The coming revolution in vehicle technology and its BIG implications

01 October 2015

The three major trends in the automotive industry—electrification, connectivity and autonomy—have one thing in common: software.

Since 2004, the costs of electronics in an average vehicle have doubled from 20 to 40 percent.  Today’s luxury vehicles commonly contain 100 microprocessors and run 100 million lines of software code, controlling everything from engine timing to infotainment systems. We are now at an inflection point where software, sensors and processors are delivering entirely new areas of vehicle functionality, and not simply transitioning conventional functions from mechanical to electronic control. Both the ADAS systems of today and the autonomous driving systems of tomorrow will rely completely on software to make sense of a slew of data from sensors, cameras, the Internet, infrastructure and other vehicles.

The increasing complexity of vehicles has already shifted the automotive value chain. The trends of electrification, connectivity and automation will only accelerate this shift in value toward those companies that create electronics and software, and away from OEMs that fail to innovate. 

This shift will have two effects. First, software will become a critical market differentiator, pressuring OEMs to shorten product cycles and provide support and updates for legacy systems. To meet consumer demands for current technology, OEMs are now forced to significantly modify or introduce new models after only three or four years, while previous product cycles averaged five to eight years. This leaves OEMs with many challenges including rapid innovation, complex QA testing, higher development costs, less time to amortise R&D and the need for new sales and vehicle-ownership models. 

Second, the shift to software allows new entrants to innovate in an industry with notoriously high barriers to entry. After decades of the same players dominating the industry, Google, Apple, Tesla and Uber are all poised to remake the automotive landscape through software, a thought that would have seemed highly unlikely even five years ago.

In a typical ADAS-equipped vehicle, applications such as forward collision avoidance (FCA) are enabled by a set of sensors that provide data on the external driving environment to an ECU. This unit then uses software to determine whether a threat is present and operates brake actuators (or potentially, other countermeasures) to mitigate the threat.

The sensors available today for driver assistance applications are the hardware foundation for autonomous vehicles. But tomorrow’s sensors will necessarily be smaller, faster and cheaper. For example, Continental AG’s sensors and processors can transmit and recalculate algorithms needed to understand the driving environment every 10 to 60 milliseconds, while the human brain can pass a message from a sensory neuron to a motor neuron in only a few milliseconds.

But the real gap between the ADAS systems of today and the fully autonomous systems of tomorrow is seen in software. Regardless of how fast inputs can be processed, the software algorithms that will allow vehicles to drive themselves more efficiently and safely than human drivers in complex driving environments remain the biggest challenge. Complexity is defined by both the number of threats, characterised by the types of threats that a driver can encounter on different road types and the speed at which the vehicle is driving. 

As they race to improve their software, vehicle OEMs and their suppliers are introducing their technology to the market in three distinct ways. OEMs such as BMW, Daimler and Nissan have already begun to sell moderate-functionality ADAS systems designed to operate in simple driving environments such as interstates. Without needing to account for traffic signals, turns or multidirectional traffic, these vehicles automatically steer, brake and accelerate in lower-speed situations using systems like “traffic jam assist”. 

Eventually, systems will operate at higher speeds or in more-complex urban settings, and offer additional functionality such as the ability to merge, change lanes or negotiate an intersection. A subset of these OEMs, such as Volvo and Ford, are introducing moderate-functioning systems for defined geographic areas (typically geo-fenced), such as a particular stretch of an interstate between two cities, to take advantage of laser scan mapping data. Over time, system functionality will increase and the number and complexity of geographic areas available to the system will expand. Finally, Google’s approach has been to develop a highly functioning, fully autonomous vehicle from the outset, then test and refine its capabilities in increasingly complex environments.

Consumer adoption and diffusion  

While OEMs are choosing different strategies to bring ADAS and vehicle autonomy to market, ADAS-equipped vehicles of increasing capability have already been introduced nearly every year since 2010 and continue to roll out annually. Now that the early generations of this technology are available, how fast will consumers adopt it? 

