Self-Driving Cars. Pete Gauthier & David Sibley EIS Section 1 Mini-Project 10/8/2012

Transcription

1 Self-Driving Cars Pete Gauthier & David Sibley EIS Section 1 Mini-Project 10/8/2012

2

3 Vision and Value of Self-Driving Cars There are currently over 1 billion cars around the world today and the number continues to increase. Cars for a long time have been a staple in many developed countries and are now becoming more and more common in developing markets. One may assume with the increase in the number of cars, there would be an increase in the number of drivers needed to operate these vehicles. However, with the new technology developed by Google, that may not be the case. Self-driving cars were once an idea of the past, but now are becoming a reality of the future. But the question is, do we need self-driving cars and why? We envision a world where drivers are no longer needed. People will be able to get from Point A to Point B while talking on the phone, eating dinner, or even taking a nap. It is like a subway or mass transit system that actually takes you from Point A to Point B and does not require you to walk to Point A, take subway, and then walk to Point B (See Figure 1). Our vision is of a world where self-driving cars dominate the roads. The cars will be able to communicate with one another and make transportation an interactive and no longer burdensome experience. There are many values to the consumer and society of self-driving cars. First, safety is a major concern on today s roadways. In 2009, an estimated 2.22 million people were injured in motor vehicle traffic crashes 1 in the United States. The death toll (from auto accidents) is increasing... and around 90% of accidents are caused by human error. 2 Self-driving cars will 1 Traffic Safety Facts. US Department of Transportation. August Look, No Hands. The Economist. September 1, 2012

4 take the human error component out of it. Another reduction will come from the decrease in drunk drivers. Self-driving cars also allow humans to be more productive. Instead of spending a 30 minute commute driving, a company executive is able to work on a client presentation during this time. If we assume the average driver s commute is 30 minutes, this gives someone an extra hour of productive time every day. Third, it will help drivers with directions. Drivers will no longer have to worry about a GPS re-routing, looking up maps, or asking for directions. Finally, with smart technology, self-driving cars will be able to determine the best routes to destinations. They will be able to avoid traffic delays, over-crowded freeways, and even be able to determine the optimal lane to drive in. This will have a positive impact on fuel-efficiency. Self-driving cars will be able to reduce the number of starts and stops as well as determine the most fuel efficient route to take. The value to society is a more efficient transportation system. Self-driving cars will reduce traffic congestion. With fewer accidents, drivers won t slow down to look at every fender bender on the side of the road. Technology will also reduce traffic congestion by recommending optimal times and alternate routes for drivers to take. Self-driving cars would allow cities to get bigger, by reducing the time and stress associated with commuting. On the other hand, it could allow cities to become denser, by reducing the amount of space that needs to be dedicated to roads and parking. Alternatively, space allocated to roads and in city centres could be used for bike lanes or parks. 3 Society will also benefit with increased access to transportation. People who cannot afford a car will find it easier to rent cars for a quick trip to the grocery store for example. In addition, self-driving cars will allow elderly people to be more mobile. Overall the value vision of self-driving cars will provide a more efficient transportation system that will increase productivity and create a safer way for people to get around. There are 5 key players in the ecosystem: Consumers, Installers/Manufacturers, Maintenance/Repair Shops, Government, and Insurance Companies. To ensure innovation 3 Look, No Hands. The Economist. September 1, 2012

