Tuesday, August 30, 2016

The Disruptive Power Of Autonomous Vehicles

The first thought most people have on self-driving cars is how nice it will be to do email while you are stuck in traffic.  That will be nice and, although Tesla's autopilot technology is being scaled back due to some recent accidents, that's a pretty powerful step in the right direction.

Uber is making some big moves in the autonomous vehicle space.  One is to purchase an autonomous vehicle startup called Otto that makes technology for two things: 1) passenger cars and 2) an autonomous trucking business.  And, Uber is on the verge of launching a pilot in Pittsburgh where the car is completely autonomous, but there is a human behind the wheel for safety.

That means, you can expect to see driverless Uber's, which will be much, much cheaper (and still more profitable for Uber).  And, you can also expect to see big rigs next to you on the highway without a human in there at all.  OK, in the early stages, both clearly have a human for "emergencies", but it won't be long before the human is gone.  Here is a great article on this from Bloomberg.

I recently built an ROI model on whether it was cheaper for my family to become a one car household and for me to Uber everywhere.  I wasn't planning to do it, but I was curious.  As I went through that process, I realized driverless cars will change how we think about acquiring time in a vehicle and who we buy it from.

The biggest issue I had with Ubering everywhere is that I love my BMW 535 and Uber Pool or UberX just isn't my BMW.  So, what I wanted is a contract with BMW that guarantees me a certain number of car hours, a certain response time in a specific model of car.  The best company to provide that to me is actually BMW.

This offers today's car manufacturers a new business model where they own and pool the cars and lease them to customers just-in-time.  The pricing matrix has miles a year on one axis and speed of response time on another.  Want a car for 10,000 miles a year and you want it there in 15 minutes or less every time, that's $450/month.  Willing to accept a response time of 30 minutes, that's only $350/month.  It's not too far from today's leases, except that BMW pools the assets and provides BMW-as-a-service vs. my car sitting in the driveway or parking lot at work most of the time.

It works for premium brands and premium cars because there is a brand affinity or a real product differentiation.  It doesn't work as well for economy cars because the underlying motivation is value and it will be tough to compete with an autonomous UberX on a straight value play.

Ford recently announced their intention to build autonomous vehicles for a Ford Ride-sharing and Ride-hailing service.  That's a first step in this direction and it is presumably why they invested in Pivotal - that partnership is a way to ramp their software development competency very, very quickly.

Autonomous vehicles are a technology that is about to unleash a massive wave of disruption in the auto industry, trucking, retail, delivery and beyond.  We think Uber is disruptive today, autonomous cars and going to dwarf the disruption so far.