To understand the adoption of ADAS-enabled and autonomous vehicles, it is instructive to look at adoption rates of other technologies. As a general trend, modern technologies such as the cell phone, Internet and PC have been adopted at a much faster rate than older technologies such as the VCR or TV. Cars have conventionally been one of the slower technologies to be adopted. This is largely due to their high relative cost as compared with consumer electronics, and to the need for highways to be constructed. In contrast, the smartphone is considered to be the fastest-adopted technology in history, on track to reach saturation in a decade. Mobile phones took 20 years to reach saturation and conventional landlines took a century (largely because of the need to build out the landline networks).

ADAS-equipped and autonomous vehicles likely will be adopted at rates slightly slower than other modern technology due to vehicle costs, but they will still be adopted much faster than conventional automobiles were. As with the uptake of other new technologies, we expect a wave of first movers and early adopters to drive early sales of ADAS-equipped vehicles, followed by gradual adoption by the majority of consumers once the safety benefits have been proven. Importantly, the current additional cost of a typical ADAS suite of equipment is only about $3,000 (declining at about 7 to 9 percent per year), or about 10 percent of the cost of the average vehicle sold in the United States of $33,560. For luxury vehicles, the ADAS equipment cost represents only 2 to 3 percent of the vehicle sale price on average.

Marconi Pacific consumer research into ADAS and autonomy indicates that consumers will be initially drawn to the safety and convenience of this technology. Safety will be a large motivator for families as they begin to hear that ADAS-equipped vehicles avoided crashes that might have injured or killed the vehicle’s occupants. But the big driver (pun intended!) will be time recapture. Being able to cruise along a road while paying limited attention will be a significant accelerator of demand.

Marconi Pacific has built a diffusion model to better understand the pace of introduction of the technology and the uptake by consumers. The model is scenario based, with numerous inputs. A few key factors are annual vehicle sales, ADAS technology introduction dates and fleet turnover forecasts. The results are striking. In one run of the model, by 2035 more than 50 percent of vehicles and 85 percent of new-vehicle sales across all segments had one generation or another of ADAS-equipped or autonomous vehicles. Of course, different levels of ADAS and of autonomy will have different impacts on society, including different levels of total annual crash reduction, different impacts on traffic congestion and different impacts on shared-vehicle, Uber-like services.

Auto ecosystem implications  

The automotive sector and adjacent industries form a large ecosystem with pervasive reach across the global economy; in the United States, transportation represents just under 10 percent of GDP.  As innovation in the form of electrification, connectivity and automation disrupts the status quo, the effects will be felt not just by OEMs, but also by numerous other sectors and businesses that have previously been structured around conventional personal vehicles.  

Automakers have many opportunities as the race to deliver advanced functionality accelerates. These include more luxury vehicles and features, more telematics/infotainment and new “driving” experiences. But there are also risks regarding competitive timing, technology capability (hardware and software), complex sourcing, technical selling capability of dealers and brand differentiation. Automotive OEM, component and aftermarket suppliers also are likely to have increased product liability risks as their technologies assume direct responsibility for more of the driving. 

Auto parts and component suppliers and adjacent industries have their own opportunities and risks. Chip makers and security companies have significant opportunities to enable and secure this new functionality. Telematics content and platform providers, as well as telecom network operators, have opportunities in areas such as mapping, car sharing, parking apps, infotainment, vehicle-to-X communication and vehicle-to-Web integration.

Traditional vehicle hardware suppliers are likely to be price-squeezed as value moves to software and infotainment. Auto insurance companies will need to develop new business models as crashes diminish in both frequency and severity, with corresponding reductions in premiums. Property developers, garages, transportation engineering and construction firms, and transit agencies (to name a few industries) must all consider how transportation will change as vehicles become safer, perhaps owned less by individual families and ultimately are fully automated.

The three technology-driven trends that are simultaneously arriving to significantly disrupt the automotive status quo—electrification, connectivity and autonomy—are here today. Companies that move quickly to take advantage of the opportunities are likely to succeed. Laggards—well, history has shown what usually happens to them.  

1. Wards Auto, “U.S. Total Vehicle Sales Market Share by Company, 1961-2014”
2. Gapper, John, “Software Is Steering the Auto Industry,” Financial Times, Feb. 18, 2015
3. Kuchinskas, Susan, “Crash Course: Training the Brain of a Driverless Car,” Scientific American, April 11, 2013
4. IIHS Status Report, Vol. 48, No. 3, April 25, 2013

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