REDESIGNING THE INDUSTRY: THE POWER STRUCTURE IN 2030
DECEMBER 4, 2017 • 29
F I F T H I N A 5 - PA R T S E R I E S
In 2030, private ownership will still exist, of course, but ride-hailing giants will have an outsized influence on the structure of the industry
FOLLOW THE FLEETS!
I
David Sedgwick
[email protected]
t is ironic — but true — that automakers are racing to develop a new generation of vehicles that will utterly destroy the traditional auto industry. By 2030, dealerships will showcase vehicles that are electric, connected and automated — vehicles powered by technologies beyond any automaker’s expertise. These cars and trucks will be built, sold and serviced by corporate coalitions that adopt the comforting identity of a Ford, Volkswagen or Toyota. But automakers won’t be calling the shots. Instead they will manage uneasy alliances of suppliers, giant ride-hailing fleets, mega-dealers and Internet behemoths — all with their own agendas. Some of these players are automotive newcomers with no vested interest in the status quo. They gained fame and wealth by disrupting their own industries, and now they want to disrupt yours. True self-driving vehicles are still a decade away, but the corporate coalitions that will produce and service them already are starting to form. Here’s a guide to the industry’s power structure in 2030.
Robotaxi fleets
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slew of them. These fleet owners will account for several million vehicles a year. Every few months they will order 100,000 low-end modules, 100,000 medium and 100,000 high-end. The low-cost provider that delivers the specification will get the business. “These modules won’t be branded Chevrolet, Ford or Toyota. They’ll be branded Uber or Lyft or whoever else is competing in the market.”
On Nov. 20, Volvo announced a threeyear deal to supply up to 24,000 robotaxis to Uber. The deal was a logical step for the compaTech titans tie up nies, which had jointly launched a test fleet Let’s assume that China, France, Britain, of 100 self-driving vehicles in 2016. India and the Netherlands really do intend Ride-hailing firms such as Uber, Lyft and to ban production of fossil-fuel cars. China’s Didi Chuxing are eager to introA handful of mega-suppliers — such as duce robotaxis because they can dispense Panasonic, LG Electronics, Robert Bosch and with their biggest operating Continental AG — have made cost: drivers. big bets that this transformaRide-hailing firms These companies are not such as Uber, Lyft tion will actually occur. Those content to be traditional fleet bets are starting to pay off. operators. Last year, Uber and China’s Didi When Tesla announced announced the $680 million Chuxing are eager plans for a Gigafactory in the acquisition of Otto, a startup to introduce roboNevada desert, it called on that is developing technolo- taxis because they Panasonic Corp. — the world’s gy for self-driving commercan dispense with largest producer of EV battercial trucks. ies — to help build and run it. Lyft has formed partner- their biggest As far as Tesla is concerned, ships with Ford and General operating cost: Panasonic is a partner — not Motors to develop self-driv- drivers. just a supplier. In 2010, Panaing vehicles, and in May it sonic bought a $30 million signed an agreement with Waymo to do so. stake in Tesla, and it also put up an estimated As Uber, Lyft and Didi Chuxing deploy 30 percent of the Gigafactory’s $5 billion the first batches of autonomous vehicles, price tag. they will wield considerable clout. The Chevrolet Bolt offers another examRobotaxis likely will be used for a mobile ple of the close ties between an automaker office, a lounge, a theater or even a party and key suppliers. LG Corp. produces the wagon. When that happens, the taxi fleets Bolt’s battery, electric motors, powertrain might order a batch of chassis from autoelectronics and infotainment system. makers, then outfit them with custom inteTo gain LG’s cooperation, GM allowed it riors designed by seatmakers such as Adito retain control of its intellectual property. ent or Faurecia. And as GM introduces 23 electric models In an article written for Automotive News over the next five years, its Korean partner last month, Bob Lutz, a former General doubtless will be deeply involved. Motors vice chairman, says the debate over Other mega-suppliers — such as Bosch whether private owners will accept autonand Continental AG — also are positioning omous vehicles misses the point. themselves for the electric age. Lutz wrote: “All we need is acceptance by In June, Bosch disclosed that it is spending the big fleets: Uber, Lyft, FedEx, UPS, the U.S. Postal Service, utility companies, delivery services. Amazon will probably buy a see FLEETS, Page 30
