financially they are very strong,” Mr. Eichiner said. “They could do it.”
Luca de Meo, head of sales and marketing at Audi, another Volkswagen unit, said it would be out of character for Apple not to build its own vehicle, if it decides to get into the car business. “The Apple style is the ability to do software and hardware at the same time,” Mr. de Meo said in an interview.
The traditional carmakers’ big advantage is that they have already mastered the formidable complexity of manufacturing vehicles that are reliable, comfortable and safe. But it is becoming more feasible for a newcomer to outsource vehicle manufacturing the same way that Apple outsources production of iPhones. And the outsourcer wouldn’t necessarily be in China.
One company already working with Google is ZF, a large German auto components supplier that in May completed an acquisition of TRW, a company based in Michigan that provides auto electronics such as airbag systems. TRW has been working on sensors and other hardware for self-driving cars.
Stefan Sommer, the chief executive of ZF, said the company would be able to produce a Google-branded car along with two or three other partners supplying components that ZF can’t, such as sheet metal body parts. “We would be a partner in that, for sure,” Mr. Sommer said in an interview.
But he said ZF could not work with Apple under the conditions it now imposes on suppliers. ZF sees itself as an innovator, not just a supplier. In Frankfurt, it displayed a car with electrically powered wheels that allow the car to turn 360 degrees almost on its own axis. ZF could not agree to demands by Apple for exclusive rights to such inventions, Mr. Sommer said.
While Apple and Google pose a threat to traditional automakers, the mood in Frankfurt is not gloomy. Not long ago, analysts were predicting that the auto industry faced long-term decline. Surveys showed that younger people were less interested than their parents in cars and driving. But if Apple and Google are interested in the car industry, auto executives reason, cars and driving must be cool again.
“It’s confirmation that we are working in a future industry,” said Ola Källenius, head of marketing and sales for Mercedes-Benz cars.
Apple and Google have given the car industry a jolt. Now the question is whether carmakers can respond quickly enough.
And they are trying to raise their games. Daimler, for example, reorganized its factories around the world last year, eliminating plant managers and giving control over production to the executives in charge of different model lines. The change allowed Mercedes to introduce a new variant of its popular C-Class at four factories, on four continents, in six months — about half of what it would have taken earlier, said Markus Schäfer, head of production at Mercedes.
“This enables us to be more competitive in a world where new competitors come to the table,” Mr. Schäfer said. “We created the automobile,” he said, “and we will not be a hardware provider to somebody else.”
Increasing Computer Control
New cars are more like mobile computers than the purely mechanical machines most people are familiar with—Ars boss Ken Fisher told me once that cars would be the first properly successful wearable device, and I think he's being proved right. This often results in a degree of culture shock when people used to the old way of doing things get exposed to a new car, particularly if they didn't see anything wrong with the status quo.
Computers are in control of everything, modulating our control inputs and interpreting our intent. For example, between your foot and the pedals of a hybrid are complex software routines that decide how to juggle internal combustion engines and conventional brakes with electric motor-generator units when it comes to stopping and going. Cheap, rugged, and powerful electronics can let an engineer solve a suspension or engine problem with some code instead of mechanical fix. Is that a good thing, or is the solution an artificial one?
Americans are spending more time away from car showrooms than in the past. I'm one of them; my newest car is a 2005 Saab 9-2x Aero (one of the finest examples of badge engineering out there), which shares a garage—or would if I had one—with a 19-year old Mazda Miata. I doubt there's a single defining reason for this trend, more like an interplay between better reliability, less cheap credit, some degree of economic uncertainty, and probably a few other factors I haven't thought of.
Meanwhile, cars have been starting to change quite dramatically as a result of the technology boom. The transformation from analog to digital actually started quite a while ago. We made computers responsible for looking after the engine, the brakes, and the gearbox, then we leveraged those computers to assist drivers. Traction control. Stability control. Cruise control. All of these will be familiar to you even if you last drove a new car in the mid-2000s.
Then electronics took over the throttle and the steering, and now you can reprogram a car's mood with the scroll of a jog-wheel. Set a car to "Sport" mode and suddenly the gas pedal remaps; now you get 100 percent throttle when the pedal is only 50 percent through its travel. Tweak a control and now the steering firms up. It means that GM can build aggressive 650 horsepower Corvettes that are friendly enough not to kill the car's traditional audience of older people who like a gentle cruise. It's not just the feel of the ride, either; we can even augment a car's engine note with speakers that cancel out unpleasant harmonics.
The biggest change, at least from where I sit, is that cars can now see—and communicate with—the world around them. Cameras and ultrasonic and radar sensors will now relieve some of the driver's strain when it's time to park or cruise along a highway for hours at a time. These functions were first marketed as a convenience, options on flagship models. In the past, technology would trickle down from range-topping luxury cars into the vehicles we mortals bought. Now it's being mandated by governments that can't ignore the benefits of fewer traffic accidents or lower carbon emissions.
