Self-driving Uber vehicles are lined up to take journalists on rides during a media preview at the company’s Advanced Technologies Center in Pittsburgh earlier this month.
As I ponder the changes that driverless cars will cause across our societies, one of the difficulties is trying to understand what the speed of adoption might be. That is because speed of adoption has huge consequences on the levels of disruption that will occur. The speed of adoption linked into all sorts of factors including:
- Production bottlenecks in the supply chain such as raw materials, and battery supply.
- Production capacity for manufacturing of electric driverless cars.
- Technical issues in achieving true Level 5 automation (think no steering wheel).
- Political and legal issues around liability and insurance.
- The balance between the numbers of cars in personal ownership, and the number owned by big companies providing transport services (think Uber/Lyft/Didi and new entrants like Waymo).
In turn these factors will be affected by the business models and strategic thinking of the major players. This includes car manufacturers, car ride companies, and governments.
The competition is going to be brutal. Existing car companies will be going up against each other, and new competitors. The new competitors include car ride sharing companies, and new car manufacturers.
Some of the major problems in implementing driverless electric cars as a transport service can be largely solved by car ride companies. The problems include the following:
The Initial Scale/Network Problem
The problem if you want to offer transport as service is you have to get to scale before customers will even contemplate using your service. You cannot put 100 cars on the road and say here I am. This is like the network problem of the first fax machine but on a much larger scale. Who buys the first fax machine? You might buy half a dozen of them so you can communicate between distant offices of the same company. The real value comes when it is a standard system adopted by many people. The problem with transport as a service is that it is much larger. The reality is that people will not use your service until they can consistently get a car in a reasonable time frame to take them wherever they want to go. That needs massive scale and is the reason why Uber was so aggressive in recruiting drivers in target cities. They needed a critical mass to drive customer demand.
A new entrant with electric driverless cars can provide this service but they will need a lot of cars. If you need 100,000 vehicles at peak time in Melbourne (where I live) to supply that service it requires a lot of capital. If the cars cost $50,000 each it is going to cost you $5 billion just for the cars. That is apart from the costs of the platform to run the system, plus the initial trading losses that will be incurred before breaking even. Not many organisations will have that sort of money, and that might just be for one city. Waymo or Apple might be an exception given the masses of cash that they have. The existing car ride companies got around this problem by using other people’s cars. Difficult to do that for driverless cars although we will explore a model for that in a later post.
The existing car ride companies (Didi, Lyft, Uber, etc) are already at the scale needed to supply the services for their existing customer base. Adding driverless electric cars into that service is somewhat analogous to the electricity grid. Once the standard utility service is in place (think poles, wires, plugs and standards for electricity, and roads and traffic systems for cars) you can make additions as long as they fit the system. You can add a new coal generating plant, or a new gas plant, or new solar capacity and power comes out at the socket. My desk lamp does not care how the power was generated. In the case of a car ride service as long as the customers accept a driverless car you can put that into your system alongside your existing fleet. You may need to drive (sic) demand by offering discounts for the driverless vehicle to get people past their first stages of discomfort. In my case the safety factor is likely to be the key initial driver for change but I am an outlier.
The Capital Problem
If you are a company that wants to supply transport as a service you will want to scale as fast as you can. Ideally you will offer a service in 50 cities in the first 3 – 5 years. If we assume that takes 100,000 vehicles in each city and each car costs $50,000 you now have a cost of $250 billion. If you add in technology platform costs , and initial losses you might have to find $350 billion. That is a lot of coin in anyone’s language. Even if the required vehicle numbers are much lower it is still going to be a massive capital investment.
Even if you don’t move that fast you will have to make large bets in the target cities where you first invest.
If you are a car ride company you can scale by steadily adding cars to your existing services in all those cities. That should have the effect of reducing your costs, and improving your bottom line at a much slower capital burn rate. You can also play a much more agile strategic game. If you perceive a threat in a particular market you can scale faster in that market and slower in other markets. If adoption rates are faster in one city you can rapidly scale up volume in that city by slowing each of your other markets just a little.
The Technical Problem
The technical problem is getting to level 5 automation as soon as possible. Level 5 automation is when there is no driver required in any location or conditions. Any driverless car company will have to convince the regulatory authorities of safety at level 5. The existing ride companies have an advantage here. They already have masses of data on the travel their existing cars undertake. They can also start with say 100 driverless vehicles within their existing service. That will consist of testing them in real conditions with paid drivers in the vehicles. While a lot of advances in driverless car systems are being made using computer simulations nothing fully substitutes for real world data. Especially for politicians and for regulatory authorities. That real world data can then be fed back into simulation systems to gain an advantage in simulation programs
Existing car ride companies are the most likely path to adoption of driverless electric cars. These types of cars provide significant reductions in the cost structures for car ride services. This means that if they sit on their hands someone will come along and blow their existing services out of the water. The car ride companies have the competitive imperative to go down this path. They also have some significant competitive advantages in executing the strategy. That does not mean they will be successful, just that they have a head start.
In our next post we will take a closer look at some of the players, and the tactics that might be involved.
I am writing a book on autonomous vehicles with Dr Chris Rice from Texas. It is called Rise of the Autobots: How Driverless Vehicles will Transform our Economies and our Communities. Stay tuned for more excerpts as we finalise the book.
Note: Featured image is from NPR