Will Driverless Vehicle Autonomy Commoditize?
Decision trees in venture capital and a look at driverless car technology commoditizing
As I continue to build out various theses and thoughts around different areas of tech, I’ve started to build out a framework (with the help of smart friends + colleagues) of looking at key decision trees within a given area.
The idea is that if you can identify the pivotal decisions or moments within a given area, you don’t have to be able to predict the future fully, but utilizing a portfolio approach, as an investor you can make bets on both sides and be comfortable with the risk that a few investments will not work out.
One that I’ve spent a fair amount of time on recently is the question that my super smart friend Kevin and I talked about for a few hours the other week:
Will autonomy within driverless cars become commoditized in the near future?
There are tons of things that can spawn from this but let’s simplify it a bit:
If the answer to the question is yes, then companies that are working on the “autonomy software” layer, will see consolidation or early M&A (a bet I believe many VCs are making). This assumes that these autonomy software/algorithm companies don’t become huge layers that sell into multiple OEMs, which doesn’t seem likely.
It also means that nobody will buy a Mercedes vs. a Toyota because one can drive itself better. This inherently makes sense from a regulatory standpoint, despite the fact that some cars today are indeed safer than others to drive.
Thus, if we believe that autonomy software becomes commoditized, other areas such as routing software/algos (which Uber probably owns the best of) could prove to be a key competitive advantage, along with proprietary maps, which a few OEMs (Daimler, VW, BMW) have already collaborated on in the form of the $3B HERE acquisition. The secondary and tertiary effects go on and on, but this is where I’ll leave this “yes” path.
Where things get more terrifying (for some) is if the answer to the question is no and autonomy doesn’t commoditize in the next 10–20 years.
We’re already seeing just about every major OEM tout how they are going to put driverless cars on the road in some form in the next 5, 10, or 20 years. How realistic that is, is debatable. But if autonomy doesn’t commoditize and only the most innovative and adaptive OEMs are able to figure out full level 4 autonomy at the production level, then we will see massive consolidation across multiple billion-dollar enterprises (some of the top public auto & truck manufacturers currently hold a cumulative $87.8B market cap).
Car sales are already expected to fall due to autonomy, and with a smaller overall pie available, a lack of full autonomy would be the death spell for many OEMs. We would see some M&A for manufacturing/supply chain (though even *that* could change as ownership models change) as well as certain IP around the hardware, but bargaining power of a fledgling OEM that couldn’t make the transition from a hardware business to a combination of hardware/software business could be low.
From there the next-generation of auto OEMs will want to control other aspects, such as the map layer or better decision making or more advanced driving behavior. This in turn could lead to an increase in speed limits for different types of vehicles and down the rabbit hole we go.
Honestly, all of this is probably a bit overzealous in this case as I’ve been told by some very smart people that these level of OEM battles could play out in the 20–30 year timeframe, and not so much the 7–15 year future. However, I believe the decision trees we build (and dynamically adjust) can prove to be an optimal framework for investing in emerging technologies which possess massively disruptive opportunities with uncertain paths of how we get there.
This originally appeared on notes.michaeldempsey.me