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Autonomous driving: Disillusionment or the calm before the storm?

Munich, July 2023

Autonomous driving: Disillusionment or the calm before the storm?

Munich, July 2023
I

t’s long been said: “It doesn’t matter when you ask the question – the breakthrough for autonomous driving (AD) is always five years away.”

In reality, after the AD euphoria of the past decade when it was assumed that robo-taxis would be seen on the streets of every modern city by the early 2020s, the balance sheet for the autonomous revolution is now looking rather more somber. So, what are its real prospects?

In the field of AD mobility-as-a-service (AD MaaS), or autonomous on-demand passenger transport, there are currently around 110-120 notable and partially commercial pilot schemes worldwide. Around 70% of these are being run in the technology-leading markets of China and the US, with the rest distributed over Europe, the Middle East and other parts of the world. Just five companies are running around two-thirds of all autonomous fleets worldwide.

About half of all AD initiatives are autonomous shuttle operations with vehicles from companies such as Navya, Easymile or Perrone Robotics, which take on passengers at defined stops and carry them to their destination on dynamically chosen or static routes. Most of these pilots are run using small fleets of two to five vehicles.

US and China set the tone

Autonomous shuttle services can now be found on almost every continent. Perhaps surprisingly, most of these small pilot schemes are based in the US, home of the large robo-taxi companies Waymo and Cruise and dominated by hail-and-ride services. On the other hand, robo-taxi services are taking center stage in China. Chinese companies such as Baidu, WeRide and AutoX – the last two of which are only known to industry insiders – have reached a degree of technological maturity comparable to the better-known US market leaders. AutoX has more than 1,000 active vehicles and, according to its own data, runs the current largest commercial robo-taxi fleet in the world. The Alphabet subsidiary Waymo and GM subsidiary Cruise are focusing on some US cities (including San Francisco, Phoenix and Los Angeles) to raise the degree of maturity of their systems before a large-scale roll-out is initiated. Even though it is clear that the robo-taxi business is still not spreading quickly from city to city, the business is growing more quickly than autonomous shuttle services.

In comparison to the US and China, Europe is lagging well behind on the robo-taxi map. Only the Israeli AD-system supplier Mobileye, along with some local pioneers such as Sixt, VW commercial vehicles and the Benteler offshoot Holon, are showing serious commitment to taking autonomous driving services into European cities. It is unlikely that the US and Chinese market leaders will enter the European market in the near future. This is because the untapped market potential in their domestic markets is too great and the urban market environment in Europe too complex, too bureaucratic and too politically challenging.

In Europe it’s uphill

Multiple challenges explain why autonomous driving services are not catching on so quickly in Europe as many once assumed:

  • Technology: Even though the degree of AD technological maturity is continuing to develop steadily, it will take some time before the safety level of a human driver is proven to have been reached and to meet European regulatory demands. To achieve a level of failure probability comparable to that of commercial aviation calls for the master of every conceivable “edge case,” and costs for the necessary sensor technology still need to be considerably reduced.
  • Regulation: Germany has adopted the first comprehensive legal framework for autonomous driving on public roads with the Autonomous Driving Act (AFGBV), but the fact that by April 2023 no manufacturer had applied for certification of a vehicle under the Act shows that AD system certification is still at the test stage and will need time to be fine-tuned. Meanwhile a regional unified approach to AD regulation is lacking both in the US and EU, making the development of a scalable approach difficult.
  • Scaling: If OEMs are hoping to see AD MaaS production volumes comparable to those of a mass-market vehicle like the VW Golf, they are going to be disappointed. In the foreseeable future, annual production of AD MaaS vehicles is unlikely to amount to more than around 100,000 units per year even in the most optimistic scenarios. The reason is that AD vehicles do not spend time sitting unused on driveways and in car parks: they will achieve utilization rates of a conventional passenger car many times over. In a city such as Munich, a fleet of 20,000 robo-taxis could potentially replace the entire city passenger-car population of more than 700,000 vehicles.
  • Business model: It is widely believed that autonomous driving could achieve what Uber and Lyft have failed to in the last 15 years: a profitable business model. But in Germany – and elsewhere in Europe – procurement rules, procedures for integration with public transport facilities and tariff planning form an array of important unknowns in the calculation, and this complicates potential operators’ commercial planning.