5 success, it is essential that all members of the ecosystem are capable, willing and motivated to transition to self-driving cars. Consumers As stated above, there are multiple benefits for consumers. Although some drivers will not want to give up control and there will always be driver enthusiasts, the general population will experience a higher quality of life due to self-driving cars. The big question for the consumers is their willingness to pay. The technology to develop self-driving cars is currently extremely expensive. Self-driving cars use a 360 degree rooftop camera to analyze streets, traffic, and other surroundings. The price tag for that rooftop array alone cost $70, Average car buyer can simply not afford this technology. However, as the technology advances, we will likely see these costs decrease significantly. Consumers would have to weigh the costs of their time, safety, and convenience against the additional costs of adding self-driving technology to cars. In addition the rooftop array is not attractive and does not complement the design of modern cars. Again, as technology continues to advance, the self-driving equipment will become more attractive to consumers. Another consumer of self-driving cars will be business. Some companies are already using this innovation in everyday activities. Rio Tinto, an Anglo-Australian mining giant, decided to increase its fleet of self-driving trucks, which haul iron ore, from ten to 150 vehicles. 5 The self-driving trucks have reduced number of accidents while transporting heavy loads, increased efficiency and save the company $100,000 per driver in annual compensation. Companies around the world can benefit from the cost savings of using self-driving technology. For example, school systems will no longer have to pay bus drivers to transport students to and from school, freeing up millions of dollars to be spent on educating students. 4 Here Come Self-Driving Cars. Edmunds.com. August 30, Look, No Hands. The Economist. September 1, 2012

6 Installers/Manufacturers It is highly unlike that the technology companies (google, etc.) that are creating the selfdriving technology will be interested in developing their own automobiles. Instead, they will need to partner with auto manufacturers that sell cars with their system and/or have 3 rd part installers that could outfit cars with this equipment. Auto manufacturers will likely be eager to offer this cutting-edge technology. Given the highly technical nature of the product, we believe they will partner with technology companies who are developing self-driving systems instead of creating in-house products. Because of the high costs, the early adopters will be the high-end manufacturers, namely the ones that currently offer cars that park themselves or have automatic break systems that engage if objects are approaching. It is critical for companies developing self-driving technology to form strong partnerships with large auto manufacturers to get scale. The only risk to auto manufacturers is the possibility that safer cars reduces replacement car sales, but this is negligible and will be minimal relative to the increased revenues and profits from selling self-driving automobiles. Self-driving technology can also be installed on existing cars by 3 rd party installers. This is likely to be a small channel that may exist initially as the technology is still proving itself, but we anticipate limited growth. Given the high cost of the technology, many people who can afford it will likely opt for new, high-end car with the technology. Further, installing onto existing cars would require significant customization of parts and installation process, so may be difficult and costly. However, in the long run, the mechanics who maintenance the self-driving hardware and software could enter the installation market. Overall, technology companies developing self-driving hardware and software should be able to easily incentivize auto manufacturers to include their self-driving systems, particularly on high-end brands.

7 Maintenance/Repair Shops Maintenance and Repair shops are going to be reluctant to adopt this new technology. As discussed in the Michelin Run-Flat Tire case in The Wide Lens by Ron Adner, obtaining buy-in from auto repair shops is difficult. The new technology will require extensive training of repairmen so they can learn the new technology. In addition, they may not be willing to learn the new technology if it is significantly going to decrease their customer base by reducing the number of accidents. The repair shops will need incentives to undertake learning and adapting to the new technology. Advantages for the repair shops are that they will be able to charge more for repairs of repairing the expensive technology. In addition when an accident does occur, the repair shop will be able to charge for repairs not only to the vehicle, but also to the sensors and camera structures. It is possible that existing auto repair shops will not maintenance the self-driving technology, as they would have limited knowledge of the hardware and software. Tech companies that create the platform would need to ensure there are enough people, whether at the dealership or maintenance shops, that would be able to service the equipment. The developers of self-driving technology need to provide the equipment and training to ensure adequate adoption among mechanics. They can lease the equipment to shops or provide it for free and charge a percentage of revenue. The dealership is likely the first place that will be able to service self-driving cars, but eventually some mechanics will see it as a profitable opportunity. Government Google has been testing self-driving cars in California for two years, which they were able to do through legal loopholes. Recently, the state passed a law that legalized self-driving cars, but there are still uncertain aspects of regulating and self-driving cars. Further, other states will have to follow suit and legalize self-driving cars, providing adequate regulations. State governments should want to legalize self-driving cars and we expect this to occur as the technology proves itself over the next several years. As discussed, self-driving cars can

