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With self-driving cars, the giant global auto industry is careening toward unprecedented disruption as its 100-year-old business model is turned completely inside out.
That is the big takeaway from a research report published last week from investment banker Morgan Stanley.
In Shared Autonomy, equity analyst Adam Jonas explains how the inevitable migration from the old business model to ride-sharing and ride-hailing will transform the still-vibrant car business into a highly regulated and intensely price-competitive utility. That will mean profound changes for the way cars are sold and insured. It will also disrupt airlines, energy, real estate and utilities.
The reason is math. Traditionally, automakers have relied on simple metrics like units sold and average selling prices. Last year, 80 million cars were sold at an average price of $19,000, for a total of $1.5 trillion.
The new Silicon Valley global mobility-model places the emphasis on miles driven. Last year, approximately 10 trillion miles were driven at an average cost of $1, for a total of $10 trillion.
To get an idea of what this represents, Toyota runs the biggest car business in the world with sales of about $250 billion. Global mobility will be a business forty times that size.
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| With artificially intelligent vehicles, parking lots will gradually become unnecessary because self-driving vehicles will stay on the road for ride-sharing and ride-hailing. |
Carmakers and private-equity investors can do the math, too. General Motors (GM), Volkswagen (VLKAY) and Toyota (TM) have made major investments in mobility businesses. Toyota has placed its bet with Uber. In August, the Silicon Valley super-startup announced it would begin testing a fully autonomous ride-hailing service in Pittsburgh.
Morgan Stanley analysts think autonomy is the tipping point. “We believe shared and autonomous cars can deflate the cost per mile to as little as 20 cents, triggering a doubling of global miles travelled by 2030,” Jonas says.
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At that cost, it no longer makes sense for consumers to buy vehicles. So, auto dealerships no longer make economic sense. The business-to-consumer auto insurance model collapses, given diminished risk. Ride-hailing, especially for groups, becomes cost-competitive with short, regional air travel. Skipping the TSA lines is an added bonus.
Public parking spaces become mostly obsolete, yielding huge swaths of valuable urban real estate. And the economics of electric vehicles for fleets hastens the migration away from fossil fuels, leading to an energy glut and more heavily taxed electricity infrastructure.
Despite the disruption and considerable collateral damage, the new mobility business model is gaining momentum. In 2015, there were 36,000 traffic deaths in the U.S., or 100 per day. That is an 8% uptick. Ride-hailing, later augmented with autonomy, is widely believed to be safer. President Obama announced guidelines for self-driving cars in September. California reversed an earlier decision and will allow vehicles without steering wheels and brake pedals on public roads.
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There will be clear winners. “We see the greatest value in the content and data produced and consumed by the 68 million years of collective humanity trapped inside a mobile, super-computing cyborg swarm. This precious time is ripe for liberation and monetization,” Jonas writes.
That’s an artful way of making the case for:
Netflix (NFLX), Facebook (FB), Amazon (AMZN), Alphabet (GOOG) and Apple (AAPL) for content and Nvidia (NVDA), Qualcomm (QCOM), ad Splunk (SPLK) for infrastructure and data.
Best wishes,
Jon Markman
{ 24 comments }
the liability lawyers will kill this within two years of startup.
I doubt it, they tried when cars first appeared and how did that work out.
Agree, whatever it takes. This stupid idea needs to die instantly before more people do.
Self driving and autonomous cars are going to be devestating to those of us who live in rural parts of the country. It won’t be long before some government bureaucrat decides that no one should be allowed more that so many miles a month or week and anyone who exceeds that limit will not be allowed any more miles for a set period as a punishment. Said same bureaucrats will also decide that their are certain people who should never be allowed to travel anywhere and will see that these poor people are never allowed access to any cars. Needless to say the miles per period allowed will make no allowances for anyone who lives outside a urban area perpetually leaving those of us in rural areas stranded.
No, these bureaucrats have a different model. They won’t limit you, they’ll just tax you…..think carbon credits. That way, they can make money off the backs of normal people under the guise of the environment while they are held to NO standards. Their intention is ALWAYS to suck money out of the unwashed masses. This autonomous auto idea works fine for inner city travel but is a non-starter for outside the city and outside the suburbs. Can’t wait to be on Intestate 10 next to a tractor trailer with a software glitch and going through a reboot. Next thing they’ll come up with is autonomous shared farm tractors so we can fight over who needs the tractor on Tuesday for 12 hours. Oh, and what about terrorists who hail a ride and leave a bomb in the back seat for the next poor fool. Yep, they’ve got it all covered…trust them.
And I’m supposed to believe garbage from Morgan Stanley. What is “Silicon Valley global mobility”? I swear the amount of useless west coast buzzwords in these articles is annoying, as is Silicon Valley.