A dozen years from now, who does what? A bevy of business models and types of enterprises are expected in 2030. Automakers: Traditional automakers will mass-produce cars and trucks, but software and consumer data will generate the big profits. Fleet owners: Uber, Lyft, FedEx, you name it — each will buy autonomous vehicles by the tens of thousands, all built to spec. The fleets will badge vehicles with their own “house” brands. Tech alliances: To get the technology they need, automakers will form alliances with chipmakers, software vendors and key suppliers. Traditional purchasing policies will be tossed aside because carmakers won’t be calling the shots. Disruptors: Google, Uber and other automotive newcomers are not under pressure to protect old business models. They intend to make money on mobility — not autos. The “brain” labs: Big chipmakers such as Intel, Nvidia and Qualcomm will hold the keys to artificial intelligence, the silicon “brain” of an autonomous car. Automakers can’t simply buy these chips and plug them in. Instead, chipmakers will work side by side with their customers. Taxi fleets: Uber, Lyft and other taxi fleets might order a basic vehicle platform — powered by a modular electric motor and battery — and fit them with interiors supplied by a seatmaker. Depending on market demand, the fleets would order interiors for a mobile office, lounge or even a party wagon. Contract manufacturers: What if a carmaker outsourced all vehicle assembly to an automotive version of Foxconn, Apple’s manufacturing partner? It could happen.
EV mega-suppliers: As electric vehicles gain acceptance, a handful of suppliers will produce the necessary motors, batteries and electronics. Automakers will treat them as partners — not vendors. Mobility brokers: Today’s big dealer groups will maintain self-driving fleets for businesses, taxi operators and private individuals. Every day, the vehicles will drive themselves to businesses and homes, then return at night to the dealerships. Infotainment centers: Retailers, automakers and telecoms will share the revenue generated by a vehicle’s infotainment and advertising. Dealers as lenders: Retail groups will launch their own lending institutions to finance the fleets they maintain for subscription-based ownership models. They could also floorplan and run the entire balance sheet for smaller fleet providers, such as app-enabled taxi services. Self-driving service centers: Nationwide dealer groups with the cash to invest in tools, technicians and training will be big winners as autonomous vehicles proliferate.
30 • DECEMBER 4, 2017
REDESIGNING THE INDUSTRY: THE POWER STRUCTURE IN 2030
MOBILITY As assistant editor for mobility, Shiraz Ahmed reports on smart cities, startups, suppliers and the road map to our autonomous future. He has developed some ideas on what the mobility industry will look like in 2030 and what it will take for service providers to succeed.
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Shiraz Ahmed
[email protected]
t’s a Monday morning in 2030 and you’re ready for the robo-commute to work. Here are your choices: Book a trip with EconoRide, a free service derived from what was previously a national rental car company. EconoRide packs 20 commuters into a self-driving shuttle bus with rigid metal seats and makes money by badgering riders with an incessant stream of targeted advertising. Or indulge yourself with Magic Carpet, a private autonomous car service operated by a high-end carmaker that will let you sink into a cushy seat, enjoy a morning mimosa and relax with a virtual reality meditative session. These are imaginary companies, but this is how prognosticators see the future in the mobility business. In 2030, it won’t matter what company’s app you download or who owns the vehicles. Tomorrow’s transportation will be defined by the same forces that have shaped the last century of product marketing: branding and customer experience. Luxury carmakers have long relied on performance and an aura of wealth and prestige. A company such as Subaru has benefited from its affiliation with the outdoors. Tomorrow, just as today, strong brands will need to clearly communicate value to riders —
FLEETS
Dealerships will keep the robotaxis running continued from Page 29
$448 million annually to design powertrains and batteries for electric vehicles. Meanwhile, Continental has invested $1.2 billion in EV research over the past five years. There aren’t a lot of companies that can afford r&d on this scale, so a shakeout seems likely as EVs gain share. In an EV world, a handful of survivors — such as Panasonic, Bosch, Continental and LG — will enjoy economies of scale that their smaller rivals can’t match. Automakers will treat them as partners — not vendors.
