The Automarket of the Future | Driving the Car from a Consumer Product to a Subscription Network
Dr. Evangelo Damigos; PhD | Head of Digital Futures Research Desk
- Emerging Technologies
Publication | Update: Sep 2020
Research predicts that by 2050 owning a smart autonomous vehicle will become the norm for consumers. Every major automotive manufacturer will likely follow by the early 2020s. Many of the key pieces of technology necessary for the manufacturing of autonomous vehicles are continuing to decrease in cost as the technology is perfected. And while the price of a self-driving car is still outside the price range of most consumers, investor interest continues to increase.
Technology is significantly advancing for vehicles. Through the year 2030, we are likely to see more autonomous vehicles and ride-sharing. According to a PwC report, there are five main trends that will transform the auto industry through 2030. They are summed up in the acronym ‘EASCY’: electrified, autonomous, shared, connected, and yearly updated.
Today’s vehicles capable of operating without a human driver inside the vehicle still operate well below their full potential. Consider the significant cost and societal implications incurred from cars not being as safe as they can be, not monetizing data the way they theoretically can, and not being utilized as efficiently as they can. The Car of the Future — which combines advancements in AI, connectivity, computing power, and electrification — not only promises to address many of these problems, but will also potentially change personal mobility as we know it.
The automarket of the future will be a combination of RoboTaxi driverless car services, AV Subscriptions and traditional ownership.
At the end of this transformation, the auto market will be characterized by:
1. RoboTaxi driverless car services (mobility-on-demand, or rideshares) operating mainly in urban and some urban/suburban markets. These are dedicated fleets similar to Uber today but utilizing driverless cars.
2. AV Subscriptions, i.e., driverless-capable cars that one subscribes to combining the best attributes of personal ownership with the benefits of AVs,
3. Traditional ownership in certain segments (pickups, commercial vehicles) with AV features sold as standalone options, even if they are ‘off the network.’
Electric vehicles (EVs) will be a critical competitive input in all three of these mobility options, since EVs can reduce the cost of ownership while addressing tailpipe emissions in urban regions (particularly important, in our view, for the RoboTaxi vertical).
So the disruption isn’t necessarily about an auto industry going away or even shrinking (quite the opposite), but rather a drastic change of the delivery of mobility from a product to more of a network — and all the resulting changes in supply-chain economics, winners and losers within the auto industry itself, and the impact to existing industry stakeholders.
When it comes to adoption barriers, rather, we tend to think of consumer acceptance and regulations. Human-driven cars and AVs will coexist for a long time to come, even with a rapid scaling of RoboTaxi and eventual AV Subscriptions.
Autonomous Vehicles Subscription Networks
Considering how the automotive industry is changing, the shift to EVs affords everyone in the industry the opportunity to test and refine new ownership models that will be utilized in the future. Many customers that are currently buying EVs can be considered early adopters of technology. Using early adopters as a test market for future ownership models will provide valuable insight that can be used to inform the design and implementation of future business models.
Deloitte | New market. New entrants. New challenges. | Battery Electric Vehicles
Itay Michaeli, Citi’s Auto and Auto Parts Analyst, contests that the driverless cars evolution will transition the ‘car’ from a consumer product towards more of a network — a network you can access on-demand or as a subscriber, and will likely redefine large parts of the automotive market, as well as related non-automotive verticals.
The Advantages of Autonomous Vehicles Subscription Networks
Autonomous Vehicles Subscription Networks should have a simplified payment structure, plus benefits like autonomous service, vehicle swapper, and liquid peer-to-peer loans. According to Itay Michaeli, Citi’s Auto and Auto Parts Analyst, automakers could structure monthly payments that capture the economics of vehicle maintenance, lower insurance costs, and much safer AVs. By taking control of the vehicle throughout its life, the automaker (network) could structure a compelling monthly payment for consumers by capturing the economics of vehicle maintenance, while realizing lower insurance costs from much-safer AVs. Some of those savings could be passed on to consumers as part of the monthly subscription cost.
Illustrated AV Subscription Network scenario:
· Assume the network sets its monthly payments (revenue) at the cost-of-ownership for a conventional car.
· The EV/AV vehicle comes at a $ 6,000 added variable cost versus the conventional car.
· The network, in this case an automaker, sells the vehicle to a FinCo and leases the vehicle back. We impute the leasing cost of the vehicle over the 15-year life at a $ 0 salvage value with an interest rate of 3% and a vehicle price of $ 41,000 - ($ 35,000 price + $ 6,000 of AV content.)
· EV range at 300 miles on a 70kWh battery at $ 0.12 electricity cost.
· Insurance savings = 40% versus a conventional vehicle thanks to the AV sensor suite’s performing highly-advanced advanced driver-assistance systems (ADAS) at all times.
· Maintenance costs savings =35% due to lower lifetime maintenance cost of an EV – (in year-9 replaces the EV battery.)
Illustrated AV Subscription Network (Cash Flow)
Based on the above, a fleet of 100,000 AV Subscribers can earn $ 2.5 billion of lifetime gross profit. This would be in addition to an estimated ~$ 900 billion RoboTaxi U.S.-revenue total addressable market. More importantly, given the sizable safety, economic, and convenience benefits that such networks could offer consumers, we could see a very rapid acceleration of AV vehicle penetration.
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