The Impact of Self Driving Cars on the Industrial Landscape

Self-driving cars have the potential to drastically change automobile transportation as we know it and thoroughly disrupt a variety of industries. Many industries have a stake in this race; indeed, many will live or die depending on how the emergence of self-driving vehicles plays out. What do autonomous, self-driving systems mean for car manufacturers and their supply chain, auto insurers, logistics companies, and others? Here’s what affected industries can expect.

Ready or not, auto manufacturers and tech companies are hitting the gas on developing self-driving cars.

Make no mistake: self-driving cars are coming.

The race to populate the roadways with these completely autonomous vehicles – which will disrupt and upend entire industries – has already begun. Both Nissan and GM, for example, say they will have fully autonomous self-driving vehicles on the road by 2020 or earlier.[1] Ford and BMW expect to follow suit by 2021.[2] Other manufacturers are estimating a date farther in the future (e.g., Audi by 2025), but virtually every major auto maker has a plan in progress to get self-driving cars on the road.

That’s not all. Auto makers and technology companies are also edging into new territory and service areas, all on the potential success of self-driving cars.

For example, GM is investing in Lyft and acquiring Silicon Valley self-driving startups.[3] Fiat-Chrysler is doing the same. GM and Ford are both experimenting with their own ride-sharing services as they, perhaps, aim to shoulder Uber off the road.[4]

Meanwhile, existing ride-sharing and industrial organizations are ordering massive numbers of self-driving cars.

Uber, for example, just ordered 24,000 self-driving Volvos, and Google just ordered thousands of Chryslers for its own self-driving fleet. Tesla, meanwhile, is expanding into long-haul tractor trailers with self-driving capabilities (and UPS preordered 125).[5] In other words, the advent of the age of the self-driving vehicle isn’t some far-off future. It’s starting now.

But what does all this mean?

I have already delved into that question as it pertains to consumers, in my first white paper in this series. There, I talked about the impact on the consumer landscape, including safety impacts and regulatory changes. Here, in Part 2 of the series, I will look at the impact to the industrial landscape, including winners and losers among stakeholder industries.

How will self-driving cars impact industry?

The trucking and logistics industry will reap serious cost savings.

Passenger vehicles aren’t the only autonomous vehicles that will hit the road. In fact, we are closer to self-driving trucks than we are to cars. In Arizona, Uber’s self-driving trucks are already hauling freight on a limited basis.[6] Highway driving tends to be easier on autonomous systems than street driving, making long-haul vehicles an excellent match for the early versions available today. Uber uses transfer hubs where the self-driving and human-driven trucks can exchange loads for the final stretch.

Ultimately, using self-driving trucks could yield cost savings as high as $500 billion (USD) by 2025, according to analysts at McKinsey and Co.[7]

New efficiencies will drive some of the savings (e.g., self-driving vehicles don’t need to sleep like human drivers do, so they can run continuously), but much of the cost savings will come from reduced labor costs. In turn, these savings will fuel higher profit margins for transport and logistics companies, which could ripple into manufacturing and lead to lowered cost of goods in some cases.

That said, the reduced employment of drivers could strain unemployment benefits. The same dynamic will likely apply to bus drivers, taxi drivers, mass transit workers, ride-sharing drivers, and others. That means a growing population of workers will be cut off from their traditional livelihood. That could strain unemployment benefits if large numbers are displaced in a short period of time.

“Transportation as a Service” will likely grow as an industry.

Self-driving vehicles could fuel the emergence of a “transportation as a service” industry that would displace or replace today’s taxis, mass transit, and possibly even consumer car ownership.

This is partially why auto makers like GM and Ford are exploring ride-sharing services. If we move into a future in which consumer car ownership diminishes because of the easy availability of low-cost, door-to-door, driverless transportation services, auto manufacturers will be selling fewer cars. By moving into this transportation as a service arena, they can maintain their dominance in producing vehicles.

Drivers in the U.S. may already be primed for this: the average car already spends 96% of its usable life parked.[8]

Indeed, this reality may be closer than we think. A Columbia University study suggests that Uber would need only 9000 autonomous cars to completely replace all taxis in New York City, with consumers only having to wait 36 seconds, on average, for a ride.[9]

If the economics of car ownership shift so dramatically, auto makers may find themselves selling fewer vehicles to consumers, and insurers issuing fewer policies. This scenario is why so many technology companies and auto makers are pushing their way into ride-sharing and owning their own fleets of self-driving cars.

Auto manufacturers will see their customer base shift…and possibly erode.

If consumers purchase fewer cars, how can car makers remain profitable? Most likely, their primary customer base will shift to any organization that uses fleets for their transportation as a service offering. "The transition to business ownership will happen long before the transition to autonomous [driving]," Nicholas Farhi, a partner at consulting firm OC&C Strategy Consultants, told The Drive.[10]

On the surface, this likely means fewer car sales overall. However, fleets used for “transportation as a service” may be replaced much more frequently than consumer-owned cars, making it difficult to predict specific sales impacts.