And if you're going to replace a car's mechanical systems with electronic ones, it stands to reason that you'd want to consolidate their control in a central location. And having one single brain controlling it all is preferable to filling a car with black boxes and pounds (or kilograms) of wires, each with just a single job to do. Cheap and rugged wireless modems have been the final touch.
(As an aside, I think it's rather ironic that we've arrived at "autonomous" as the word to describe a self-driving vehicle. When you think about it, old-fashioned cars without these sensors or data links are the truly autonomous machines, unconnected as they are from the world around them.)
Once a car is connected, leveraging that power with smartphone or wearable device apps also seems like a no-brainer. GM's OnStar paved the way, and now it's a rare hybrid or battery electric vehicle that can't use an Android or iPhone as a remote. Of course, this means letting the outside world have hooks deep into a car's control systems, the dangers of which are all too clear thanks to irresponsible stunts like the recent Uconnect hack.
All these changes make for awkward times when people happily driving decade-old cars butt up against the modern driving machine. You can see this in discussions on the Internet. The Internet commenter must be heavily underrepresented in car industry focus groups, since most posts about cars tell us that the author wouldn't be caught dead letting a car brake for them, steer for them, or shift their gears. And they certainly don't want large screens to take the place of the traditional buttons and double-DIN car stereos. Yet every OEM I speak to points at customer demand for the "smartphone experience in their cars" as the driving force behind it all.
Maybe it will come down to a debate about purity. For some, there's something dishonest about a sports car that you can switch from "docile" to "angry doberman" via a menu. I'm reminded of something Turn 10 Creative Director Dan Greenawalt said to me a few months ago when we were discussing his studio's approach to the Forza games. I'd asked Greenawalt how his team went about simulating some aspect of racing or another, and he told me it was more about giving the player a particular experience. Should it matter if clever control software—rather than just mechanical engineering—can transform a sedate car or protect a driver if the end result is the same? Tell us what you think in the comments.
Car Companies
Selling cars and trucks won’t be enough to keep Ford Motor Co. rolling for a second century, so the company is operating on parallel paths to prepare for self-driving cars and shared vehicles, according to Executive Chairman Bill Ford.
“There’s no question our business model will look very different in the future than it does today,” the great-grandson of founder Henry Ford said Thursday in an interview. “Our management team understands we’re going to be playing in two different worlds. On one hand, we have to deliver great cars and trucks today. And yet, we need intellectual horsepower aimed at charting a path through this very disruptive future.”
As more people migrate to big cities, new forms of transportation are needed to keep them mobile and avoid global gridlock, Ford said. Automakers that figure out a future with fewer auto sales and more car sharing will succeed, and those that ignore it do so at their peril, Ford said.
“If we all collectively did nothing and we stayed with the current business model, we could just end up being assemblers of other people’s stuff with a very low-margin, high fixed-cost business,” Ford said. “The company that figures out how to navigate this could really actually end up raising margins and changing the business model in a way that will be very healthy.”
Yet the U.S.-based automakers face a dire future if they don’t significantly shift their focus to self-driving cars and shared mobility, according to an analysis published last week by Barclays Plc.
U.S. auto sales may drop about 40 percent in the next 25 years because of shared driverless cars, forcing mass-market producers such as General Motors Co. and Ford to slash output, according to the report by Brian Johnson, a Barclays analyst.
Large-volume automakers “would need to shrink dramatically to survive,” Johnson wrote. “GM and Ford would need to reduce North American production by up to 68 percent and 58 percent, respectively.”
GM and the Issues
Thursday was a newsy day for GM. It announced plans to cash in on the future of transportation, with talk of autonomous vehicles, car-sharing projects and more. GM is aware of how the world is changing and wants to remain a key player.
“Some might find this massive change to be daunting, but we look at it and see the opportunity to be a disruptor,” said GM chief executive Mary Barra.
The company is saying the right things, but can it walk the walk? The automaker has plenty of ground to make up if it’s going to deliver a winning self-driving vehicle. It’s also unclear if GM can compete in the ride-sharing space, which already includes established players, such as Uber, Lyft and Daimler’s car2go.
GM said that late in 2016 it will have Chevrolet Volts driving autonomously around its tech campus. But GM is not even certain that these vehicles will be fully self-driving. A GM spokeswoman said the vehicles will be driving at low speeds, and the level of autonomy has yet to be finalized.
While GM notes its history in “connectivity leadership,” it now finds itself trailing in the race to deliver a fully self-driving vehicle — the flavor of autonomy with the power to disrupt our current paradigm. Google has 48 self-driving vehicles testing on public roads in two states. Its cars have covered 1.2 million miles in autonomous mode, and are now averaging over 10,000 miles a week. That rate will likely accelerate by the time GM’s autonomous Volts — which may not even be fully self-driving — are circling the private roads at its Warren, Mich. technical center.
