driverless cars

Driverless Buses: The Specific Medium Trip Proposition: Luxury and Space

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cold class cinemas recliners for luxury bus travel

In a previous post, I have explored the problems with short haul bus travel once driverless electric cars are a car ride service. There is a possibility that there may be a sweet spot between long-haul bus and short haul bus services. Bus companies can save significant costs by using driverless electric vehicles. If they use those savings to pamper passengers instead of cutting costs, they may well win the medium haul travel war.

The change of buses to driverless electric buses will make them more competitive with air travel. This is especially true over distances up to the 300-km mark. Most flights in Australia are longer than that, but there are plenty of short-haul flights in other countries. Once the distances get too long the faster speed of planes starts to take a competitive toll. Bus companies might be able to offer a significantly lower price to catch a driverless electric bus from Melbourne to Adelaide (727 km). The problem is that the flight is 1 hour and 20 minutes and the bus trip is around 10 hours depending on traffic. Even allowing for the delays of getting to the airport and moving through through security we are probably talking 3.5 hours versus 11 hours. Only people who cannot afford the fare are going to be taking that bus. Especially when you can get tickets that are sometimes close to competitive with the bus fare if you travel at the right times.

As an example of the medium length trip, let’s take the Sydney to Canberra flight which is 283 km. The flight time is 55 min, and a discount airfare is about $151 plus $25 for a taxi at the other end. Flights to Canberra are often more expensive than most other major city flights in Australia. This is due to the significant demand for flights during the weeks that the Federal Parliament sits. Between the Parliamentary sitting weeks, there are a limited number of flights. According to Greyhound Buses, the bus travel time is 3 hours and 30 minutes to 4 hours.

The reality is that while the flight time is 55 minutes the real travel time is by air is closer to 3 hours. You must be at the gate 30 minutes before the flight leaves. Airport traffic congestion means leaving the CBD at least an hour before that to avoid the risk of missing your flight. At the other end, you need 20 minutes to get a taxi and get to the CBD. Of course, there is some extra time for the bus as well, but it is minimal. So, let’s say it is 3 hours for the flight versus 4.5 hours for the bus. The current saver fare for Greyhound is A$38. If we use our previous assumptions on cost reductions for driverless electric buses (see The Coming Bus Apocalypse) we could get the price down to $23.

You might not be able to attract many more passengers by that cost reduction when the airfare plus taxi is already five times the current bus cost. That is a fair argument. What you can do though is take that price reduction and put it into more comfort and services. This produces a fantastic value proposition when the airlines are just trying to cram in more people. Imagine efficient workstations, Gold Class cinema type recliner chairs, and even nap pods for customers. What about soundproof gaming rooms so your children can game while you relax and take in a movie. Two adults and two kids for $152 for a luxury bus trip versus $625 on the plane sounds like a killer value proposition. The price might remain the same but comfort and experience are much better because the bus company can offer the same price but 60 or 70% more space.
Smaller buses with much better space than planes can come and pick you up from your house or business and take you in luxury. Eliminating the driver from a smaller bus has a much more significant impact per passenger than removing a driver from a larger bus.

Most of the current airline and bus transport models use the principle of maximising capacity utilisation. Most of the costs of driving a bus or flying a plane are fixed costs. Every extra passenger contributes an enormous percentage of their ticket price to the bottom line. Electric driverless buses are likely to head in the opposite direction for journeys where bus trips take not much time than flights.

It is a matter of changing the model where costs per passenger kilometre drive all thinking.

This will have significant implications for bus companies, and bus manufacturers. Bus companies will have to rethink routes and bus configurations. They will also have to rethink customer service. Bus manufacturers will have to rethink bus size, bus interiors, and bus power systems.

Paul Higgins

I am writing a book on autonomous vehicles with Dr Chris Rice . It is called Rise of the Autobots: How Driverless Vehicles will Transform our Economies and our Communities. Follow us here to see more excerpts as we write.

Come visit our website to see more of my work.

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Driverless Electric Cars as a Service – One Adoption Scenario

/ futuristpaul (Paul Higgins) / 1 Comment
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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

 

 

An Initial Model for Autonomous Trucks in Australia?

/ futuristpaul (Paul Higgins) / Leave a comment

Updated with long distance vehicle announcements

 

A recent announcement in the United Kingdom has the government allocating 8.1 million pounds to a truck platooning trial:

Semi-automated truck convoys get green light for UK trials

Platooning is essentially like bicycle pelotons in road races like the Tour de France, where riders get sucked along in the slipstream. Until you have actually participated in one, you do not realise how much easier it is to ride in the group. I knew that intellectually, but the experience is something else. For trucks this means less congestion and less fuel use. In order to achieve these results the artificial intelligence and sensing systems that controls the trucks have to be much better than human drivers so that the trucks can drive closer together.  In the UK trial the speeds and steering will be controlled by the lead vehicle.

Total autonomy for vehicles on the road is known in the industry as Level 5 autonomy. This is where vehicles can control themselves in all road conditions. We are a long away from this technologically, so the trucks in the trials will have human drivers who can take the wheel at any time. The problem with this is that driver attention will naturally wane and this may impact on reaction time. In this trial this may be dealt with by periodic blocks of time where the human driver must take command of the truck – whether there is a need or not.

