Illustration: Sarah Grillo/Axios
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.