Many observers expect the future of transportation to be a shift toward shared autonomy, in which fully self-driving vehicles ferry us from place to place. You wouldn’t need to own a car that would sit idle 96 percent of the time. An autonomous car service could keep its vehicles running constantly, increasingly their profitability. (Such an arrangement may be essential for self-driving vehicles, as the required sensors and software could increase the cost of the vehicles to a point that’s unappealing for consumers looking to buy.)
Uber, which has become a behemoth by injecting digital technology into the old-fashioned cab industry, appears well aware of what’s looming. Autonomous vehicles could upend its current business. So the company has hired people in droves from Carnegie Mellon’s respected robotics department to develop self-driving technology. Software helped Uber shake up the cab industry, now it’ll need more software to make sure it doesn’t get disrupted.
Still, despite the challenges automakers face from software-savvy upstarts, we’re in the early days of the autonomous vehicle wars.
“We’re coming to the age where we see the emergence of the software-defined vehicle,” said Thilo Koslowski, vice president and automotive practice leader at Gartner. “There is still an opportunity out there for multiple companies to be disruptive, not just tech companies. It is definitely still an opportunity for automotive companies.”
GM’s venture capital arm has invested in GeoDigital, a geospatial data company. For fully-self driving vehicles to work, good maps will be essential.
GeoDigital has its roots in tracking vegetation growth for utility companies. It saw that these abilities could translate to making maps for autonomous vehicles. CEO Chris Warrington said the company’s revenue has grown 40 percent year over year, with much of the gains coming in autonomous driving.
If they want to be disruptors, GM and other established automakers will have to wrangle the full suite of self-driving technologies. The tech companies are new to cars, but old hands at the increasingly important skill — software.
While Google, for example, has expressed an interest in partnering with automakers to bring its technology to market, the arrangement may not be ideal for GM. Automakers would essentially be the hardware providers, and Google the software provider. Generally hardware becomes a commodity with narrow profit margins, while the differentiation and larger profits go to the winning software provider.
It’s worth noting that today most consumers don’t see their cars as commodities, they differentiate between brands and have allegiances to Ford or Chevy or Honda. But if the future is shared autonomy, where consumers press a button on their phone to get from A to B — and don’t own their vehicles — car brands will matter less. (Ask anyone using Uber if they care what brand of car picks them up.) So for GM to be a true disruptor, software is where it must excel.
GM March 2016
GENERAL MOTORS IS going full-on prepper. The Detroit giant isn’t wild about the fact that the century-old model of car ownership is changing, but it’s smart enough to know that change is inevitable. And so it is busily preparing for a world in which people won’t just stop driving cars, they’ll stop buying them.
This morning, GM announced it is acquiring Cruise Automation, a San Francisco startup focused on developing driverless cars. It is one of the clearest signs yet the automaker is looking beyond simply adding autonomous features toward the day when it builds fully autonomous robo-rides and deploys them in a ride sharing network. No human driving, no car ownership.
The acquisition is the latest step in a plan GM started in January when it invested $500 million in Lyft (a deal that saw GM President Dan Ammann take a seat on Lyft’s board) and announced a joint venture to develop a network of autonomous vehicles. “We’re being pretty clear that we see the fully driverless car particularly in an on-demand network,” Ammann says.
Granted, GM is no stranger to autonomous tech. The automaker has been developing such technology since 2007, when it collaborated with Carnegie Mellon in the Darpa Grand Challenge robo-car competition. It’s planning to deploy a fleet of self-driving Chevy Volts at its technical center campus outside Detroit.1 Next year it plans to offer Super Cruise, which will let some Cadillac models handle highway driving much like Tesla’s Autopilot does with the Model S and X. But compared to full autonomy—the ability to handle any situation without relying on human intervention or decision-making—something like Super Cruise is about as complicated as putting a nut on a bolt.
So that’s where the deal with Cruise could help. The small company started out making a $10,000 kit that could turn current cars into autonomous ones. But about 18 months ago, says founder Kyle Vogt, it shifted its focus to the more complex problem of developing the software algorithms that could make full autonomy possible. It hasn’t publicized its progress, but Ammann says GM is “impressed by the speed with which [Cruise is] solving some of the most challenging technical issues around autonomous vehicle technology.” Under the deal, Cruise will remain its own operation and stay in San Francisco. Ammann wouldn’t disclose how much GM paid for the startup, but says GM plans a significant investment to build up the team and its capabilities.
It’s not clear what a GM/Lyft self-driving car network would look like, or when it might arrive. But it’s becoming increasingly clear that GM is serious about making it happen, and addressing the inevitable changes facing the industry.