The medium term adoption pathway here in Australia may be different due to the road conditions and distances travelled. Here in Australia the situation for truck driving is a little different than the UK. There are much larger travel distances between the major cities, and the major inter-capital highways are less crowded. This is mirrored in the United States, especially in larger states such as Texas and California. This means that the adoption process of the technology may be significantly different.

There are a couple of technology issues in the adoption pathway that is chosen that flow into these sorts of differences and how we might choose to adopt the technologies.

Firstly there is a significant debate in the autonomous vehicle technology world about the approach of using maps versus continuous sensing. As humans we can navigate an unfamiliar terrain because our sensing and vision systems are good enough to recognise and continually process information at a level that is useful. The technology in autonomous vehicles is still not good enough to achieve that yet, and this is where mapping comes in. If an autonomous vehicle has stored in its system a map of the territory it is about to navigate, it only has to compare the environment it is encountering versus the map. This significantly reduces the job that needs to be done, reducing the pressure on the technology. In the long run it is likely that onboard vision and sense making systems will be good enough to do without maps. In the short term  having maps significantly improves performance. The timing of these changes, and the implications for strategic competitive advantage are critical when thinking about strategic decisions for individual companies, and what the overall outcomes might look like (see: Winner-takes all effects in autonomous cars for an excellent discussion on this).

Secondly, at what point will we be comfortable with no driver in the vehicle, and will this be at Level 4 or Level 5 autonomy. At Level 4 autonomy the vehicle can drive itself but is limited either by geography or conditions. This means that while the driver can be removed there needs to be some sort of geofencing, or emergency failsafe systems. For example trucks on the highway may automatically pull over if rain levels go beyond a certain level, affecting visibility. If adoption pathways can be achieved at level 4 rather than level 5 then adoption will occur more rapidly as the technology will not have to be as advanced to achieve the outcome.

So if we can build a model in a specific area of trucking where there are less complicated driving challenges, and mapping  makes a significant contribution we can create faster adoption. Which takes us back to the highways between capital cities in Australia.

In Australia 18-19% of total road freight movements are inter-capital freight movements (Truck Industry Fleet Report 2015), and there has been significant improvement in those roads over the last 20 years. For example once we get outside of the major urban areas of Melbourne and  Sydney the road between the two cities is excellent for trucks. An early adoption model for autonomous truck movements in Australia might start with transfers between Melbourne and Sydney and look like the following:

  1. Autonomous trucks operating the full distance between the two cities except for the last 30 kilometres (plus or minus) in each city.
  2. A truck changeover system on the outskirts of both cities where either the truck takes on a driver, or the prime mover is changed over to a non autonomous prime mover and driver. This is necessary in an early adoption model because the challenges of driving in the major cities are significantly higher than on the open highway.
  3. A cooperative mapping effort coordinated by the Federal Government where the road is mapped in its entirety.
  4. The formal mapping is supplemented by all autonomous trucks contributing their mapping and sensing data to a central system to continually update the maps. Therefore any new hazards or changes such as roadworks are rapidly incorporated into the maps that all autonomous trucks use.
  5. Autonomous truck support centres where the control of the truck can be taken over by a remote driver in the case of difficulties such as problems with sensors, or road conditions which are outside of specified parameters.

Many of the pieces of such an implementation pathway are already in place or soon will be. Autonomous trucks have been trialled in several locations around the world, and we already have remote control of mining systems (Mining industry looks towards a new wave of automation ,  Rio Tinto: rolling out the world’s first fully driverless mines ). We also have remote control of drones for military operations.

Around the world the trucking industry is seeing problems with an ageing workforce, with trucking jobs being seen as unattractive by younger generations (Wheels not in motion: Australia running short of truckies). A system as described above can solve some of this problem by:

  1. Autonomous trucks can operate for more hours than human drivers can, increasing efficiency of truck use and reducing overall demand for drivers.
  2. Increasing the attractiveness of trucking jobs. In many cases the long hours and time away from home are significant factors reducing the attractiveness of driving a truck. If the long distances can be handled by autonomous trucks, and the drivers can go home to their families at night then the job becomes more attractive.
  3. A truck driving job is more interesting, as the easy parts are taken over by autonomous trucks, and the more difficult driving conditions, unloading operations, and interactions with customers are covered by human drivers in short haul operations.

Eventually most trucking operations will be carried out by autonomous trucks If we want to address the shortage of current workers, reduce fuel consumption for long haul freight, and possibly reduce fatigue related accidents, a model which accelerates early adoption should be trialled.

Update

Proterra has announced an 1100 mile (1772.2km) trip of its Catalyst Bus on a single charge. (Proterra Counters Tesla’s ‘Beast’ Of A Semi With 1,100-Mile Range Electric Bus). In addition Tesla will announce its new Semi truck in October. With distances between Melbourne and Sydney of approximately 865 km, Sydney to Brisbane of 928 km, and Melbourne to Adelaide of 725 km this seems to put the intercapital freight market in the sights of autonomous electric trucks.

