The Disrupted Future of the Automobile

August 15, 2016 – We have been living in the age of the automobile. Since Henry Ford first set up his production assembly lines the world has become a slave to four-wheeled vehicles. They almost alone are responsible for our search and exploitation of oil. They have made our cities what they are today. Our daily lives are directly influenced by our relationship with them, how we go about our work, our household chores, and what leisure options we choose. They have enabled many of us to see parts of the world we never would have found if we had not been riding in one of them. But they have also left us with an environmental legacy we are in bad need of correcting as we deal with global warming.

Today I share with you some thoughts from Peter Diamandis about the automotive world. He describes three forces at work that represent dynamics of change for that relationship, one that we have cultivated for more than a century. He begins by stating that these three forces could decrease the automotive marketplace by a factor of 10 or more. So what are these forces?

1. The Introduction of Car-as-a-Service: An “autonomous Uber” or equivalent will be 10 times cheaper than owning a car.
2. Entrance of Tech giants into Automotive Manufacturing: Companies like Apple, Tesla, Uber and Google are entering the automotive arena, and have the potential to do what Amazon did to Barnes and Noble.
3. The Impact of Virtual Reality: VR with its potential to reduce travel demands, and the need to get in a car to go places.

Unless the traditional automotive players acknowledge the coming changes and experiment and invest, they have a very turbulent road ahead.

“Car as a Service” – The Impact of Autonomous Ubers

Fully autonomous cars will result in a shift from “buying and owning” a car, to “car-as-a-service” (CaaS). No longer will you buy a car that sits in your driveway or office parking lot, unused 95% of the time. Instead you’ll use CaaS and “subscribe” to a fleet of autonomous cars. The result will be greater ease, more variety and lower costs:

• Greater Ease: When the density of these vehicles reaches critical mass, you’ll be able to hail a ride in 60 seconds. You won’t need to deal with upkeep, repairs, or fueling. You’ll have no insurance costs and no parking fees.
• Variety: You’ll have access to a wide variety of cars, from SUVs, to sports cars. Up late on Sunday night? You’ll be able to order up a car with a bed on Monday morning, or perhaps, a car with a conference table for meetings, or maybe even a Jacuzzi car. The car you choose will be functional to your needs.
• Cheaper: Uber is diligently working on autonomous vehicles. Remove the cost of the driver, and an electric, autonomous Uber has the potential to be time times cheaper than average ownership today.

Interesting Implications:

• Increased Safety/Reduced Death Rates: Today about 32,000+ motor vehicle deaths occur per year in the U.S. Automobile accidents remain the leading cause of death for children younger than age 13. Soon these causes of death will go away. McKinsey predicts autonomous vehicles could reduce auto accidents in the United States by 90%.
• City Revenues Plummet: If you’re in the city accounting office, autonomous cars are not good news. Revenue from speeding and traffic tickets and parking meters and lots will disappear.
• Regained Parkland: In Los Angeles County where I live, over 14% of open space gets used for parking, amounting to about 200 square miles. McKinsey suggests “Autonomous vehicles could reduce the need for parking space in the U.S. by more than 5.7 billion square meters.” Imagine reclaiming this land for parks or housing.

But what if you enjoy owning a car? No problem. In that case you can take advantage of the opportunity recently described in Part-2 of Elon Musk’s Tesla master plan. You can buy an autonomous, electric Tesla that drives you around, but when it drops you off, you can have it earn you money by contributing it to the fleet of autonomous vehicles patrolling the streets.

Tech Giants Displace Traditional Automotive Players

When you think of traditional players in the automotive industry, you probably think of Toyota, GM, Volkswagen, Hyundai, Ford, etc. These companies were built when cars were just machines. Today cars aren’t just machines. They are mobile computers and companies like Tesla, Apple, Uber and Google, have entered the scene with a fresh perspective and powerful balance sheets flush with cash.

Tesla and Uber are both startups that are reshaping the industry. Tesla’s Model S was voted “best car every tested” by Consumer Reports (full disclosure I have a Model S and Model X, and they are the best cars I’ve ever driven). Uber has completely validated the CaaS, on-demand model, growing to a $66 billion valuation in under 6 years. They’ve had more than 1 million drivers sign up to their on demand platform, and have expanded to over 300 cities. But this is just the beginning.

Most importantly, technology giants Google and Apple are working on car projects. Both of these companies have disrupted adjacent industries many times already. Google’s autonomous cars already have driven over 1.5 million miles. Apple’s Project Titan is attracting top talent. Both companies have the brand, the technical expertise and the multi-hundred-billion-dollar balance sheets needed to re-invent the old school automotive marketplace. And beyond these players there are a number of small startups launching every year in pursuit of the autonomous driving challenge and the economic and social benefits that can be derived.

Virtual Reality Means I Don’t Need a Car as Much

The rapid rise of Virtual Reality or VR will make “traveling” itself less important. If a business can meet in a virtual environment (with expanded capabilities) from the comfort of individual employees’ homes, this saves us commuting time and reduces the need for office space. I already have 20+ “Beams,” robots, a product of Suitable Technologies, to give me telepresence in remote offices offices in Culver City, La Jolla, Mountain View, and Redmond. At the press of a button I commute from city to city and attend meetings virtually without having to move my physical body hundreds or thousands of miles.

VR will also alter our retail shopping experience. And when coupled with in home 3D printing and drone delivery services, your need to get into a car and drive someplace will quickly diminish.

All of the above indicates there is a tsunami of change coming for the automotive industry. You can either ride atop it by embracing the change or get crushed by it. It seems some have the right mindset if you go by recent news with General Motors making a bid, though unsuccessful at the moment, to acquire Uber’s competitor Lyft. Perhaps all is not lost.

One thing Diamandis fails to mention is buying behaviour of millennials and Gen Y. At a recent meeting of a policy working group I run we were talking about car ownership and what it means to younger people. One in our group talked about her friends, all urban dwellers. None had ambitions to own or lease a car. In numerous surveys these two demographic groups see work-life habits and changing consumption behavior that is ending the love affair with ownership. They see owning a car with the high cost of entry as having to make unnecessary financial sacrifices. That doesn’t mean they won’t get their license to drive. The association of the car and freedom to go anywhere will still remain. But more than any generation in the past century they are already primed for the transition to a car-as-a-service world.