According to a recent study by AlixPartners, the auto industry will continue ramping up its investment in autonomous vehicles, reaching a collective $85 billion annually by the middle of the coming decade. But despite all the money going into what could be a game-changing technology for the industry, it is far from certain that autonomous vehicles will become a reality anytime soon – never mind one that actually justifies that kind of spending on an economic basis.
The auto industry faces two big challenges when it comes to autonomous vehicles, according to Michelle Avary, the head of autonomous mobility at the World Economic Forum. Without addressing them, the technology may never make it into the mainstream.
“We’ve got a couple of big challenges in front of us. The first, obviously, is a technological challenge,” Avary said during an interview with CNBC at the World Economic Forum in Dalian, China, on Monday. “Really making sure that the technology is working in the areas of perception, which is vision — being able to identify objects and then understand how to move around them. That has yet to be solved.”
But beyond the technical challenge, Avary said, there’s another fundamental issue: the industry has yet to come up with a business model that would not only justify all the money being thrown at autonomous vehicles but which also will ensure they can be sold profitably.
If anything, many experts warn that autonomous vehicles could dramatically shift the traditional automotive business model. Former Ford CEO Mark Fields, a proponent of self-driving vehicles, predicted that the rise of the technology could result in a sharp decline in retail automotive sales as millions of motorists abandon private car ownership and shift to ride-sharing services like Uber and Lyft.
The massive amounts of money being thrown at autonomous vehicles – along with electrified vehicles – is straining industry resources. Mark Wakefield, the head of the worldwide auto practice at AlixPartners, warned of a coming “profit desert.”
That is leading many manufacturers to partner with traditional rivals to help spread out the cost of R&D. Honda and General Motors have partnered on autonomous research, while Ford and Volkswagen are negotiating deals to team up on both autonomous and electrified vehicles. Jaguar Land Rover and BMW recently agreed to form an EV alliance, as well.
But such efforts could be challenged as the industry finds itself in the crosshairs of the global trade wars, says the World Economic Forum’s Avary. The ongoing battle between the U.S. and China, for example, could “actually stymie the growth of the industry” by making it more difficult for manufacturers from different regions to work together.
In the near-term, technology will remain one of the key challenges to autonomous driving. While there has been progress made – with thousands of self-driving prototypes roaming roads in the U.S. and other countries – the industry still has a long way to go before those vehicles can operate anywhere, and at any time, without a human backup driver. That adds significantly to the cost of services like Waymo One, the ride-sharing service set up by the Google spin-off Waymo in the Phoenix suburbs.
Waymo’s emergence reveals another challenge to traditional automakers: the rise of new entrants into the self-driving vehicle field. For its part, Waymo One has committed to purchasing vehicles from Jaguar, Fiat Chrysler and others. But some of those newcomers are planning to build their own vehicles to use their autonomous technologies.
One of the players with the deepest pockets entering the field is Apple. The tech giant last week purchased failing autonomous research firm Drive.ai. Apple has been vague about its plans for the auto industry and earlier this year dismissed many the workers involved in the development of its own vehicle. But it is now clearly working on technology that it could, at the least, use in a project similar to Waymo One.
Amazon is another new entrant. It has invested in several autonomous research companies this year, as well as Detroit-based battery-car start-up Rivian. Industry analysts believe Amazon’s primary goal is to put together a fleet of self-driving electric vehicles that could take over its delivery operations.
While the emerging field of robo-taxis has gained much of the attention surrounding autonomous vehicles, Avary, of the World Economic Forum, told CNBC there could be a number of other opportunities, some even more lucrative.
“Even in mining and construction equipment, where we see a lot of advances in solid business case models being made in things like digging trenches for laying oil pipelines,” she said, adding, “there’s a lot of lucrative opportunities for automated technologies to play in these sectors.”
When the technology will be ready for prime time, however, is the first big challenge that must be overcome before manufacturers can hope to implement a profitable business model.