In recent months, a vision of a shared, electric, and largely autonomous mobility future has emerged in policy circles, but experts at two conferences hosted today by the Department of Energy expressed strong disagreement on how this future would shape trends in vehicle ownership and sales. Panelists also explored how Silicon Valley will influence the automotive industry, as the tech industry brings its deep pockets and disregard for regulatory structures to bear.
“There’s no clear threat to traditional ownership models. Millennials do, in fact, like cars, especially after they grow up and move to the suburbs. If vehicle miles travelled doesn’t decrease, there’s no clear indicators that car sales will drop, or usage will decrease.”
At the Energy Information Administration (EIA) conference in the Washington Hilton, Mustafa Mohatarem of GM pointed to the fact that while new technologies and business models such as shared autonomous vehicles will undoubtedly have sweeping impacts on our society, the prevailing assumption that these trends will drive a downturn in vehicle ownership is flawed. Instead, he argued, because autonomous technology will make driving accessible to much older and much younger segments of the population, increasing demand from these individuals will offset declines among urban-dwellers, who are expected to rely more on shared mobility services. These conflicting industry trends will be a net wash for the auto industry producing the vehicles.
Chris Atkinson of ARPA-E seconded Mohatarem’s thoughts. On the issue of vehicle ownership, Atkinson argued, “There’s no clear threat to traditional ownership models. Millennials do, in fact, like cars, especially after they grow up and move to the suburbs. If vehicle miles travelled doesn’t decrease, there’s no clear indicators that car sales will drop, or usage will decrease.”
In addition to presenting the case that autonomous vehicles won’t necessarily drive a downtick in cars on the road, Atkinson also emphasized a likely increase in vehicle miles travelled, and transportation energy demand. He argued that in addition to the expectation that more people will want to travel further in an autonomous system, we will see new trends like “diving by proxy,” which will increase vehicle miles travelled, and transportation energy demand. “There will be little vehicles scurrying around on our behalf—so the energy demand rebound impacts could be dramatic.”
However, later the same day at the Department of Energy’s Sustainable Transportation Conference, Chunka Mui articulated a different calculus, of a “virtuous cycle” between connectivity services, autonomous vehicles, and electrification, which will slash car ownership because of the cost benefits to consumers. Mui’s presentation pointed towards the massive discrepancy between participating in a shared vehicle pool versus personal vehicle ownership.
“You shave away at the need to own cars. When you have that huge differential in cost between ownership and carsharing, it allows the Ubers and Lyfts of the world to have amazing utilization of their cars. Some estimates show that Uber or Lyft could afford to pay $250-300,000 per car and still make a profit.”
“The weak link in this virtuous cycle is the autonomous car. We know it’s not there today, unlike the other two parts of the model. Autonomous is the catalyst between connected and electric vehicles.”
Mui also sees this system driving dramatic efficiency gains. “Instead of buying the SUV because you have to drive the soccer team to practice once a month, most of the fleet will be small to meet the fact that most of demand is for one or two people. This will load-balance across the fleet. There will also be a shift towards electric cars which are cheaper to operate and maintain.” In terms of barriers, Mui noted, “The weak link in this virtuous cycle is the autonomous car. We know it’s not there today, unlike the other two parts of the model. Autonomous is the catalyst between connected and electric vehicles.”
Although differing on the issue of number of vehicles on the road, Atkinson’s assessment did dovetail with Mui’s in noting that driverless cars are likely to create major opportunities for vehicle electrification, as well as light-weighting which would improve energy efficiency.
“It shouldn’t have been 6 weeks before everyone knew about the Tesla crash in Florida.”
Also noted by multiple experts was the fact that the transition to autonomous vehicles, namely semi-autonomous technologies, will create risks as consumers adjust. “These systems need to be foolproof, and I do mean FOOL-proof,” said John Davis of Motorweek, mentioning that similar technologies used by the military or in aviation were operated by individuals with extensive certification and training. “The public has always struggled with accepting new vehicle technology, especially safety technology,” he added, but noted that many drivetrain advancement that have entered the marketplace since new fuel economy standards were implemented were accepted “much more rapidly” than he expected.
Mui argued that transparency will be a key variable in improving safety of driverless cars. “It shouldn’t have been 6 weeks before everyone knew about the Tesla crash in Florida,” he said.
Silicon Valley’s approach baffles automakers
Atkinson also remarked that “there’s tremendous market pull for high technology products.” Enter Silicon Valley, which not only brings “deep pockets” into the equation, but “likes to take on highly regulated industries and ignore the regulations.” Uber is a prime example of this, disregarding longstanding limitations on taxis.
However, Mui noted that the pool of money available to autonomous vehicle innovators was not just about venture capital. He drew an analogy with Google, whose market cap increased from $23 billion in 2004 to $484 billion today. Google’s unprecedented success may be the stuff of legend, but Mui pointed to the fact that the company’s advertising revenue actually represents a small sliver of advertising spending.
Mui argues that when it comes to measuring such success, context is key, and much like Google, autonomous vehicle innovators can draw revenue from various multi-billion dollar industries. “U.S. taxi and limousine services is a $16 billion a year industry. We spent $187 billion on personal auto insurance last year. These are pools of money that you can turn to for development funding of safer driverless cars. We spend $570 billion on new cars in 2014, and about $80 percent of that on used cars. It’s a lot like the trillion dollars spent on advertising that enabled Google to rise.”
ARPA-E’s Atkinson said that the “less complex powertrains” of electric vehicles will benefit Silicon Valley, which operate on 1-2 year timeframes rather than the 6-10 year timeframes typical in the auto industry.
In addition to bringing money to the table, entrepreneurs in the space will likely avoid another major barrier to entry in the automotive industry: Engineering. ARPA-E’s Atkinson said that the “less complex powertrains” of electric vehicles will benefit Silicon Valley, which operate on 1-2 year timeframes rather than the 6-10 year timeframes typical in the auto industry. But perhaps the biggest difference is that Silicon Valley has “no requirement for profitability,” which baffles the entrenched automakers. In autonomous vehicles, the differentiating factor will be software, and drivers may see software updates on a weekly basis—unheard of in the current car industry.
The relationship between conventional automakers and Silicon Valley tech companies will inevitably deepen with the maturation of the autonomous vehicle industry. As that occurs, collaboration rather than emulation is likely to be critical. “Ford is going to make a bad Google, and Google is going to make a bad Ford,” said Justin Fishkin of Local Motors. “You need an operator in the middle.”