Competitive dynamics shaping the autonomous vehicles industry

Autonomous driving seems to still be years away from being a common technology in our streets. Despite the fact that the final product will have to still overcome many hurdles, the players within the industry are already developing very differentiated strategies to help them overtake the leading spot once the market is created. This article intends to provide an overview of the 4 main strategies that are shaping the future AV industry.

Integration with Automotive incumbents (OEMs or suppliers)

Their thesis is that the critical factor behind success will be the capability to rapidly scale up production. The design of the vehicle is preferrably done in-house, developing special features for sensors, cabin and other critical aspects of the vehicle.

The vision behind this strategy is to not only become the manufacturers of the AVs, but also to develop their own ride hailing platforms. Proven low barriers to entry in the hailing market might serve as the weapon these players could use to secure their spot in the mobility of the future and not be relegated to be a chassis manufacturer.

Challenges

The COVID-19 crisis is hitting hard the automotive industry all across the value chain. It is very questionable that key players will be able to invest as much capital as is needed in a time of reduced sales and pressure to electrify the drivetrain of the fleet.

Also, very rigid structures within OEMs and traditional players and their relatively more difficult position at recruiting technological talent make of in-house projects a very difficult task.

Independents

Independent players are trying to design from scratch both the software and the hardware of the vehicle. Their position is that scale will not be crucial, since the deployment of these vehicles will be phased and limited to the cities that open up to this technology.

They focus on developing the best user experience possible, trying to optimize as much as possible the design of the vehicles and designing a manufacturing scheme from zero.

Providing the mobility service to the end-customer is also in their DNA, either in the ride-hailing or in the freight market.

Challenges

Funding will be an existential challenge for these players. They are tremendously capital intensive and their designs are developed under a trial and failure approach. Should these players fail in securing funding, their ability to retain the top-talent they have been able to recruit might also be under question.

For those players specializing in freight, their key assumption is that driverless tech will be more easily implementable in highways (more controlled ecosystems) than in cities. The key question here is if regulators will be willing to take the risk of authorizing an “incomplete” technology knowing it is not yet ready to co-exist with human-beings and their unpredictability.

Mobility service providers

It is no secret that investors link the future profitability of mobility service providers to the availability of the autonomous driving technology. Although this might not be the only path, obviously eliminating the cost of the driver will presumably improve margins, if operators are not forced to reduce prices by too much and the price of the technology doesn’t skyrocket.

MSPs are thrilled by the idea of owning a marketplace of driverless cars, where the AVs might not necessarily belong to them. Their value would be in being able to quickly launch large autonomous fleets in markets they already control, gaining a sizeable portion of the market and probably providing parts of the technology. Third-party commissions will be the revenue, very similarly as to how it is now.

For the moment, their approach to vehicle design is retrofitting existent models, developing the necessary technology to adapt to the vehicles.

Challenges

Once again, funding will be a critical matter these players will need to face. Their current performance signals that their business will still need to burn cash before being profitable, and in the times we will face investing capital in AVs might not be what investors prioritize.

On the other hand, they are already facing fierce competition in most of the markets they are in, and have not been able to deploy a dominant marketplace in nearly any region. How different could this be in a driverless world will depend on the ability of the operators to engage with the end customer.

Big tech

Big tech players appear to be focusing on the technology side of the business, developing both the software and the hardware to retrofit on third-party vehicles. The most likely path for them is that they will be the tech providers for any operator who wants to run a fleet.

Partnerships with OEMs are already on the table and might be a powerful tool, since they could be both the hardware manufacturers and the future clients. They are also partnering with freight and other transportation stakeholders.

Challenges

The deep pockets these players have seem to remove the funding challenge of other players, but if the technology takes too long to be developed investors might put pressure to stop investing billions in it.

Also, should manufacturing power prove to be a critical factor, they will be forced to develop alliances with certain OEMs that might limit their ability to expand as they had wished.

Finally, anti-trust and personal data concerns already scrutinized by regulators in some parts of the world could put even more pressure in the driverless technologies these players are developing.