I am writing a book on autonomous vehicles with Dr Chris Rice of the University of Texas Austin. 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: The featured image comes from: http://qz.com/656104/a-fleet-of-trucks-just-drove-themselves-across-europe/ 

 

 

 

 

 

 

 

 

 

Sell Your Crash Repair Business Now*

/ futuristpaul (Paul Higgins) / Leave a comment

*this should not be taken as financial or business advice. If you own a crash repair business please take professional advice before making any decisions.

I am just going through the process of getting some minor damage repaired on our car and have been ruminating on the future of the insurance and repair model when we have driverless (autonomous) cars. This was also prompted by a couple of stories in The Age here in Melbourne:

Crash repair: How Ray Malone became head of ASX-listed company AMA Group

and

Driverless vehicles technology to roll out on the Tulla under trial

 

The first story describes how Ray Malone has built a Australia’s largest crash repair business, and is aiming to grow it even further. That would seem to go against the title of this post but it actually feeds into my thinking because Ray’s company provides wholesale service aftercare which will be vital in the scenario I am describing.

The second story is about how trials of driverless cars are starting here in Melbourne. This follows a large number of trials that are being conducted in various countries around the world.

Once we move to a reasonably widespread adoption of autonomous/driverless cars the local crash repair business will basically disappear except for a few large operators like Ray Malone but even his business could be under threat . The key reasons for this are:

1/ It has been forecast that autonomous cars will significantly reduce the number of car accidents that occur. This is based largely on the statistics that human error causes more than 90% of traffic crashes. So if we can eliminate the crashes caused by idiots, people under the influence of drugs and alcohol, and people driving tired or angry (Police looked into the deaths of 86 people on Victorian roads last year and found that in more than 10 per cent of cases the driver had experienced a traumatic or upsetting event.) we can significantly reduce the number of accidents.

Against this argument is that autonomous cars supplying a transport service may result in people travelling further and perhaps take more risks. Certainly it will allow elderly people who cannot drive, and young people who do not have a licence to travel in cars more than they otherwise would. There have also been arguments that because we feel safer we may take more risks as pedestrians or cyclists.  If we are conservative and say that only 50% of accidents caused by human behaviour will be eliminated we still have a significant fall in accidents.

2/ It is highly likely that we will see large fleet models emerge where large numbers of people choose not to own a vehicle. If the overall travel costs are lower than owning your own vehicle, and you can get a vehicle anytime you need one then the convenience of transport as a service outweighs the personal ownership model.  The economics for fleet owners are different than for individual owners when it comes to crash repair services. Fleet owners will want large scale service operations to reduce costs or will pay far less for the services of smaller scale operators. This feeds into a large supplier (such as Ray Malone’s company) snapping up more business. Larger scale crash repair businesses will benefit from the economies of scale that allow them to use new technologies such as robotics to increase throughput and reduce costs.

3/ The model for crash repair business location will change. Currently crash repair businesses are located in scattered locations throughout the suburbs and inner city. This is because if I want to take my car in for crash repairs there is a significant time cost for me to take my car to a location that is not near to my house or business. I have to travel to the crash repair business, and then get back to my home or place of work. So I want the crash repair business to be reasonably close. The location is mainly driven by the customer. If my personal driverless car needs crash repairs it can drive itself to the crash repair site, and a fleet service or a shared personal car service can replace my transport needs in the meantime.

If I was asked to drive my car (actual damage pictured below) to a service centre 40 km away I would not be very happy, but if my car can take itself then location becomes much less important and the costs of the business become far more important. Locating the crash repair business in areas of lower property costs with good transport links makes far more sense. It also means that the employees of the business will have lower property costs if they live locally. We already see this model in light manufacturing and food processing/handling facilities locating around hubs on ring roads, away from  inner suburbs with high property prices.

If a fleet ownership model predominates over personal ownership this effect will be even higher as large scale fleets look for cost reductions through economies of scale.

corolla damage 1

 

So if we summarise all the factors together if we assume a 45% reduction in total accidents (50% of human error crashes) and a tripling of scale that comes from the changes described above we get an 82% reduction in the number of crash repair businesses in any city.  I believe that the changes in scale may be even higher and we may end up with only 5-10% of the number of current crash repair businesses being economically viable.

If I own a crash repair business in any suburb in any of our major cities I will come under pressure from a high scale panel beater business set up on the fringes of the city with lower property costs.

So, if you are a crash repair business:

  1. Assess whether now is a good time to sell to someone else who does not understand these changes.
  2. If you think I am wrong then you should suspend that thought for just a few minutes and  think about what it means to your business and your assets if I am right. Even if you think that chance is only 5% you should set up a series of questions for yourself to monitor in coming years so that you can change your mind if the changes start to happen. Those questions include:
  • Is the practical outcome of accident reduction matching the rhetoric of the technology experts and the modellers? Look for signs of early change, cities where adoption is at the forefront of the change and make an assessment as to whether the predictions on accident reduction are true (or even going to be exceeded) and then think about the timing of the implications.
  • Look for areas or cities where the first full scale mass adoption of driverless cars might take place. For example Singapore, with a small land mass, and a relatively authoritarian government might be one. This will give you early signs of what larger scale adoption might look like.
  • Is the adoption model going to be a personal one or a mass fleet one? If the model is primarily a personal one then you should be thinking about whether you can become one of the new mega panel beaters on the fringes of the city that will survive the change. If the model looks to be a primarily mass fleet adoption one then there are less possibilities. Those fleet operators will either run their own operations which are standardised and mechanised or they will use their economies of scale to drive down margins in the businesses that supply them. You can still run a good business that way but the opportunities will be limited and will require lots of capital to create the volume throughput and economies of scale required. You will have to compete with the Ray Malone’s of this world.
  • Are any early models of very large scale, city fringe located crash repair businesses starting to emerge anywhere around the world? Are they successful?
  • Are car companies changing their business models for car repairs. For instance electric cars have far less moving parts than internal combustion cars. Does that make a difference to your business model? Are modularised car construction and repair systems emerging that will increase the capacity to adopt robotic repair and maintenance systems that will advantage large throughput car repair and maintenance systems?

