Earlier this week we started this series breaking complex topics into discrete ideas of analysis. For this post, we want to tease out the strands around the future of transportation. Here three topics often get conflated – autonomous vehicles, vehicle electrification and ride-sharing. These topics are all related, but they are each separate, and it has become a constant source of frustration for us when we hear them being used interchangeably. Each of these is on their own development timeline, and assuming they are a single technology confuses the whole picture to the detriment of all.
In order of realization, ride sharing comes first. This is a real thing today with companies like Didi, Lyft, Uber and many others already operating. It is important to remember that this is not a technology – ride sharing is a business model. Admittedly, it is enabled by technology, but it is not a technology itself. This matters because this model can be applied to any vehicle from bikes to rocket ships. As the other transportation technologies come online, they will make use of ride sharing where the economics dictate.
This bring us to the electrification of vehicles. This is enabled by a whole basket of technologies, but is largely driven by industrial economics. The race right now is to bring electric vehicles to market in an efficient manner, hence all the headlines about Tesla and its not-so-automated assembly line. This has raised the question as to where the true source of competitive advantage rests in the industry. The legacy OEMs seem to be arguing that manufacturing scale is the key for success. New entrants, like Tesla, among others, cannot match the incumbents’ scale, and like any start-up are searching for new sources of advantage. One of those appears to be having cheaper batteries, which is one area where Tesla may be able to beat the incumbents to scale.
More disruptive is the potential to shift the focus to software. It is unclear how much consumers care about the operating system (OS) of their vehicle, but is certainly clear that car-buying consumers increasingly care about their vehicle’s user interface and applications. Most worrying to the incumbents is the fact that this matters much more to young consumers. Demographics are working against the legacy. The traditional OEMs, for a period, began talking a lot about ‘connected cars’, but in the age of smartphones, this approach always rang a bit hollow to us. Not surprisingly we see much less talk about connected cars today. At the same time, it seemed that some of the large Internet companies hoped to own the car OS, relegating the hardware to a commodity tier much like other electronics. However, this approach also seems to be have fallen by the wayside for the time being, as it is clear that the real race for auto software is around autonomy.
While ride-sharing is a business model open to many, and electrification is about industry structure, autonomous cars has the potential to be a major societal shift. Unlocking productivity (i.e. no more wasted commute time) and eventually altering the way we build our cities. That being said, vehicle autonomy is a technology that is still years away from being commercially viable. Talk to anyone working on the subject for a paycheck, and it quickly becomes clear that the timeline for full autonomy is still many years out. It is just a hard problem to solve, and it has to be solved technologically and then politically. The gains are so big, that we think this is inevitable, but it may take longer than many realize.
It is important to break these apart because eventually companies will start to combine these, but perhaps in unpredictable ways. Ride sharing is currently a convenience, but in an autonomous world, it could likely lead to a dramatic shift in car ownership away from individual consumers to ride-sharing fleets. However, that is not a foregone conclusion. The timeline for autonomy is such that ride-sharing companies may be fairly long in the tooth by the time autonomy arrives, leaving the door open to some future ‘disruptor’ to re-innovate on business model. Conflating these three topics can easily lead to misallocation of investments.