Good morning from the rather sleepy North American International Auto Show, where I'm still finding plenty of news worth sharing.
- Today's Expert Voices post is from automotive investor Justin Ho, former head of strategy at Uber who is now CEO of rideOS, which is developing technologies for ride-hailing AVs.
Situational awareness: Ford is recalling some 2019 Lincoln Nautilus crossover utilities to fix its assisted driving system because the hands on/off detection warnings might not function properly.
1 big thing: Carmakers hedge bets on electric, self-driving future
Ford and Volkswagen said Tuesday they plan to pool their efforts on electric and self-driving cars — proof that even some of the most powerful automakers in the world aren’t sure where the technology is headed.
The big picture: Strategic bets are becoming larger and a lot riskier for the auto industry, which used to worry only about whether next year's model would sell.
Now, traditional sources of revenue are drying up and new players are competing for tomorrow's customers. It’s an awkward transition for most, and companies like Ford and VW must decide how much to expose themselves to a future that is far but certain.
Driving the news: Ford and VW are forming a global alliance to develop commercial vans and medium-sized pickups together while exploring broader cooperation on future battery-powered and autonomous vehicles and services.
- Their first jointly developed vehicles would arrive by 2022, producing savings that would generate stronger profits starting in 2023.
- Ford will take the lead on pickup trucks and large delivery vans, while VW will develop small vans for crowded cities.
- The deal has practical implications near-term, and allows them to hedge their bets on the future.
- "Both Ford and VW expect an uptick in EVs and AVs, but that's not determined yet. We still have to prove to the world that people will want them," Ford CEO James Hackett told reporters and analysts at the Detroit auto show.
What's happening: Global automakers are investing some $255 billion to bring more than 200 EVs to market by 2022, knowing most will be unprofitable, says global consulting firm AlixPartners.
- Another $61 billion — just the opening ante, Alix says — is being spent by carmakers and tech giants on future self-driving cars.
- To share the cost, more companies are collaborating, including Fiat Chrysler-Waymo, GM-Honda, and Toyota-Uber.
Yes, but: Consumers aren’t yet on board. EVs today account for less than 3% of worldwide car sales and most Americans say they're afraid to ride in an AV.
- An AlixPartners survey found consumers say they are willing to pay $2,300 extra for AV technology — systems that cost about 10 times more than that today.
"No consumer is saying I want a self-driving vehicle. What they want is safe, convenient and affordable mobility. That hasn't changed in 20 years."— Joe Vitale, global automotive leader, Deloitte
The bottom line: Collaboration may be the best strategy in the face of what AlixPartners warns is a "monumental capital drain."
"We are a big company, with large resources, but in view of what this industry is going to face, partnerships are going to be necessary."— Herbert Diess, CEO, Volkswagen AG
PS: Everyone should reread the late Fiat Chrysler CEO Sergio Marchionne's 2015 presentation, "Confessions of a Capital Junkie," which warned that the industry could go broke chasing redundant technologies.
2. What's next: Industry consolidation and refocus
Dozens of AV-related companies have launched in the past few years, but recent consolidation suggests there may be a limit to how many companies can muster the data and talent to succeed, rideOS CEO Justin Ho writes for Axios Expert Voices.
The big picture: As saturation continues into 2019, players lacking in capital face a choice between joining a more powerful player and narrowing their focus.
Teaming up: Through mergers and partnerships with larger players, companies focusing on specialized hardware or software like augmented reality (AR) can gain access to deeper pockets and wider distribution networks.
- Lyft recently acquired AR-focused startup Blue Vision Labs, as well as specialized startups FinitePaths, YesGraph and DataScore. Lyft has also partnered with Magna, one of the world’s biggest automotive suppliers, to expand its reach.
- nuTonomy, a software startup, was acquired by automotive supplier Delphi to create an AV platform that can be licensed to other automakers and tech companies.
- Mobileye, a sensor-focused startup, was acquired by Intel Corp., which also entered into an alliance with BMW, Continental AG and Fiat Chrysler to accelerate AV deployment. Mobileye gains resources and reach, Intel is now in the AV race, and the car manufacturers gain partners against their competition.
Going it alone: Cornering the market on a specific AV use case or technology can set up a smaller company to sell their product to larger players that don’t have the expertise to build it in-house.