While these changes may take 15 years to start to significantly impact on the crash repair business, once they become obvious the window to realise the business value by sale will quickly snap shut.

This is just one of the many implications of change from the widescale adoption of driverless cars.I am writing a book on driverless vehicles with Chris Rice (@ricetopher). It is called “Rise of the Autobots: How driverless vehicles will transform our economies and our communities. Stay tuned for more writing as we develop our thinking further.

 

Paul Higgins

The Supermarkets Demise – A Scenario

/ futuristpaul (Paul Higgins) / 1 Comment

Back in November I wrote a post entitled: Are The Two Major Supermarkets in Australia Doomed?

If you are at all involved in the retail food chain I suggest you go and read it in full. The short answer is yes, but it will be a slow train crash.

A story in MIT Technology Review last week illustrates one of the possible models that can replace the supermarket model of today:

Autonomous Grocery Vans Are Making Deliveries in London

 

Of course supermarkets will be trying to incorporate such systems into their business model as well but my view is that because of their underlying legacy systems they will find the transition close to impossible.

The story is about a quite limited trial but it points towards a possible future:

“On the back of the vehicle are eight pods, each with a crate that can hold three bags of groceries. The van is filled by human hands from a small distribution center—in this case, a larger Ocado van, which stores 80 of those crates—and sets off following a route to its drop-offs, which is broadly planned in the cloud but ultimately executed by the vehicle. When it arrives at an address, the customer is alerted via smartphone and must press a button on the vehicle to open a pod door and grab the groceries.”

In terms of the final use case:

“Clarke imagines vehicles like these being used to provide on-demand delivery of groceries from a small nearby distribution hub, so that instead of booking a delivery slot customers hail their groceries—when they arrive home from work, say, even if it’s late at night.”

This ties in with an interesting analysis of the IPO for Blue Apron, the food company which delivers meal recipes and the main ingredients for those meals to your door. In that analysis in the New York Times, chef Amanda Cohen theorised that the Blue Apron model may destroy itself. She describes the fact (which went against her initial view) that many people she has spoken to said that the Blue Apron process had given them the confidence to cook more. If she is correct then this means that Blue Apron is training its customers not to need it any more, not a great business model as it means lifetime value of a customer may be severely limited.

The combination of these stories may point to a completely different future. As Amanda Cohen says:

‘” In Hong Kong, many people swing by a “wet market” on their way home from work and pick up the vegetables, fish or beef they’re going to eat that night. Same thing in France, Latin America, South Korea or pretty much everywhere people don’t load up their giant S.U.V.s with giant quantities of groceries to store in their giant fridges once a week. The meal kit model of keeping some staples in the cupboard and getting the fresh stuff as you need it is the market way of doing things”

One of the major problems with food delivery systems and in particular with automated delivery systems is what do you do with the fresh stuff because timeliness and the refrigeration process really matters. This is exacerbated by the fact that people are home at different times of the day or night and cannot necessarily take delivery when the delivery system wants to deliver . Various ways of solving this have been proposed including smart delivery lockers in apartment buildings or the local post office, etc. I can see that models emerging where all of the non-fresh goods can be delivered by an automated delivery system from a small local storage facility where you request delivery when you are home, just like you do when requesting an Uber right now. There may even be discounts for people who take quick delivery so storage space is always available, or people who will take a shared delivery and therefore will wait longer.

If this is part of a wider adoption of driverless cars then it can be part of a larger change. Driverless cars do not need to park, or at least do not need to park in busy or congested areas. I am an advocate for a driverless car adoption model where government or privately owned fleets provide transport as a service and surpasses the personal vehicle ownership model that has dominated the last hundred years. Even if that does not come true individual owners can hire out their driverless car when they are not using it so it does not have to be parked in front of the house or the office, or at the train station.

I I imagine a changed urban environment where mass adoption of autonomous vehicles changes the urban landscape by freeing up parking areas on streets and parking facilities . The freed up space on streets creates the capacity for more foot traffic, and increases in safe bike lanes while, driverless vehicles increase the capacity for people to travel for short trips locally. The parking facilities can be repurposed for storage and/or specialty markets for fresh products.
In that changed local environment we could see a model where large scale supermarkets are no longer the norm, where specialty fresh food stores spring up everywhere within easy travel distance of people’s homes. These specialty stores would be powered by the back end logistics that Amazon creates for Whole Foods, or their competitors (go read Ben Thompson’s excellent post: AMAZON’S NEW CUSTOMER for more details on their strategy) You would pick up your fresh product and speciality items on your way home from work or by a short walk or bike ride, or driverless car ride to the local store. Automated vehicles would deliver the staples to your door on request using pre planned orders or automated ordering systems like the Amazon Dash Wand.