Rich folks will keep a car. Are you going to place your baby in some rental car’s dirty baby seat? Are you going to carry your golf clubs into the office after getting out of your rental car, and then carry them out again to get another rental car to head to the golf course? There will still be a need for parking lots, or the roads will be overfilled. What is your car going to do while you are in the grocery store? Is it going to park, or is it going to drive around on the roads? If it picks up another passenger, you won’t be able to leave your stuff in it. It will also do away with survival of the fittest! Some drivers will benefit from automated driving — the ones who regularly have wrecks. But good drivers will be more likely to die in an accident if they use a self driving car. I have driven for 50 years without causing an accident. When a shovel blew off a road grader while being transported down the highway, I managed to swerve off the road and avoid getting killed. My automated car probably won’t be programmed to run off the road to avoid such. But for a trip across country where I could safely sleep while my car is doing all of the driving 24 hours a day would be a wonderful thing. They believe that trucks won’t need drivers. We will have people shooting out truck tires and stealing their contents if they don’t have armed guards in those trucks! Moreover, those trucks will run all night. I live one mile from a highway, and I can hear any truck that moves at night if I have my windows open. Trucks driving all night will create pockets of slum properties for one mile on each side of the highways! Change is coming. Positive and negative! I can see families buying only one or two cars. Their teens would have to take a rental. I wonder if it would be child abuse to let an automated car transport your 4 year old to day care? What happens if your 8 year old daughter who is riding alone gets kidnapped? What happens if your 12 year old daughter who is riding alone somehow gets raped? Who will be the first terrorist who puts bombs in automated cars and blows up buildings and maybe just kills everyone at a certain intersection. Bombers will be able to destroy the infrastructure of the US by using these vehicles. They might not be caught if they can steal or forge a credit card. It will be interesting. It might make the ratings on the nightly news improve!
Well said William.
There is so many aspects of this crazy self-drive plan that have not been given the slightest thoughts yet. Like does the car swerve to miss the 3 kids who have just stepped out onto the road and runs the vehicle into a tree instead which of course kills the driver because that is only one death instead of three? Do pedestrians just walk across the road anywhere that suits them in front of the cars knowing the auto-drive cars will stop for them? Oops, that one wasn’t a self-drive so bang your dead. this mad rush to replace people with machinery is totally upside down. The work that should be done is to find ways to make people better, more aware and more responsible, not to replace them with machinery while still leaving them incompetent, and stupid.
Engineers get paid a lot of money to think about everything. I can tell you this from 1st hand experience. Self driving vehicles are not only coming, but they’re here. Auto OEM’s are transforming their business models to align with the details in this article. Automobile related deaths will drop considerably, but this does not mean nobody will die. Engineering is about maximizing results and minimizing injuries. The winning companies will figure this out or they will die.
Jon, thank you for the article. I have spent the last 30 years developing electronics and firmware for the control of various equipment. While I agree with you that eventually self-driving cars will become a mass market item (science fiction has written about it for close to 100 years and the technical development researched almost as long), getting there from the novelty/starting point it currently resides at is going to take many decades and will have a very high cost in dollars and lives working through the problems.
Investing in this arena will make a very small number of people money but cost most people everything they put into it. There will be many companies burn brightly for a short time and then disappear as the problems/cost become apparent.
Interesting article. One other industry that will be impacted will be the Speed Cameras! If the cars are driverless, they will be tied into the road grid system and will stay within speed limits. Ergo, no speed cameras required! (I’m sure that will make a lot of people happy).
Also, this is a sizeable market, but it is probable that a lot less driverless cars will be required than cars with drivers. This will be due to the fact that the utilisation can be much higher, e.g. >3,500 hours per year versus the current average of 500-hours for a typical family car. So this means that there could be a lot less vehicles on the road!
Owning a driverless car could be a blessing for those who can not drive for health reasons (blindness, epilepsy, etc.). Ride sharing could also be a great help to those on a limited income such as college students and the elderly. (I would have loved it when I was carrying two bags of groceries three blocks through the snow in grad school!)
Basically, I think there are several different uses for driverless cars — single ownership, multiple ownership, and ride shares. A suburban family of five will probably continue to own their own. While a group of seniors who are friends may decide to band together and purchase a shared vehicle. City dwellers will probably opt for ride share.
The ride share option seems to open a few new business opportunities to solve some of the problems pointed out above. How about kiosks set around the city where you can send the car to be cleaned before it arrives to pick you up? Or maybe the ride-share services will own those cleaning areas and send the cars in on a schedule. You could pay a slightly higher price for a freshly cleaned car and a lower price for one that is due for a cleaning. Why not open secure storage areas where all the old parking lots were?
Nothing will happen over night. But, it probably will happen. The question that I have is how will this affect privacy and freedom of movement. What laws will be put in place to restrict government control of private vehicles. Do we want to authorize the police to have a stop button on all cars? That may be a good way to stop criminals and terrorists (though they will probably design work-arounds), but what about everyone else. How much control are we willing to grant the government?
The biggest problem facing our country is how every major industry is being concentrated into monopolies. Note that Tesla, Uber and even Google are piling in. Can individual owners survive?
As to the electric cars, they are not nearly as efficient as advertised. The rigged numbers fail to take into account the conversion losses of taking fuel, burning it and turning it into electricity a loss of greater than 50%, Then you lose 20%-35% in transmission losses to the charging station. Then you have the charging losses and down time leakages – all before a single mile is driven. A private car with fossil fuels directly converts the fuel energy into mechanical as needed. As to pollution, the batteries do not last more than a few years and must be replaced. The batteries are highly toxic affairs and expensive to recycle.