- Companies like Zum and Volvo Trucks have focused on services like transporting kids to school or trucking in dangerous areas.
- Others, such as Voyage, May Mobility, Optimus Ride and EasyMile, aim to deploy in controlled environments like retirement communities, downtown areas or college and corporate campuses.
- Perceptive Automata and rideOS have focused on developing mapping and routing and predictive technologies with the hopes of providing solutions to the likes of Ford and Honda.
The bottom line: The AV industry is nearing a tipping point. Expect fewer new startups aiming to scale up on their own and more consolidation.
Go deeper: Read the full post.
Ho is the CEO and co-founder of rideOS, which is developing a platform for ride-hailing services.
3. Smaller tax refunds could slash U.S. auto sales
Last year's tax reform spurred stronger-than-expected car sales by giving consumers more disposable income, but the payback will come this spring when many Americans could discover they're not getting the tax refund they had expected.
Why it matters: Car sales are a key driver of the U.S. economy, and the industry sees a big uptick every spring as consumers turn their tax refund into a deposit on a new or used car. Without that seasonal bounce, 2019 auto sales may be lower, making a recession more likely.
Background: Cox Automotive chief economist Jonathan Smoke spoke to reporters on the eve of this week's Detroit auto show and made some points...
- The U.S. auto industry sold 17.2 million cars and light trucks in 2018 — the fourth-best year in history — and higher than most economists predicted.
- The biggest reason for the missed forecasts: They underestimated how flush Americans would feel after Congress passed a massive tax cut in 2017.
- Businesses also bought more vehicles for their corporate fleets, taking advantage of lower tax rates.
- Go deeper: Smoke's blog has more on the tax impact.
What's happening: Some consumers may be surprised to learn they are receiving no tax refund in 2019, a smaller one than expected or that they might even owe the government money, Smoke says.
The bottom line: Cox Automotive, the digital information giant behind AutoTrader, Kelly Blue Book and Manheim Auto Auctions, sees U.S. auto sales falling to 16.8 million units in 2019.
Go deeper: Read the full story.
4. Driving the conversation
Slow start: Lincoln is winning the battle against Cadillac (Richard Truett — Automotive News). Here's my take on why this may be true...
- At the Detroit auto show, GM announced that Cadillac will be the carmaker's lead electric brand and will once again "represent the height of luxury and innovation."
- Yes, but: The first Caddy off GM's new EV architecture won't arrive until 2021, and by then many other luxury EVs will be on the market.
- Meanwhile, Cadillac's latest model, the XT6 SUV, drew yawns from the media.
- It's also launching without GM's impressive Super Cruise hands-free highway driving technology, which seems like a missed opportunity.
New start: Robotaxi startup Zoox hires Intel exec Aicha Evans as new CEO (Alan Ohnsman — Forbes)
- Why it matters: Intel’s former chief strategy officer replaces Zoox co-founder Tim Kentley-Klay as the self-driving car company marches toward commercialization. Evans is the first African-American woman to lead an AV technology company.
Won't start: Infiniti electric car dies before reaching Detroit auto show stage (Amy Huschka — Detroit Free Press)
- Buzz: Infiniti execs shook off what should have been an embarrassing moment during a press conference to unveil their newest electric concept vehicle, later calling their finicky QX Inspiration a "diva" who refused to come onstage.
5. 1 safety thing
It's fun to imagine lounging in our cars once they start driving themselves, but safety engineers are worried about how to make sure we'll still be protected if there's a crash.
Why it matters: A dashboard-mounted airbag could land like a sucker punch in the back of the head if we've swiveled our chair around to talk to rear-seat passengers.
What's happening: Autoliv, a major supplier of airbags, seatbelts and steering wheels, has developed a new "life cell" airbag, which provides protection regardless of how a driver or passenger is seated.
- When activated, the airbag resembles a protective cocoon.
- Autoliv is working with seat manufacturers to integrate it into the seat frame, allowing for flexible seating configurations.
- The cocoon could help shield the passenger from free-flying objects, including unbuckled backseat occupants or loose items in the vehicle.
- Autoliv is showcasing its airbag this week at AutoMobili-D, the technology exhibition at the Detroit auto show.