Mobility brokers (formerly known as dealers) Think of your dealer as a mobility broker. By 2030, dealerships will service robotaxi fleets, drones and a few privately owned vehicles. Dealerships will sell cars, too, but it won’t be like the old days. Forget about dickering over prices. That’s old school. Instead, motorists will pay subscriptions for their transportation. Some will join a group lease and share their vehicle with friends. Others will opt for a plan that lets them switch vehicles. Would you like an EV for your daily commute, then switch to a pickup for
Magic Carpet ride: How to make a go of it in mobility
Surprise! It won’t be about hardware or software but targeting local tastes
SHIRAZ AHMED
The car-sharing service WaiveCar offers free transportation that is geared toward short trips. It subsidizes the cost of the transportation with advertising.
and match that reputation with comparable incar experiences. One expert I spoke to likens the future market for mobility services to today’s airline industry. Safety and reliability have been commoditized by stringent regulation, so carriers compete on consumer sentiment and ancillary offerings such as loyalty programs, inflight luxuries or luggage allowances. Spirit Airlines, for instance, has built its marketing the weekend? Your dealer can arrange it. By 2030, dealers will generate revenue from three sources. Mobility services, which include fleet management and subscriptions, will generate 30 percent of a store’s revenue. Service and maintenance will account for 40 percent or so. And the remaining 30 percent will come from consumers who buy vehicles, then rent them out when they aren’t using them. There is a catch, of course. This business model favors large dealership groups that can afford the staff, training and facilities to service large fleets. Mom-and-pop stores will survive — mostly in rural areas — but they won’t compete in major metro markets. In fact, the big dealer groups already are planning for it. Last month, AutoNation Inc. announced a multiyear agreement to service Waymo’s fleet of self-driving Chrysler Pacificas. The dealership group will support Waymo in Phoenix and northern California, then elsewhere as Waymo expands. The company’s 274 dealerships can service self-driving cars anywhere in the country. Mom-and-pop stores can’t match that.
The brain labs Software engineers can’t anticipate every situation that a self-driving vehicle might encounter at a construction zone, crosswalk or busy intersection. So they are designing computer chips that can use artificial intelligence to identify ob-
around a bare-bones offering, a strategy that could be maximized by autonomous transportation services in which the cost per mile can be subsidized by advertising and data collection on riders. Carmakers have already begun incorporating digital technology to differentiate the rider experience, offering music streaming services, virtual assistant integration and personalized settings for climate control and comfort. Smart companies will learn to package, brand and improve these experiences so they’re easy to use for a one-off five-minute ride as well as a regular two-hour commute. For some of these experiences, winners will recognize and capitalize on local needs. In Denver, a rental car affiliate might outfit its self-driving fleet of off-roaders with built-in seating that massages and rejuvenates sore muscles from long days of skiing. In San Francisco, small, one-seater vehicles that incorporate services such as teleconferencing may do well. Success won’t be determined necessarily by who has the edge in software or hardware, as is often stated, but instead by those who can maneuver around local consumer tastes and preferences.~a
AutoNation and Waymo: A plan for the future
jects — and figure out how the vehicle should respond — with the sophistication of a human motorist. To gain access to this technology, automakers are forming alliances with chipmakers. Volvo, Mercedes and Audi are collaborating with Nvidia. Toyota has partnered with Renesas. BMW is working with Intel. The r&d required for artificial intelligence is extraordinarily costly. Nvidia, a leading producer of graphics processors for gaming and mobile computing, spent $3 billion to develop its Volta architecture. That architecture underlies the Xavier processor, which Audi will introduce in its self-driving vehicles in 2020, followed by Volvo in 2021. Nvidia is covering its massive r&d costs by marketing Volta for supercomputers, the health care industry, financial services and gaming. Needless to say, only a handful of competitors can match it. One such company is Intel, which introduced its own AI supercomputer
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Technical drawings from a real patent from Airbus for a concept to stack passengers on top of each other highlight how autonomous transport could evolve similarly in both high-end and ultra-low-end markets.
— Nervana — in November. Facebook will use Nervana to identify patterns generated by its users. Intel also is promoting Nervana for weather prediction, medical diagnosis, financial fraud detection and self-driving cars. Automakers simply don’t have the market leverage to nickel-and-dime Nvidia or Intel for big discounts. In the world of artificial intelligence, the auto industry is just another market segment.