The cars may be cheaper for a few years, but then when the monopolies are formed the cost will go out of sight and the travel of all vehicles will be severely restricted and monitored.
The idea of turning driver-less vehicles into essentially drone bombs is insightful. But also consider that possibility of a cyber attack turning every car into a weapon.or simply paralyzing our entire transportation system.
Normally these thoughts will be simply tossed out of my mind as a conspiracy theory, but the world has changed and the threats are becoming all too real.
I think I want to move so far away from this harebrained technology crap politically correct progressive world that no one could ever find me. Even with the Cold War the 50’s were great I’m ready to check out
I like driving my own car… I am an automotive enthusiast and love all types of vehicles but the mixing of autonomous and human controlled cars simply will cost too many lives because that autonomous vehicle does not have the intellegence/experience to avoid accidents as a person with 2 decades plus of driving experience I have had several close calls in my driving career that autonomous vehicles would have probably caused myself and others severe injury/death but my knowing my vehicle and my abilities I made it out of said situations unscathed… the government will get control of my driving the same way they will get control of my firearms when they pry them out of my cold dead hands, not to say I’m entirely against autonomous vehicles but maybe you can develop corridors for shipping using autonomous trucks first and see how that works out
Are self driving cars gonna create buffer stocks in the Automobile Industry. The type of international commodity agreement that involves the purchase of the commodity (to be added to the stock) when the commodity price falls below an agreed minimum price, and the sale of the commodity out of the stock when the commodity price rises above the established maximum price. Could self driving cars leave to predatory dumping the temporary sale of commodity at a lower price abroad in order to drive the Japanese producers of cars out of business, after which prices are raised to take advantage of the newly acquired monopoly power abroad. Maybe Ford or American Car manufacturers have a revealed comparative advantage in the production of self driving cars?
Programing driverless cars is the easy part.. Programing human nature to manifest the wisdom to use driverless technology is the harder part — mainly due to too many conflicting agendas left over from the I-express-my-personality-by-driveing-my-own-car age. A driver’s car has always been an extension-of-self, and will be very hard trait to quit.
a) Sounds good if everyone lived in large urban areas, but they don’t.
b) Farmer’s hailing or sharing self driving pickup trucks, yeah sure.
b) A lot of people value a sense of control over their lives and the act of being behind the wheel commuting to and from work gives them that sense.
switch the killer and killee and you might have a case.
I think Self driving cars could only work if every car on the road is self driving . All the cars probably would be equipped with many cameras, sensors, GPS and the cars probably would need some sort of artificial intelligence as all the cars would need to communicate with one another .
Some great comments and questions here. I can see where driverless cars could replace (or at least supplement) public transportation and be very useful to those folks who are unable to drive (not including children). I imagine they’ll come up with a way so people can use the car for a day, or longer, that will allow for people to store things in them for at least some time period. I believe that some of the other potential problems will be overcome by companies that come out of the woodwork to do just that – one of the things that makes this country great. Other problems will be more challenging, some may never be completely resolved in an acceptable manner to everyone. Just the fact that we’re discussing this, and that progress is being made (probably on a daily basis) is quite amazing. Looking forward to seeing how it all plays out.
Obviously they think many, if not most of us, will be willing to hand over all our privacy, freedom and autonomy for the “safety”, convenience, cost and the moral imperative of living an “environmentally responsible” lifestyle. They already have a head start with milennials not liking to drive, buy, own cars, hence the Uber explosion. No surprise the first test city is Pittsburgh with the insidious Carnegie Mellon working behind the scene perfecting the art of manipulating human activity. “Self driving cars were born here” so says Farnam Jahanian, VP for research at Carnegie Mellon. To date CMU has filed 140 invention disclosures for AV technology. They also won the 2007 DARPA Urban Challenge. They have been working on this for 30 years!! Wildly ironic that they rolled out the first autonomous vehicle, the Terregator, in 1984, (same name of sci-fi book predicting Big Brother!) It truly will be a Brave New World soon. Go to engineering.cmu.edu to view a video of Professor Raj Rajkumar discuss his work. The first “sales” propaganda is focusing on how much safer it will be. If you want to know why this is the future being planned for the world look up Tecnocracy Rising, a book by Patrick Wood.
Thousands of lives will be saved a few will be lost until the less common hazards are fixed. Its a numbers game for sure, but steady progress will be made. What value would you put on those thousands even millions of lives over time? What if one of those lives was your wife, mother, daughter, or even yourself. Would it be worth the cost? You bet it would & definitely will be in your future, so count on it & invest in it now , before its too late.
Many will be surprised when this idea fails. Driverless cars will NEVER replace cars that require drivers, or even make a major dent. You just cannot replicate the human brain and program for every possibility that can and will occur when a vehicle is moving. As this goes forward there will be software updates daily, if not hourly, to cover events that have happened that were unforeseen. Companies that put their fortunes on the line will lose.
This is too complex to work. If you are an investor, go short any co. that is putting major investments into this fiasco.