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Driverless Cars: Automotive Sector’s Next Big Business Bet

Automotive technology is changing faster than ever. Automakers like Tesla, BMW, Audi and General Motors are leading the race to manufacture connected vehicles of the future. While driverless cars are expected to arrive on road by 2021, there are still apprehensions about the desired infrastructure development and evolution of macro sensors technology.

Data will play a significant role in the development of driverless vehicles, for how else are these going to learn? But how is the business model going to change? Who will have more power and control over the vehicles: OEMs or ICT partners? Who will own the data: Channel partners, companies or end consumers? Will the traditional model of selling the cars to end consumers continue to triumph, or will the new monthly/yearly service model take over? Or, will car aggregators like Uber win the game?

The technology is still evolving for cars to learn about driving patterns and react, stop and start as required—similar to humans. So far in the pilots being done, these cars have already adapted to the driving rules and signal patterns. However, the major concern is their adaptation to the unpredictable human behaviour. As 70 per cent road accidents occur due to human error, the question is, “Can AI and sensor technology become intelligent like humans to adapt to sudden unforeseen instances on the road?”

The new disruptive cars are sure to revolutionise the business of mobility. In one of the earlier interviews, when asked about the future business models in the connected car era, BMW’s chief financial officer said, “We are not talking about a completely new strategy, but we are putting greater emphasis on brand management and design.”

The future of business in mobility
The future represents a whopping 2.2 trillion dollar opportunity. But the profit share of players—automakers, brands, OEMs and the related parties—will be halved from what it is today.

The advent of driverless cars will lead to competitive shared/fleet-based commute, whereas presently it is all about owned vehicles.
“I think we will see autonomy and artificial intelligence advance tremendously,” Tesla founder Elon Musk said at the World Government Summit in Dubai. He added, “My guess is that in probably 10 years it will be very unusual for cars to be built that are not fully autonomous.”

At the same event, Musk said, “There are about two billion cars in the world and the total annual production capacity is about 100 million cars, which makes sense since the average life of a car before being totally scrapped is about 20 to 25 years.”

“The point at which we see autonomy appear will not be the point at which there is a massive societal impact on people, because it will take a lot of time to make enough autonomous vehicles to disrupt. So that disruption will take place over about 20 years.”
It is expected that driverless cars will convert the business model into a shared one. The gap between OEMs and suppliers is about to disappear, and they might just have to merge together.

OEMs need to rework their strategies and develop partner relationships with their various stakeholders. They will need to invest high amounts of capital into business, expecting lower returns spread over a long tenure. Experts advise them to work on creating design shops and diversification plans in order to remain in the value chain.

Currently, connected cars and autonomous vehicles are at around level 3 of their pilot projects. These need to reach at least level 5 to be driven on roads, which is expected to be achieved by 2025. The US, Europe and China will lead the race in terms of having the world’s first autonomous vehicles on road. Their governments are already working on relevant policies and infrastructure for driverless cars.

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