In many areas this could revive the concept of neighbourhoods that really work in urban environments.

There are many ways the supermarket model will be attacked in the future. This is just one possible scenario. Given the pace of driverless car adoption and capacity for the car industry to deliver the full model is still a fair way off. The automated delivery system is not so far off. It fits the four level of automated driving systems by being in a geofenced area (local delivery only from a small storage/transfer facility), and carried out at low speed to reduce the risk of accidents. Full level 5 driving automation where vehicles can go anywhere in all conditions and no driver actions required are a lot further off. That does not mean there will not be continuing experiments with automated food delivery systems.

As Ben Thompson states in his article groceries are about 20% of consumer spending (USA). That is a big prize and lots of people are going to be going after it. Long term an automated vehicle delivery system will be a part of that. How big a part, and in what form remains to be seen.

 

I am writing a book on the adoption of driverless cars with Chris Rice entitled Rise of the Autobots: How driverless vehicles will transform our societies and our economies. Follow me here or on Twitter for more updates as we write and publish.

Paul Higgins

 

 

 

Re-Purposed Electric Car Batteries and Its Effects on Electric Car Adoption/Driverless Car Adoption

/ futuristpaul (Paul Higgins) / Leave a comment

Last night I attended the Churchill Club event in Melbourne on the future of batteries. There was a great panel presenting and the discussions covered a range of battery technologies, including Ecoult which is commercialising the CSIRO ultracapacitor technology for lead acid batteries.

In particular I was interested in the presentation by Relectrify CEO and Co-Founder Valentin Muenzel who talked about Relectrify’s mission to use electric car batteries that were no longer useful in energy storage applications. This was interesting because as part of my research for a book that Chris Rice and I are writing on the future of driverless cars I had been looking at the adoption rates of electric cars as part of the rise of driverless cars. In that research I had come across an assessment by Ark Investments that had calculated the net present value of an electric car battery in a specific energy storage scenario as shown in the following table:

Ark Invest battery depreciation table

source: https://ark-invest.com/research/ev-batteries-value – accessed June 20th 2017

The basic principle is that while a battery in an electric car might have its performance degrade to a point where it is no longer useful for driving, that battery will still have significant storage capacity (think about your phone battery after 18 months – it still works but its capacity is reduced).  If you can buy that battery cheaply and adapt it to storage use then you have a cost effective solution.

Of course the Net Present Value calculation in the table is for a specified energy reserve use which has a higher price, and nobody buys an asset for its Net Present Value otherwise all you do is get your money back over time. In discussions with Valentin he told me that without giving away commercial secrets the model for them is about 50% of the value of a new battery. This is important because the cost of new car batteries is falling. An analysis of battery prices by Bloomberg New Energy Finance in January showed the pace of that change:

battery prices falling fast from Bloomberg

source: https://www.bloomberg.com/news/articles/2017-01-30/tesla-s-battery-revolution-just-reached-critical-mass  

Now this is the price of the battery itself which is not the same as an installed battery system but the progress has been amazing, and mirrors what we have seen in solar energy. No great basic technology breakthrough, but significant technology improvements driven by the cost learning curve. In a separate report Mckinsey has stated that electric vehicle batteries fell to $227/kWh in 2016 with Tesla claiming to be below $190 per kWh (Electric vehicle battery cost dropped 80% in 6 years down to $227/kWh – Tesla claims to be below $190/kWh) Rumours have also circulated that Tesla has got the battery costs down to $125 per kWh (Tesla is now claiming 35% battery cost reduction at ‘Gigafactory 1’ – hinting at breakthrough cost below $125/kWh) although the truth of that remains to be seen. There is no doubt about the rapid pace of changes occurring, just the quantum of that change.

Valentin and I also discussed the model for autonomous vehicles given that a fleet model or a car sharing model means that cars would travel far more kilometres in a year. For an electric car this means that the battery will reach its degradation limit more quickly as the battery would be charged and discharged more often. Interestingly for Valentin this meant that the battery would be worth more for repurposing, because outside of the energy capacity the battery still retained, its relative newness means the technology is likely to be more advanced, and safety and physical deterioration characteristics would be much better.

Given that storage is likely to become far more important in the future given changes in the energy generation mixes around the world it puts a slightly different complexion on the costs of electric cars. It is our view that the end game for driverless cars is mass fleets supplied as a service with hardly anybody owning a car. If electric car batteries only last 3 years in shared driverless vehicle but have significant re-sale value it lowers the lifetime cost of a kilometre travelled and therefore accelerates us to the point where the cost of running an electric car is lower than running a fossil fuel car. Lifetime cost factors less into individual car ownership decisions but if you own 50,000 cars in a mass fleet in a highly competitive market it becomes it becomes a much more important factor. This changes adoption rates and also the balance between fossil fuel and electric cars.

The effects of this will be lumpy as Valentin advised that different batteries have different degrees of difficulty for repurposing as stationary storage. This is related to the original design decisions made for the battery technology which were originally made with the purpose of electric cars in mind, not stationary storage. For example apparently Tesla has stated that their car batteries will not be repurposed and that is due to the design constraints in their battery technology.