Fading auto brands In a market shaped by companies such as Bosch, Intel or AutoNation, it would be tempting to predict the demise of the world’s great automakers. That would be wrong. Global automakers such as Ford, Toyota and Volkswagen will continue to build cars and trucks because mass production is a job for experts. But their brand identities will slowly fade. Fleet operators such as Uber, Lyft and Didi will maintain inexpensive fleets of podlike taxis. Passengers in self-driving vehicles will value a smooth, comfortable ride rather than raw acceleration. And electric cars — autonomous or not — will be powered by a standardized assortment of motors, batteries and electronics. To manage all this, automakers will preside over alliances of chipmakers, mega-dealers and key suppliers. Their badges may or may not be on the cars, but they won’t be in the driver’s seat. a
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32 • DECEMBER 4, 2017
REDESIGNING THE INDUSTRY: THE POWER STRUCTURE IN 2030
C O M M E N TA RY
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Automakers should consider leaving automaking to others
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Larry P. Vellequette
[email protected]
f I had a limitless amount of money, I know exactly what I’d do. I’d go to the world’s automobile manufacturers and offer to buy their assembly plants. I would then produce their vehicles under contract and sell them back to those same companies at cost plus a tiny margin. Buying the plants today would put me way out front of where I believe
Why not mimic Apple and focus on r&d and marketing? the world’s auto companies are headed. Seriously, how long before we get to the point where automakers no longer make autos? Yes, that sounds incredible, but it also feels inevitable. Manufacturing vehicles with consistently good quality might be the hardest thing this industry does. Just ask Tesla. Heck, ask Toyota. Any CEO will tell you that manufacturing without consistent quality can absolutely destroy a brand’s image. If automakers could shed their manufacturing responsibilities, they could streamline operations down to little more than r&d, design and marketing. They would continue to be creators and masters of the look and feel of their vehicles, as well as their performance and positioning — thus their brand appeal. They’d essentially follow Apple’s business model, which I hear works just fine.
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Think about it. What if a car company outsourced its entire vehicle production operations to a secondary entity that would operate like an automotive version of Foxconn, Apple’s gigantic manufacturing partner? Wouldn’t that automaker be at a competitive advantage? Wouldn’t it be rewarded in spades by the stock market? Ultimately, all traditional automakers would be pressured by investors to offload their costly, complicated manufacturing operations to an entity willing to run them on a cost-plus basis. It’s already happening, albeit at a smaller scale. The services of the industry’s best-known contract manu-
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Will giant automotive factories give way to localized 3-D printing centers?
facturer, Magna, are in high demand, especially from premium brands. That relationship works because Magna is good at what it does, and automakers know and trust that fact. Now imagine the world’s vehicle assembly in the hands of a single, super cost-efficient back-end manufacturer? That company could dictate common loading points across various designs, allowing the factories to be flexible enough to build similar-sized products for several manufacturers simultaneously. As robotics continue to advance, the cost structure of these factories would drop precipitously even as manufacturing complexity increased. This automotive Foxconn would have sufficient scale to make its own 3-D printed tooling, and eventually maybe even “print” its own automobiles. At that point, giant automotive factories would be unnecessary. Instead, you’d have localized printing centers where consumers would pick up the completely personalized
automobiles that they had designed and paid for at their local dealer a few days before.
A bite of the Apple Look at the future that’s been forecast for the auto industry: autonomous cars with identical driving dynamics — all controlled by algorithm, so vehicles will no longer crash. A new ownership model will naturally follow autonomy and widespread electrification. Basically, what we’d have is a transportation collective. Unlike so many people, I remain deeply unconvinced that this apocalyptic automotive future is just over the horizon. While it may be technically possible to do all these things in the next 20 years, I don’t believe humanity will change its habits that fast, if ever. But whether it happens or not, why does manufacturing need to remain a center of excellence for automakers? Why will today’s companies continue to expend their energy and treasure on being the “handset provider,” as Bob Lutz puts it? Why indeed? You ask: What will be left for carmakers to do if they don’t make cars? Well, more or less what Apple does. So like Apple, leave the manufacturing to manufacturers. In fact, leave it to me. a
