Analysis: The Impact of Autonomous Vehicles on The Auto Industry

27 February, 2019
Analysis: The Impact of Autonomous Vehicles on The Auto Industry

The first completely autonomous cars are projected to hit the market by within the next five to ten years, and while car manufacturers are embracing these vehicles as crucial to their future, driverless cars are poised to completely disrupt the industry.
Driverless vehicles are expected to significantly deteriorate private demand for new cars, mostly by facilitating car-share subscription services. In turn, automakers will be forced try to find alternative revenue streams, possibly through these very services.
Autonomous technologies are expected to trigger soaring investment in electronics down the road, while autonomous cars will also inspire tech giants like Apple or Google to enter the market. Car manufacturers clearly see autonomous technologies as crucial to their future and are already offering so-called autopilot systems. Many manufacturers have announced plans to put autonomous vehicles on the market in the coming years.

The way forward for driverless cars mostly will depend on regulations and consumer demand, with mass commercialization probably taking about a decade. The first totally autonomous cars for consumers will likely debut in premium passenger vehicles and heavy-trucks, as buyers of these vehicles are not price- sensitive.

Driverless vehicles are expected to send through the industry by lowering demand for car ownership. Household demand will likely shrink autonomous cars increasingly enable on-demand transportation services. Studies have indicated that consumers finance car ownership only to have a vehicle sit unused for about 95 percent of the time. This makes autonomous car-sharing services an attractive alternative for some consumers. Subscription services would also significantly reduce the need for off-street parking and parking in general.

A worst-case scenario has autonomous vehicles eroding new-car sales in the US by 40 percent, forcing manufacturers like Ford and General Motors to cut production by 50 percent.

Even so, car manufacturers could make up for such losses through alternative revenue streams, like car-sharing services. One of the first indications of that was GM investing $500 million in the ride-sharing business Lyft back in 2016. The carmaker is also expected to introduce autonomous cars to Lyft’s fleet.

Within the next five years, autonomous vehicles are also projected to disrupt the automotive supply chain. Intra-industry trade, which might be used as a proxy to determine the strength of suppliers, was at 35 percent of overall costs on average in 2015. However, this share could shrink in favor of technology businesses moving into the space.

Autonomous technologies are based on state-of-the-art software, compelling the automotive industry to step up investments in software technology. Carmakers have been increasingly looking at acquiring Silicon Valley startups, with the most considerable example being GM’s purchase of Cruise Automation for a reported $1 billion.

The rise of autonomous technologies also could give more muscle to established tech titans, like Apple or Google. Until now automotive businesses have been registering the most in driverless-car technology patents, however, if the autonomous-car market proves to be financially rewarding, tech giants could quicken their investments and become serious threats to both traditional car businesses and suppliers. Tech giants could benefit from their experience and expertise in creating and integrating software, as well as their deep pool of tech-related talent.

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