A note of caution:

In a discussion with John Wood (CEO of Ecoult) he quite rightly warned me to be careful of the public statements of battery manufacturers and suppliers on their lifetime use. Given that we are talking about changes in technology and lifetimes of 10-15 years which are therefore untested in the real world, those are wise words.

 

Image credit: The featured image is from http://www.relectrify.com/

Beans, Uber and the Post Office

/ futuristpaul (Paul Higgins) / 1 Comment

This is the second post on social media versus messaging and its effects on suppliers into the supermarkets and business relationships with customers in general. The first one can be read HERE

As applications like Facebook Messenger or WeChat or Slack ( Slack Improves Slash Commands So You Can Call A Lyft And More From Inside Slack) move to have more and more activities and transactions inside their apps it is changing the nature of how people use their mobile devices and where they spend their time. From the applications point of view it is a very smart move because the more time that people spend inside the apps the more they can serve ads in their system . In addition if they become the gateway for all sorts of suppliers to the consumer and tie that contact with identification and other social data they can take a cut of all transactions through their application. A dual income business model.

The example that has been used to describe the Facebook Messenger changes is that of booking an airline flight which then creates a permanent one on one connection between the airline and then purchaser through which they can send boarding passes and notifications. Done in the right way and with subtle advertising approaches this link minimises friction for the consumer and provides information for the seller. An ideal win win.

If I move back to the subject of suppliers into the supermarkets the conversation has to be different. Either the product has to be different or the way it is delivered has to change in a way that reduces friction or reduces costs, or preferably both

Take me for example. As part of my preparation for the summer triathlon season I have been mostly pursuing a slow carbohydrate nutrition plan which involves replacing carbohydrates in bread,pasta,rice,potatoes, etc with complex carbohydrates and proteins. It also means much more salads and vegetables. As a result I have been eating a lot more canned fish and canned beans. I am not that particular when it comes to the brands of those cans that I buy and generally do a weekly stock up and buy what is on special that week.

Now if one or more of those suppliers is able to communicate with me inside my messaging app and give me a quick option on a weekly delivery or a tap on quantity option then they have a relationship with me that bypasses the supermarket and may tie me to their brand

Having solved that problem and reduced the friction they then have  a delivery problem. I have long been a believer that Uber is a long term data play rather than an alternative people transport company and that they will use the data they are gathering for all sorts of uses including package delivery. In the long term that will be automated between driverless cars but in the shorter term they are still options. Once Uber has enough data they can offer package pick up and delivery options to drivers based on their known patterns of movements.

If a driver is heading home anyway and can pick up 5 packages and deliver them near their home for an extra income that will be an attractive proposition to them and a low cost delivery system. The reason I put the Post Office in the title of this post is that the Australian Post Office (along with others all around the world) is struggling with its business model and profitability in an era of reduced letter postage and increased parcel delivery competition. Its major strategic assets are its locations and its special place in the hearts of the community. A partnership with Uber using the post offices as a pick up and drop off location would provide an extra income stream and also drive foot traffic into their locations. Customers could pick up their packages or the messaging app could sense that they were home via GPS and ask if they want their package delivered now.

The key question in all of this is whether the logistics costs of a personalised pick and pack system and delivery system can reduce costs to the end consumer compared to a direct delivery service into distribution centres , taking into account the margins of the supermarkets and the other costs they impose on suppliers.

The secondary question is one of a cultural change. I know from personal experience in the food business that a big cultural change is required to move from a make it and ship it out culture to a customer focused culture.

The changes to our digital tools throughout the supply chain make these questions worth asking and exploring.

 

Major Disruptors of the Next Decade Section 3 – The Uber Pivot

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This is part of a larger series on major disruptors. You can see the previous post in the series at:

Major Disruptors Section 2

The posts so far have focused on both the gains to be made from driverless car technology and the disruptive effects of that technology on various industries and landscapes. The next post was supposed to be on opportunities from driverless cars rather that disruptions. That post will be along soon but meanwhile lots of people have been asking me about the Uber business model in relation to driverless cars.

Uber has worked by displacing the taxi industry to a certain extent by harnessing unused capacity in vehicles in our communities but also by bypassing regulation and maximising the use of application and location technology. Given that the company has been valued at US$18 billion according to its latest funding round, (Taxi app Uber valued at $18 billion in new funding round) and my view that driverless car technology might be fully implementable in 10 years the question has been how does the company valuation make sense when the model is likely to be completely wiped out?

Firstly I think that the business model does have some short to medium structural problems. It is highly possible that the taxi/driver based car system is the one that will be initially replaced in the implementation of driverless cars. If this becomes clear then I think that Uber will have trouble retaining drivers and gaining new drivers in the transition period before the implementation period becomes practical. Who is going to invest in a vehicle or throw in their job, or turn down a job if they are likely to be replaced in one or two years. This is is similar to the problem that the car manufacturing industry will have close to a full scale implementation that I mentioned in my initial post.

