The autonomous vehicle cash grab
Billions of dollars are flowing into autonomous vehicle development from all corners of the auto and tech industries, with no clear path to success for anyone.
Why it matters: Self-driving technology is not a first-mover, winner-take-all contest. Technology advancements matter, but companies will need to carve out a profitable business model that capitalizes on their strengths — and stop investing in races they can't win.
The big picture: Spending on AVs, by traditional automakers and newcomers alike, is forecast to grow to a cumulative $85 billion through 2025 — on top of $225 billion spending for electric vehicles, according to AlixPartners.
- They're all chasing a multitrillion-dollar global mobility market that Boston Consulting Group says puts $380 billion in profits up for grabs.
One way it could shake out profitably for all — at least in AV ride-hailing — is outlined in a new paper by researchers at the Clayton Christensen Institute. Per the paper...
- The odds of success heavily favor the incumbents, Uber and Lyft, which could be a platform for others to deploy AV fleets, though the authors didn't consider who would own or manage those vehicles.
- Well-resourced competitors like Waymo, Cruise and Argo AI could mount a challenge with their own robotaxi services, but that will be enormously expensive and unlikely to succeed.
- Instead, those companies would be smart to focus their efforts on monetizing what is likely to be the scarcest technology in AVs: the operating system. In essence, Waymo and Cruise should become the AV equivalent of Microsoft.
- Startups targeting simpler AV applications — like Voyage offering rides in retirement communities and May Mobility filling gaps in public transit — should abandon dreams of moving upmarket and just master their niches.
Yes, but: No one is ready to yield what could be the most lucrative aspect of the AV ecosystem: the customer relationship (and the data that comes with it).
- "That’s like calling the game in the first 5 minutes," says Argo CEO Bryan Salesky in an interview. "There are many more innings to go. The game has barely started."
- "Having a personal mobility experience with a tailored, purpose-built vehicle with the experience you want to have — the right temperature, the right music — that doesn’t exist yet."
- "To say that people won’t switch from those who were first (in ride-hailing) to those who offer a better experience is crazy to me."
What we're watching: A more likely scenario, in these early days of autonomy, is that companies will carve out footholds on a city-by-city basis, says Brian Collie, head of Boston Consulting Group's automotive and mobility practice.
- For example, Cruise is targeting San Francisco, Waymo is in the Phoenix area, and Argo is testing in Miami and Washington, D.C., among others.
- AV companies need to perfect their technology and gain experience in ride-hailing in one city before they can expand to others, Collie says.
- Every city is unique and for each new locale an AV developer will spend $300 million to $400 million to prepare for deployment, not including the vehicles, he says.
The bottom line: For the next decade or so, there's room for multiple players — with different winners and different business models in each city — but long-term, expect consolidation.