Autonomous Vehicles Impact – Motor Vehicles Industry

The first fully autonomous cars are expected to arrive by 2025-2030, although car manufacturers see driverless technologies as essential to their future and are already investing in new systems. However, despite the manufacturers’ enthusiasm, autonomous vehicles could erode private demand for new cars, in turn forcing car producers to look for alternative revenue streams, such as carsharing services. Investments in software and new technologies are likely to result in soaring spending on electronics in the future automotive supply chain, while the success of autonomous cars could tempt tech giants such as Apple or Google to introduce their own vehicles.

Autonomous cars are at least a decade away

Driverless car technologies have long picked human and manufacturer interest, with the first mechanical autopilots being sketched back in the 1930s. However, it is only now that autonomous cars are taking shape, thanks to advancements in digital mapping, GPS, computers and sensor systems.

Premium and mass-market car manufacturers are now seeing driverless car technologies as essential to their future. As of 2016, car manufacturers such as Mercedes-Benz or BMW are already offering advanced autopilot systems, with BMW promising to launch a fully autonomous vehicle by 2021. Other manufacturers, such as Audi, GM, Toyota or Volvo, are also developing their own driverless car technologies. Over the 2010-2015 period there were more than 5,700 driverless technologies patents registered.

The future of driverless cars will largely depend on legislation and consumer willingness to adopt new technologies, with mass commercialisation likely to take at least 10 years. The first fully autonomous cars are expected to arrive by 2025, most likely debuting in the premium passenger car and heavy truck segments, buyers of which are less sensitive to price increases.

Demand from private consumers to decrease, forcing manufacturers to look for new revenue streams

Despite the car manufacturers’ enthusiasm, autonomous vehicles could send shockwaves across the car industry by eroding private demand for new cars. On average, households accounted for 35% ofmotor vehicles market value as of 2015.

However, this share could shrink significantly as autonomous cars would be able to provide Uber-like services and reduce the need to own a personal car. Research suggests that personal cars sit unused for about 95% of the time, thus autonomous carsharing services could be an attractive alternative, at least for some private buyers. For example, a worst-case scenario suggests that autonomousvehicles could erode new car sales in the US by 40%, in turn forcing manufacturers such as Ford or GM to cut car production in the US by half.

Nevertheless, car manufacturers could be able to compensate such losses using alternative revenue streams, such as carsharing services. The first signs of that are already visible, with US giant GM investing US$500 million in ridesharing company Lyft in 2016, with future plans including the introduction of GM’s driverless cars in Lyft’s fleet. German manufacturer Mercedes-Benz is also developing its own carsharing platform in Europe and North America under the Car2Go name.

Countries most Dependent on Household Purchases, 2015

Source: Euromonitor International from national statistics

Autonomous cars to change supply structure

Over the next five years autonomous cars are expected to disrupt the automotive ecosystem and change the supply chain. Intra-industry trade, which could be used as a proxy to estimate the strength of suppliers, stood at 35% of total costs on average in 2015. However, this share could decrease in favour of technology companies.

Intra-Industry Trade: Indicator of Suppliers’ Strength

Source: Euromonitor International from national statistics

Driverless technologies require sophisticated software, forcing the automotive industry to invest in new fields. For example, component manufacturer Delphi Automotive acquired Ottomatika, an autonomous driving software company in 2015, and took a stake in laser sensor manufacturer Quaenergy. There has also been interest among car manufacturers in taking over Silicon Valley start-ups, with the most significant example being GM’s acquisition of Cruise Automation at an estimated US$1 billion price.

The emergence of driverless car technologies could also give more power to already established tech giants, such as Apple or Google. Up to now automotive companies have been leading in terms of driverless car technology patents (see Table 1), but if the autonomous car market proves to be lucrative enough, tech giants could accelerate their investments and become a real threat to traditional car companies and components suppliers. Tech giants could gain from their experience and expertise in developing and integrating software as well as their broad pool of software engineers.

Overall, autonomous cars are likely to result in growing expenditure on technology and electronics. Estimates suggest electronics could account for 50% of car manufacturing costs by 2030, up from roughly 30% in 2015. Moreover, it is very likely that traditional automotive companies and suppliers will continue investing in software and technology companies as well as in carsharing platforms, in order to withstand competition from tech giants and offset the shrinking demand from private buyers.

Table 1. Top 25 Companies by Driverless Technologies Patents

Source: Euromonitor International from Autobild, Thomson Reuters