The second issue is one that a lot of companies are facing right now and more will in the future. In a world that is changing more rapidly and where disruptive business models or technologies can turn up from anywhere how do you maintain a strategy and a profitable business model that has longevity? Market valuations are supposedly based on the forward view of cash flows (market irrationality aside). In a world where you business model only lasts for 10 years or less how do you maintain a valuation, especially if those cash flows are negative while you rapidly expand? The only way that Uber can do this is a long term vision of pivoting their business model significantly and that model has to be one of being a significant player in driverless car models. In the meantime they have to maintain a profitable or funded model that makes sense to people. In the longer term the game has to be one of using that platform to accrue a huge amount of data and expertise around customers and their travel requirements. It may seem crazy to have a 10 year plan to expand to hundreds of cities just to create a new business in the future but that is what is necessary in these times for lots of businesses. To me it is the only way that the current valuation makes sense.

 

What is your business model/strategy to deal with these sorts of issues given that as Gary Hamel has said “somewhere someone is making a bullet with your business’ name on it”.

 

 

Major Disruptors Section 2

/ futuristpaul (Paul Higgins) / 2 Comments

On Tuesday I started a blog post series on the major disruptors of the next decade. You can see the first post at:

A Series on the Major Future Disruptors of the next decade – Section 1

The first post centred on introducing the subject and looking first of all at driverless cars and the effects it may have on the insurance industry, taxis, and the road building supply chain. Today we continue to look at other sectors that may be affected in a major way:

Public Transport

A system of government subsidised and supported driverless cars would essentially be a hybrid public/private system. It is a complex issue to compare the utility of public and private transport in those circumstances but the most likely scenario is that more people will transfer to cars and away from trains, buses ad trams. The advantages of a personalised transport offering with increased comfort, door to door delivery, and specialised and personalised  services will be pretty compelling.

As always this will be a dynamic situation as less congestion on public transport may make that more appealing for some people. Overall though it is likely that there will be less demand for public transport, less demand for new public transport investment and a problem for all the shops and systems that have built up around the train and tram stops.

Hospitals and the medical supply chain

A 90% reduction in road trauma would have a significant effect on the hospital system and its supply chain. Road trauma supplies a large part of the business of major hospitals. Having suffered such trauma myself there is also a large component of ancillary services such as rehabilitation services, physiotherapy, insurance systems etc that flow on from the original trauma.

Apart from the reduction in the emotional toll if we saved $30 billion a year in hospital costs (see the first post in this series) it will have significant flow on effects in terms of short terms need for new hospitals, long term care requirements for the seriously injured, and all the income flows that come with the whole system.

Car manufacturing

Global implementation of driverless cars will mean sweeping changes to the car manufacturing system due to a number of key factors:

  • If we do not own cars then we are likely to be less concerned about the models of cars that we use and we will have far less model ranges. The experience will be far more focused on what happens when we are in the car from the point of view of connectivity, entertainment, safety and our capacity to work while in motion than they will an emotional attachment to a car model.
  • Cars will be driven far more than they currently are. Cars are currently used on 4-6% of their daily life. If we reduce the number of cars on the road by 60-70% then the mileage done by most cars will be much higher than it previously was. In fact some uses may be five times as high if a model is adopted where a basic car model is the workhorse of the system and we use other cars less for specialty occasions such as moving stuff or a luxury dinner night.

This means that it is likely that the number of car models will reduce significantly and the focus will be on durability and reliability and a faster changeover of the life of cars measured in time while they last longer in terms of kilometres traveled. So while there may be a bloodbath in car manufacturing as these adjustments are made there is the capacity to have significant reductions in the costs of car manufacturing and running costs based on improved model volumes and increased durability from improved design, and more rapid innovation cycles.

Real Estate Markets

One of the key drivers (sic) for real estate prices in inner city areas is the price of the commute to work for a large number of people. That price is both on of an economic price of vehicles, fuel and parking but also one of a personal toll in terms of time spent travelling and lack of productivity. I live I Brunswick (6km from the Melbourne CBD) because it is 15-20 minutes into the city via tram or train, it is 15 minutes to the airport (and I travel a lot interstate and internationally), and it has a car sharing service which means I save money I would otherwise spend on owning a car. I am prepared to send more money on housing for those reasons.

If the time spent travelling can be reduced by the smart use of driverless cars creating less traffic on the road, and if costs can be reduced by sharing use of those cars and no parking, and you can get all the connected services you want inside those cars would you be prepared to travel further? If you could work in the car on the way back and forwards to an office with specialised cars that allow that in comfort plus use virtual reality technologies to have meetings while you travel would you travel further? If you could have a drink on the way home and watch your favourite comedy show in the car that no-one else in the family likes watching would you travel further? Personally I would like the capacity to have a 30 minute power nap.

If the answer to any of those questions is yes it is likely to cause a reduction in price pressures for inner city living and an increasing prices for real estate a little further out.

As an extra change all those inner city car parks will disappear, freeing up more space for accommodation and/or offices. I would be factoring that into my investment thinking right now.

Postal and Delivery Services

If we think through the issues of driverless cars and demand for their services if we implement a wholesale implementation of driverless cars then obviously there will be peak demand times around travel to work that will determine overall volumes. This means that there will be lots of times where there are large excesses of available vehicles. If we combine this with the opportunity for advances in robotics to create automated delivery systems it is easy to see a system that will replace all current postal and parcel delivery systems

A semi-autonomous system that would flex and change and link to when people are actually at home rather than based on logistics systems that seek to get us to provide a window of our time would be much more efficient. Imagine a system that senses when you arrive home and sends you a message asking if you are able to take delivery in the next 90 minutes. Parcels could be kept continually in motion and exchanged between vehicles in a way that keeps the parcel within deliverable distance of your home on a continual basis using smart logarithms. This would eliminate warehousing and provide a much more efficient system and provide a much reduced cost of delivery by utilising vehicles that are already in motion and being used rather than those dedicated to delivery.

