The future of driving rests on two trends:
1. The adoption of self-driving technology
2017 is going to be another major time for automakers as society inches closer to the mass adoption of self-driving vehicles. Volvo has announced that real-world customers will be using 100 self-driving vehicles on public roads in Sweden, Tesla will have a driverless car travel from LA to NYC, and expect companies like Ford, GM, Baidu, and Alphabet’s Waymo to have significant advancements as well. 2017 will mark the year that self-driving vehicle technology hits a “teenager” maturity status — no longer is autonomous vehicle technology the non-trustworthy, completely unreliable “kids” we once thought they were. But don’t expect the technology to hit the fully functioning, non-awkward “adult” stage by the end of the year either.
2. The adoption of a ride-hailing society
The valuations speak for themselves! Companies like Uber and Lyft are becoming household names and more people everyday are accepting these ride-hailing services into their daily lives. On the consumer side, the popularity of these ride-sharing platforms come from both the cost-cutting benefits and outright convenience they provide (in comparison to operating your own car or using traditional taxi services). And it’s not just those in the western world, where Uber and Lyft dominate, that are getting accustomed to ride-hailing services. Companies like BlancRide, which serve Southern American markets, are making an impact on their side of the world and are getting typical drive-my-car commuters submerged into the idea of ride-hailing.
The implications of these two trends in everyday society will be enormous. Driving will be safer, traffic and employment laws will adapt, and a plethora of other changes will happen as these trends actualize.
But the biggest change in society will be that people own fewer (or no) cars.
Why will that be the case? Consider a hypothetical (but increasingly likely) example:
You wake up and get ready for work on Monday morning. It’s 7:45 AM and Uber asks you what car you would like to be picked up with today. It’ll be the 2-seater Mercedes-Benz. Usually you opt for the 4-seater but the kids don’t have school today and your significant other will be working from home too.
5 minutes pass by and the car arrives next to the sidewalk in front of your house. You sit inside, relax, and read the latest edition of the NYT on your iPad as your car quickly accelerates on the road. It’s only been 15 minutes and you’re already at work! 10 years ago, in a world where everyone drove their cars, the commute took an hour and a half. But given how efficient and flawless self-driving vehicles are as opposed to human drivers that’s not the case anymore.
The workday goes by and it’s 4:30 PM. Your Uber app sends you a notification asking if you want to go ahead with your regularly scheduled pick-up for 4:45 PM.
Quick confirmation yes > vehicle shows up on time > sit inside > destination.
Without self-driving vehicles and ride-hailing platforms, this type of world won’t exist.
So what’s the point of a someone owning a car?
The alternative is much cheaper, convenient, and flexible. And for needs such as long-distance trips, people can be transported to efficient long-distance public transportation systems (cross your fingers for Hyperloop’s everywhere).
And as for who’s going to own and maintain the cars? The simplest answer could be the ride-sharing platforms. Imagine if Uber had “warehouses” full of self-driving vehicles that are constantly being deployed to hailers. How exactly this would be set up is still a mystery (Could Uber set up strategic partnerships with individual automakers to leave it up to users to choose their vehicle per trip and have vehicles deployed from their dealerships? Could regional governments have a role in vehicle deployment?) and it’ll take a lot of trial and error (and revenue modeling!) to see who will manage and deploy the constantly hailed, autonomous vehicles.
One thing that’s been puzzling me recently is where the automakers will stand in this self-driving, ride-hailing world. If we’re transitioning over to the world where end-consumers don’t buy cars anymore, won’t the revenue of automakers be slashed overnight?
Not at all.
Automakers could see their revenues soar as a result of a self-driving, ride-hailed vehicle future.
Let’s walk through all the changes in the revenue models automakers may encounter in the future (and also describe whether they’ll increase or decrease revenue for automakers):
1. Fleet sales will replace individual vehicle sales (decreasing revenue)
This is the most obvious change in the revenue model for automakers. Companies like Ford will be selling their vehicles as fleets (such as in bundles of 50 at a time) to companies like Uber (or whoever manages ride-hailed vehicles) rather than selling their cars one at a time to end consumers. Obviously this change will generate less vehicle sales for automakers as it’s more efficient for people to hail a car rather than purchasing one (e.g. for a group of 300 people, 50 ride-hailed cars could collectively service them on a monthly basis; in today’s world a group of 300 people may collectively purchase 100 cars).
2. Vehicle turnover will increase, driving more vehicle sales (increasing revenue)
As a result of how easy it will be to operate and hail a car, we can expect the usage of vehicles to increase significantly. In turn, this will lead to more vehicle wear-and-tear and higher vehicle turnover. Fleet managers will need to purchase vehicles more often — increasing the revenue for automakers and essentially canceling the impact of decreased revenue as a result of fewer vehicles being collectively sold.
3. Premium driving services will be introduced (increasing revenue)
Tackling boredom has always been a problem automakers have had for their drivers. But given the attention needed for two hands on the wheel, this was only an issue that automakers could focus on to some extent (they basically said “let’s put in a radio and bluetooth and call it a day”). But in a future where little human intervention is needed, what will occupants do during their “drive”? Companies like Mercedes-Benz are already thinking ahead with innovations like their F 015 concept car: set with services like the ability to participate in conference calls while on the go. Automakers may implement these “premium” features into their cars for occupants to use for an extra fee or a subscription.
Given the safety and simplicity that the future of driving will offer, automakers will also have the opportunity to appeal and satisfy two large audiences who typically don’t operate their own vehicles: seniors (aged ~65+) and children (younger than the permitted driving age). Automakers will be able to customize and implement special “premium” features in their vehicles for these new audiences.
Take child occupants for example, parents/caretakers may pay a premium for the ability to access a child safety camera while a child is in a self-driving vehicle.
4. Automakers may become full-on mobility companies (increasing revenue)
This prediction is a bit of a stretch (but then again, not many people thought much of self-driving cars 20 years ago!), but automakers may introduce completely new product lines where they attempt to solve other mobility needs for consumers rather than just manufacturing cars. In September 2016, Ford debuted a Segway-esque vehicle called the Carr-E which people can stand on as it autonomously moves to a short distance. Or people can put a package on top of the device and have the Carr-E follow them as they walk.
The twist with the Carr-E is that Ford has no plans of putting the concept into full-scale production. But it demonstrates that automakers haven’t ruled out the idea of being “more than a car company” in the near future as their revenue models and products drastically change.
These are just some of the many ways that automakers could adapt to a self-driving, ride-hailed world that is coming very quickly. As of now, these changes are simply speculation — whether or not automakers go towards these changes has yet to be seen. But what we know for sure is that if automakers don’t think of new, innovative ways of changing their business model to address the future, they’ll definitely be in danger of extinction.
In what other ways do you think automakers will adapt to the future of driving?
Aniket is a fourth-year finance student from the University of Waterloo. He loves learning about the latest news involving startups, cars and motorsports, UI/UX design, finance, and global politics. Most recently he completed a co-op as a Venture Capital Analyst at Extreme Venture Partners and is looking for more experience in the startup space. Find out more about Aniket on his LinkedIn!