The driverless car revolution 

Autonomous vehicles will reinvent personal transportation and have a transformative impact on the automotive industry.

The wide-scale adoption of driverless cars or autonomous vehicles (AVs) will lead to unprecedented economic, social and environmental change. For the public, the independence and freedom of personal travel will be available to almost everyone – youth, seniors and the physically, mentally and visually impaired. The expected reduction of road congestion would bring wide-ranging work and personal benefits. The gains from a drop in vehicle accidents and deaths are obvious.

In the near term, the arrival of the AV pits the traditional evolutionary growth model of the legacy manufacturers against the riskier direct approach of nontraditional technology players.

AVs require an impressive range of technologies – millimeter-wave radars, cameras, ultrasonic sensors, lidar scanners, GPS technology, vehicle-to-vehicle and vehicle-to-infrastructure connectivity, and proprietary algorithms – to work seamlessly together.

The widespread commercial realization of AVs in the immediate future is hindered by legislative wariness, infrastructure barriers, unpredictable consumer acceptance and cost of development. Consequently, the production of AVs will require a full transformation of the automotive operation and its support ecosystem.

The route to critical mass adoption of AVs is not clear. Acceptance may occur after years of incremental introductions of discrete autonomous functions, or more quickly, through the direct development of the radical new technology of autonomous driving. The major players in the market are pursuing one or both of these approaches. Technology giant Google has jumped right into producing a completely autonomous vehicle with no steering wheel. Hands-free autonomous cars are now being tested on public roads in Europe, Japan and the United States. Many original equipment manufacturers (OEMs) are investing in both improving assisted driving capabilities and simultaneously exploring fully self-driving technologies.

Autonomous vehicles is one of three themes that we believe will be central to the digitization of the automotive industry over the next decade. The other themes we examine are connected traveler and digitizing the enterprise/ecosystem.

Assisted driving

With each model year, new driver-assist functions become options or standard features and no longer just available on premium models. This gradually moves the driving public from being actively ‘in the driver’s seat’, to a new era where we are passengers being driven around by fully automated cars.

Assisted driving is already a reality, but the age of most vehicles on the road (9 to 11 years old) is delaying the realization of pervasive assisted driving capabilities. In the medium term, many of the assisted driving features that now exist in premium-branded cars will be more affordable and more common in mass-produced vehicles.

Advances in assisted driving capabilities are being introduced to a marketplace where there can be limited, inconsistent or unclear regulations depending on geography and differing interpretations of the rules. For governments, the priority may be to develop strong and unambiguous regulations to govern the incremental improvements in assisted driving technologies before writing the rules for autonomous vehicles.

We anticipate that economic benefits to consumers and society will exceed $1 trillion over the next 10 years, driven by reduced accidents and lower insurance premiums. Improved vehicle safety due to advanced driver assistance systems (ADAS) and electronic stability control (ESC) installations could reduce 9% of potential crashes by 2025, and avoid 5% in additional premiums that consumers would have had to pay in the event of vehicles being less safe. More importantly, the enhanced safety has the potential to save around 900,000 lives over the next 10 years by preventing fatal incidents.

Self-driving

Several technology companies are working on creating vehicles capable of navigating themselves through mixed traffic conditions on all roads and highways.

Best known among the projects now in development is from Google Auto LLC,² a subsidiary of Alphabet and Google X. Its autonomous vehicles are racking up 10,000 miles a week³ learning to drive on public roads. They have logged nearly 2 million miles of testing. The company says that all the accidents involving its cars (only about a dozen) were caused by other drivers. Google projects the vehicle to be released for sale between 2017 and 2020.

Google is interested in not only the automotive industry for its own sake, but also to defend and strengthen its core business in advertising and data revenue business models. It has courted manufacturing partners but none have emerged. Tesla is also aggressively developing electric cars that will run autonomously, and media speculation is that Apple has a project underway and may be in talks with a major manufacturer.⁴

Even as legacy automakers develop new driver-assist technologies, many have parallel AV projects well underway. Audi, BMW, Mercedes-Benz, Nissan and Toyota are among the players experimenting with self-driving vehicles. Volvo, which has been testing ‘road trains’ of robotic cars, is aiming to be first to market.

Self-driving vehicles are also already a reality in proof-of-concept testing around the world. However, the sheer scale and number of legislative, infrastructural and technological barriers will slow the rate of adoption. As both modes continue to advance, the number of automated vehicles will grow, but consumer confidence and expectations will play an important role in determining how quickly they are adopted (see Figure 1).

The development of self-driving vehicles raises some important questions. Can we trust computerized systems with our privacy? Can we trust these systems with our lives? Though the human factor is the major cause of accidents, will travelers entrust their safety to computers and algorithms? Will we have any control or at least an emergency override switch if the machine brain malfunctions?

We have already seen friendly hackers (researchers and graduate students) take over connected vehicles; malicious players are certain to be lurking in the shadows to exploit the many interconnected links to penetrate and control vehicle systems. To ensure public trust and avoid high litigation costs, managing cybersecurity risks will be imperative.

We expect $2 billion of value migrating from traditional vehicles to fully self-driving ones and an addition of $16 billion to operating profits from higher ticket prices of self-driving vehicles and self-driving add-ons. We have assumed that the first commercially viable products would appear in the market by 2019. The share of annual vehicle sales contributed by self-driving vehicles is assumed to grow to 5% by 2025, with 80% of the market going to self-driving add-on packages, such as more evolved versions of the RP-1 product by Cruise. We anticipate that the remaining 20% of the market would be captured by fully autonomous vehicles such as the ones being piloted by Google.

Footnotes:
1. http://media.gm.com/media/us/en/gm/news.detail.html/content/Pages/news/us/en/2014/Jul/0730-ss.htmlhttp://www.chicagotribune.com/classified/automotive/autoshow/ct-autos-0213-auto-show-safety-features-20150130-story.html#page=1
2. http://www.theguardian.com/technology/2015/aug/01/google-auto-car-making-company
3. http://www.forbes.com/sites/chunkamui/2015/08/21/google-is-millions-of-miles-ahead-of-apple-in-driverless-cars/
4. http://www.cnbc.com/2015/07/27/apple-in-talks-with-bmw-about-electric-car-report.html
5.http://international.goteborg.se/smart-cities-sustainable-solutions/driveme-self-driving-cars-sustainable-mobilityhttp://www.businessinsider.com/volvo-drive-me-autonomous-self-driving-cars-2015-2http://www.theguardian.com/technology/2015/feb/24/volvo-test-autonomous-cars-ordinary-drivers-public-roads-by-2017