8 reduce auto deaths, improve traffic congestion, and improve the lives of residents. However, in the short run, there is some uncertainty that may make states reluctant. The primary concern is liability in the event of accidents or violations. If a self-driven car runs a red light or runs into a building, who receives the ticket or pays for damages done? Is it the owner of the car, the insurance company, the producer of the software, or the car manufacturer? If the owner of the car is not even in the car, how can he/she be liable? Regulators also have to determine whether a person needs to be in the automobile at all times to determine and/or override if the vehicle is not functioning properly. Further, regulators need to determine if there are limitations on when, where, and how fast self-driving cars can operate. Government regulations also may resist the adoption of self-driving cars due to the risk that the technology is abused or hacked and cars are used as weapons. Homeland Security and intelligence departments may resists due to the risk that terrorists could use self-driving cars to attack people or locations. While this is a minimal risk, the lack of control of these cars would raise concerns. Additionally, producrs of self-driving cars need to ensure regulations are relatively uniform across states so that these cars can travel between states. If legal structures are significantly different (especially if some states have not legalized self-driving cars), the adoption rate will be significantly reduced. Through lobbying and providing detailed information around the increased safety of selfdriving cars, the auto manufacturers and technology companies should be able to convince regulators to accept self-driving cars. Insurance Companies At first, insurance companies may not readily insure self-driving cars because they don t have an idea of the risk associated with the new technology. It is critical that the technology developers and auto manufacturers track statistics to provide insurance companies proving the technology will be less risky than human-piloted cars.

9 Once insurance companies see the reduced risk of self-driving cars, one would think they should readily adopt self-driving cars, as this will reduce the cost of claims. However, over time, this reduction in claims will reduce revenues significantly, shrinking the absolute profits of insurance companies. In the extreme, if cars do not have accidents, then insurance companies will only need to offer comprehensive insurance against theft or damage (even theft would likely be difficult since the cars would easily be traceable due to GPS systems). While insurance companies overall will be negatively impacted by self-driving cars, we believe they will offer to insure them in the short-run, partly because of the highly competitive nature of auto insurance. Each individual company would want to offer insurance, and may be able to charge high premiums (due to high cost of cars and willingness to pay of owners) while having few paid claims. If they resist, a new entrant would likely insure them, whether it is the auto manufacturer or the technology company that produces the product. Further, insurance companies will not be able to fight against the adoption; an expert on self-driving cars, Brad Templeton, stated Car insurance companies are not such ghouls as to want people to keep dying to keep premiums up. They want to be players in the new world, even if it s smaller. 6 Insurance companies will likely adopt self-driving cars, in spite of the longterm downside they pose to the industry. Risks A major change to an enormous industry and an integral part of many people s lives does not come without major risks. First, in the world envisioned with self-driving cars the norm, thousands of jobs would be eliminated. Although you would still need the Fed Ex driver to actually deliver the package, you would no longer need the truck drivers who drive across the country delivering goods, the taxi drivers in NYC, and the city bus drivers to name a few. 6 The Coming Robot Invsation: Google s Self-Driving Cars Will Destroy Car Insurance companies. June 12, 2012

10 Although hope exists that these people could find new jobs, many of these individuals have spent an entire career driving and are unlikely to obtain new skills to start a new career. Second, the security of the technology has to be critically secure. Concerns exist that the technology could be hacked and could cause massive chaos on roadways. One small glitch could cause an enormous disruption. Finally, when the first death occurs in a self-driving car, there will likely be an uproar from people blaming technology for human lives. People would see the self-driving cars as people-killing machines. If the reputation sticks, the innovation would fail. Even though studies show self-driving cars would be safer, the public may perceive it as sacrificing human lives for the simple convenience of not having to drive. Summary While concerns exist for each of the key players in the ecosystem, we think the adoption of self-driving automobiles is highly likely, due to the large benefit to consumers, society (and therefore government), and auto manufacturers. Maintenance shops and auto insurance companies pose the largest threat to the adoption, but we believe they will find it profitable (at least in the short run) to service or insure self-driving cars. As the technology improves over the next decade, and the cost of the equipment and software reduces, we believe auto manufacturers will begin to offer self-driving automobiles, and the members of the ecosystem will be motivated to accept this change.