Can fast change in self-driving autos equal profits? – Detroit Free Press
The announcements come daily, sometimes hourly.
Ford pledges a self-steering, self-accelerating, self-braking car by 2021. Volvo and Uber promise 100 autonomous XC90s on Pittsburgh streets by year’s end. General Motors has a handful of self-driving Chevrolet Bolts in San Francisco and Scottsdale, Ariz.
No sooner had Uber announced its Pittsburgh project than it acquired Otto, a 90-person start-up that has developed self-driving truck technology.
As head-spinning the pace of change, no one has found a way to make money from a service delivered through a product that may not be sold to consumers anytime soon, if ever.
If you think Apple making a car is a stretch, can you imagine the Detroit Three competing with Uber, Amazon or even iTunes, by selling shared mobility through apps? They may not have a choice.
Volvo’s tie-up with Uber is just the latest example of a car manufacturer hooking up with the ride-sharing giant. Toyota has made an unspecified investment in Uber. GM is committed to putting autonomous Bolts in Lyft fleets, but has not said when.
These cars won’t be sold at dealerships for personal use.
Lyft co-founder John Zimmer told Bloomberg News earlier this year that 80% to 90% of all shared rides occur in the 20 largest metro areas.
Today, about half the world’s population lives in cities. By 2050, that will grow to three out of every four people. In the largest mega-cities, owning, operating and parking a privately owned vehicle will be prohibitively expensive and inconvenient in gridlocked traffic.
“All the major automakers can see that their business model based around simply building a vehicle and selling it for a profit may not sustain them in the second half of this century,” said Ian Riches, director of automotive practice at Strategy Analytics in London. “Unless they do something they’re almost guaranteed to fail.”
Uber is well-established and well-financed, and is causing partnerships between manufacturers and mobility technology start-ups to accelerate.
Last month it sold its China business, which had lost $2 billion over the last two years, to competitor Didi Chuxing for $1 billion, while retaining a 20% stake in Didi. Before that it had raised about $15 billion from various sources, including $3.5 billion from Saudi Arabia’s Public Investment Fund.
Uber remains privately held, but venture capital firms estimate its market capitalization at $68 billion, or nearly $20 billion more than General Motors’. If the company pursues an initial public offering, investors will see how much it is making or losing, although CEO Travis Kalanick has said the business is profitable in the U.S. and Canada.
Who will drive partnerships?
Traditional automakers have succeeded at service-based businesses — most notably their financing operations, and in GM’s case, the subscription-based OnStar driver assistance and infotainment system — but on-demand mobility will be new turf.
If you partner, as GM has done with Lyft, how do you divide the revenue between partners, especially when one of them bears a much larger share of the engineering and manufacturing costs? How much do you pay your drivers, who will still be part of the business for the foreseeable future?
Uber and Lyft see full autonomy as a way to reduce their largest cost (recruiting, screening and paying drivers). But when these driverless cars are street-legal, the ride-hailing firms will have to pay whomever makes them.
Sam Abuelsamid, a former engineer and now senior analyst with Navigant Research, said some automakers could decide to compete directly with Uber and Lyft.
How will they recoup their manufacturing costs? Will rates fall as more competitors enter the market? Will rides in autonomous cars cost more than those with a driver?
It’s too early to know.
“In the short term they may have to subsidize it from their traditional business, but their advantage is they won’t have to buy cars. Uber will,” Abuelsamid said.
Car brands will survive
Then there’s widespread uncertainty surrounding federal and state safety standards for self-driving vehicles.
The National Highway Traffic Safety Administration was expected to release an initial set of guidelines in July, but they have been delayed.
What does this technology race mean for the brands of automakers, which have been rooted in performance, excitement, emotion, consumers’ self-images and, of course, safety?
No car lovers who cruised Woodward this past weekend in their cherished muscle cars should fret that they won’t be able to buy a new Mustang, GT, Camaro, Corvette, Charger or Challenger Hellcat in the next 10 years.
But a new language has taken over automakers’ conversations, public relations and even marketing initiatives. The vocabulary includes artificial intelligence, algorithms, sensors, micro-cameras, Lidar (Light Detection and Ranging), radar and 3D mapping as much as horsepower or torque.
Perhaps new brands will arise. For example, GM created Maven for its car-sharing service. Or Uber autonomy by Volvo.
“There’s no guarantee that any of this is going to work,” Abuelsamid said. “Everyone believes that autonomy is certainly the future. Nobody wants to be left out.”
Contact Greg Gardner: 313-222-8762 or email@example.com. Follow him on Twitter @GregGardner12.