 

Urban Planning

A significant change to road use, the number of vehicles on the road, changes in parking requirements, and the desirability of living areas has significant challenges for urban planning. If this change is likely in 10 years then the changes start to impact on the thinking for urban planning well before that point. At what stage should the approaches to urban planning change? This is a very tricky question. Even if we had an implementation date right now it would still be a difficult question to answer. We should all start thinking through these issues now

 

 

Most of the focus on these issues so far has been on the disruptions of existing infrastructure, industries and business models. In the next post I will look more at the possibilities for new jobs and services that might spring from the wide scale implementation of a driverless car society.

 

Paul Higgins

A Series on the Major Future Disruptors of the next decade – Section 1

/ futuristpaul (Paul Higgins) / 2 Comments

I have had a bit of a holiday from blogging over the last couple of months due to a variety of reasons but now I am back.

Last week I did a presentation for the Cambooya Family Education Day on what the future looks like. This was both for them to look at how they should think about future investments but also to think about the future of their children and grandchildren.

We had an interesting discussion on a variety of issues and it prompted me to think a bit more deeply about the major disruptors in our global society. This was because part of my premise was that we are facing increased levels of change and disruption and therefore we need to rethink our views and measures on investments and their returns.

First of all this needs a definition. By disruption I mean a sudden change that alters a sector or industry rapidly and extensively. The definition of rapid here can be quite misleading. It took the iPhone years to really disrupt the sector and Airbnb took several years to ramp up to the size that it currently sits at but these are rapid changes when looked at form a historical perspective. Other changes such as turn by turn navigation being available on Google maps were a single individual change which revamped the GPS industry overnight.

By major I mean the capacity to completely transform large slabs of our entire society and economy.

So what do I believe are the major disruptors in the next decade.

The first of these is the driverless car. My last post:

Implementation of Driverless Cars – A case for public subsidy of private transport systems

was on how I believe there is a business case for government subsidies to implement a widespread adoption of driverless car technology given the savings that accrue to government in the process.

Given the promise that driverless cars could eliminate 90% of all accidents lets look at the industries and sectors that could be changed by such an implementation, some obvious, some not that obvious:

Car Insurance

The obvious one here is that car insurance as an industry would shrink enormously due to the reduction in accidents but there are a number of other interesting angles:

  • What happens to insurance of a vehicle where you are not driving – where do the risks lie and how do you insure those risks? If an accident is due to the failure of an algorithm then who is to blame if that algorithm has reduced the risk by 90% but still causes the accident? There is a case here for a comprehensive insurance of the system as a whole.
  • If there is wide scale implementation of driverless cars what does it cost to insure your car if you still want to drive? If you are 10 times more likely to have an accident or kill someone will anybody share those risks? If the government has implemented wide-scale adoption and is relying on the business case of reduced medical costs to fund that change are you liable for any costs incurred, including all medical costs? If so would only the super rich be allowed to drive and would we actually allow it?

Taxis

Taxis are an obvious one – put a fork in them they are done. There are some large legacy issues here. In Melbourne we are seeing protests from taxi licence holders because the government is going to issue extra annual licences which the current owners believe will devalue existing licences. Now I have little sympathy on anyone that builds a business and borrows money based on government policy on issued licences and then complains when government policy changes but there are political considerations here when taxis licences become worthless. I would not be buying one as a long term investment.

Road Building

The estimates are that we will need 30-40% of the vehicles on our roads if a complete system of driverless cars were implemented (Toward a Systematic Approach to the Design and Evaluation of Automated Mobility-on-Demand Systems: A Case Study in Singapore)

We have already started to talk to councils about what this might mean for road building and maintenance. It is clear that if we drastically reduce the amount of cars on our roads then we will need both less new roads built and less road maintenance. Of course there are all sorts of variables here about what might happen. It is likely that there would be a significant shift from public transport to private transport and that would be significantly different in different cities.

We also do not really know what happens to demand when we move from a cost that is largely embedded to one where costs are directly related to an individual decision. For instance I no longer have a car and use a car sharing service called Flexicar here in Melbourne. I estimate that it has reduced my car costs by about 60% but every time I use a car the cost is right in my face rather than being involved in my annual registration and insurance costs, or the costs of capital involved in owning a car, so I am much more likely to walk, cycle, or use public transport. The reactions of people around me are similarly different. People offer me a lift or ask me “will you have a car” or say “don’t go to that expense” when I talk about coming over when they would never do so if I owned a car. A full scale implementation of driverless cars will be an interesting experiment in people’s reaction to those costs.

What is clear is that road building companies and their supply chains will have far less demand in the long term future.

 

Please join me in the next installment where I will discuss some of the less obvious changes including effects on real estate prices.

 

Paul Higgins

 

Section 2 of this series can be found at

Major Disruptors Section 2