Technology companies could become new customers, purchasing self-driving vehicles for their own fleets, even as they partner with manufacturers to provide the incredibly sophisticated array of hardware electronics and software systems upon which self-driving cars rely. Those components will require development, coding, updating, trouble-shooting, maintaining, and securing. There is also a tremendous amount of valuable data about consumers at stake. In fact, that data could be worth up to $750 million (USD) by 2030. Tech companies – more than auto manufacturers – are primed to collect, analyze, and monetize this data.

This is undoubtedly why Big Tech is pushing into this space, and why auto manufacturers are making investments in Silicon Valley (e.g., GM spent nearly $1 billion to acquire Cruise Automation, an autonomous-vehicle developer in Silicon Valley).[11] These changes will impact the entirety of the auto supply chain. Third-party consumer car repair is going to become much more complex and challenging, requiring sophisticated computer skills. Combine that with fewer consumer-owned cars, and many corner repair shops will disappear. Fewer cars on the road will also decrease the need for auto supply parts. In short, many companies in the auto supply chain will go out of business as self-driving cars become more prevalent.

The auto insurance industry will radically change.

Private Passenger Auto insurance is a $300 billion industry that may see its business run off the road by self-driving cars within the next 20 to 30 years. Here’s how that will happen.

First, driving safety will steadily increase. Today, 94% of roadway accidents are caused by some form of human error. As humans are replaced by self-driving machines whose sensors, cameras, and algorithms can pay unwavering attention to all directions at all times and react to situational changes in a fraction of a second, the frequency and severity of accidents will fall – and so will insurance claims.[12]

In turn, increased safety will decrease premiums as accidents become more infrequent.

This price reduction is a trend that will start slowly but accelerate quickly over time. By 2025, nearly half of cars will have at least some Advanced Driver Assistance Systems that include self-driving technologies like lane change alerts, forward collision prevention, and more.[13] In fact, these safety systems are already having an impact. The National Highway Traffic Administration has found that crash rates for Tesla vehicles fell 40% since Autopilot was installed in 2015.[14]

Insurers are already offering premium discounts for cars that include them. In time, competition will force insurers to continue cutting prices.

At the same time, if self-driving cars give rise to an emerging transportation as a service industry, as described above, it could eat into consumer car ownership. Then, if the number of cars on the road falls, so too will the number of insurance policies being issued to cover them.

Altogether, this could result in a $25 billion (USD) loss for insurers by 2035, according to research by Accenture in collaboration with the Stevens Institute of Technology.[15] Analyzing factors like consumer purchasing behavior, insurance revenue calculation, car sales, and the emergence of new insurance sub-categories, they predict that the fall in premiums will begin in 2026 – the point at which they expect large number of autonomous vehicles to begin hitting the road.

Such changes will only grow as time goes on. Analysts at KPMG predict that the personal auto insurance industry could shrink to 40% of its current size by 2040.[16]

To survive, insurers will need to pivot into new areas, like product liability (covering the delicate components on which the self-driving cars rely) and cyber-security (covering the risk of cars being hacked).

Insurers may also need to focus on selling policies to industrial owners of car fleets, rather than individual consumers, which could impact how the policies are written and priced. Indeed, the precedent for corporate ownership of liability for self-driving cars has already been established. Google, Volvo, and Mercedes-Benz, for example, all accept liability today when their self-driving vehicle is at fault for a crash.

The trick here isn’t predicting what will happen, it’s predicting when the auto insurance sector will have the rug pulled out from under it. The impetus on the insurance industry is to forecast these changes as accurately as possible and shift business at the same rate as it loses business, making changes parallel to the adoption of self-driving cars.

Now is the time for market participants to steer their futures and position themselves to take best advantage of the changes.

Don’t get carried away and panic.

Technologist and former president of the Institute for the Future, Roy Amara, famously wrote his now-eponymous law: “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.”[17]

In many ways, hype for autonomous vehicles has already reached a point where current and near-future self-driving cars will likely disappoint expectations. “[Some organizations] have imbued autonomous vehicles with the possibility to solve every problem that was ever created in transportation since the beginning of time,” said Beth Osborne, a senior policy adviser with the advocacy group Transportation for America. “That might be a tad bit unrealistic.”[18]

Indeed, the impediments to full-scale autonomous vehicles are significant. For one, the technology is not there yet. The costs are also steep enough to make mass production prohibitively expensive (the necessary sensors alone can cost tens of thousands of dollars each). Plus, public support isn’t there yet. Most consumers are extremely wary of self-driving technology.

But don’t underestimate the threat.

However, the technology is maturing rapidly, and its impacts are not as far off as they may seem. The changes forecast for the insurance industry, for example, will begin hitting within just a few years (some are even beginning now). It’s likely that many affected industries will struggle through complete upheaval in the years and decades that follow.

It’s no exaggeration to say that many businesses – specifically, those who fail to consider and prepare for these changes – will crash and burn. Thus, it’s imperative that affected industries begin forecasting the impacts now, so that they can create and update their business models in tandem with the changes being wrought by advancing levels of self-driving cars. Those who completely ignore the changes in the short-term will be forced to over-adjust down the road, if they are able to stay in business at all.

“It’s going to be a very exciting time in the automotive industry but there are going to be a lot of changes,” says Hod Lipson, a professor of engineering and data science at Columbia University in New York. “It’s not going to happen immediately but something we definitely want to start thinking about and get ready for.”[19]





















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