German manufacturers put AD on pause

Against this challenging background, German OEMs have largely given up on their ambitions to play a prominent role in the AD business. They have discontinued or put on ice their existing partnerships with AD suppliers, including the now closed VW/Ford partnership with Argo. The AD ambitions of international companies are now represented by GM with its subsidiary Cruise, along with Hyundai in partnership with the Korean start-up 42Dot. Instead, the existing “feature competition” business model is being developed – L3 driving as an option in the S-class for private customers. However, all AD offerings from incumbent automakers face increasing price competition from Chinese manufacturers, such as Momenta with its AD Level 2.5 kit for as little as $300 per unit. Meanwhile the AD MaaS “supply gap” of appropriate vehicles is being filled by other companies, including new OEMs such as NIO or Zeekr, as well as by ambitious Tier 1 suppliers such as ZF, Schäffler and Benteler with their “people mover” concepts.

Autonomous freight transport emerges

Many market observers believe that the most obvious and most promising application for autonomous driving is in the area of commercial vehicles – that is, hub-to-hub transport with driverless long-distance trucks. The total addressable market is estimated to be worth $700bn in the US and as much as $4tn worldwide. The most important players are Aurora, Kodiak, Plus, TuSimple and Waymo, while logistics service providers such as FedEx, US Express and Penske are part of an autonomous freight pilot project in the US sunshine states.

The economics of the logistics business is determined by total cost of ownership concepts and as drivers form 40% of their costs, it is clear that logistics companies have a strong incentive to adopt autonomous driving – especially since they face an acute driver shortage. The design of interstate highways and motorways is also considerably less complex than the road networks used by inner-city traffic, greatly reducing the challenge of creating safe and reliable AD solutions.

Aurora has announced that it will be ready for commercial use by the end of this year. Volvo Trucks and Paccar – which represent 45% of the US Class 8 market – are also working with the firm. Daimler Truck, meanwhile, is pursuing a two-pillar strategy with its own subsidiary, Torc, as well as with Waymo.

AD MaaS: one market that is taking off

When it comes to demand, the situation in the AD MaaS segment is promising. Many shuttle providers take the view that the AD shuttle market is ripe for growth, given the shortage of public transport drivers (in Germany alone the public transport system has a shortage of 35,000) and the escalating costs of subsidies to public transport.  

One more factor needs to be considered: without AD’s potential to minimize carbon emissions through efficiency and electromobility, the shift to greener transport in cities will be difficult. Despite the estimated $80bn that has been invested in AD, there remains little sign of a targeted vision for an AD future that will mitigate the costs of developing sustainable urban transport. From an economic point of view, few options really make sense. As tech giants from China and the US forge ahead, there remains an urgent need for established automotive manufacturers to collaborate with city authorities and communities to lead the way toward green, low-carbon urban mobility.

In the meantime, the question remains: when will AD technology, regulation and business models be ready for scaling? In 5 years, that would be 2028.

AD deployment: overview

Source: Berylls Digital Ventures

Authors
Dr. Matthias Kempf

Partner

Steffen Stumpp

Associate Partner

Dr. Matthias Kempf

Dr. Matthias Kempf (1974) was one of the founding partners of Berylls Strategy Advisors in August 2011. He began his career with Mercer Management Consulting in Munich, Germany, in 2000. After earning his doctorate degree and further consulting work at Oliver Wyman (formerly Mercer Management Consulting), he joined the management of Hilti Germany in 2008. At Berylls, his area of expertise is new mobility services and traffic concepts. In addition, he is an expert in developing and implementing new digital business models, and in the digitalization of sales and after sales.

Industrial engineering and management studies at the University of Karlsruhe, Germany, doctorate degree at Ludwig Maximilian University, Munich, Germany.

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Steffen Stumpp

Steffen Stumpp (1970) joined the Berylls Group in October 2020 as Head of Business Unit Commercial Vehicles. At this point, he already looked back on extensive professional and leadership experience in the commercial vehicle industry. Stumpp started his career in an OEM and went through different roles in research, marketing, product planning and after-sales service. When he switched to the automotive supplier industry, he took over the responsibility for worldwide sales and marketing of a medium-sized tier 1 supplier. After another step as head of sales he decided to join Berylls, where he is now responsible for the commercial vehicle business.

Stumpp is a graduate engineer and has studied industrial engineering at the KIT in Karlsruhe and the Technical University of Berlin with focus on logistics.

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