The Reality About Self-Driving Cars

After tracking many disruption-related trends for the last decade, we have come to 2 conclusions about predictions related to new technologies:

  • When a new technology hits the market, guesses about its pace of adoption often prove wildly optimistic.
  • Any significant new technology eventually changes society far more than even the most wild-eyed prognosticators thought possible at time of launch.

Today’s announcement that Honda will take a stake in GM’s Cruise Holdings reminded us of how well the “overhype/underappreciate” dynamic fits the ongoing development of self-driving cars. Cruise is GM’s autonomous vehicle division, funded by the company itself, SoftBank’s Vision Fund, and now Honda. The new investment puts the value of Cruise at $14.6 billion, and GM rallied on the news this morning.

Dialing the “hype” dial down with our +25 years of analyzing the auto industry, a few points on all this:

  • Both GM and Honda have world-class automotive engineers, so the fact they feel the need to partner on autonomous cars signals how far each company still has to go in developing a competitive offering. And if these two are ready to acknowledge they need each other, how much further behind are other carmakers?
  • Partnerships in the auto industry are always marriages of necessity. Culture issues can easily kill these relationships, eliminating any benefits to the combination. Every auto executive on the planet knows this, and yet this deal went through. This is another sign the industry is nervous about getting self-driving cars on the road quickly.
  • There is real money changing hands: $2.8 billion over the next 12 years, and $750 million upfront, all from Honda to Cruise. A typical traditional passenger vehicle costs $1 billion (or less) to design, develop and tool. Honda’s move shows an autonomous vehicle costs so much more to develop that it is far beyond their capability to generate the required capital alone without risking the company’s long run viability.
  • At present, the Cruise/Honda vehicle is apparently very early in development. In an interview with Techcrunch, one Cruise executive cited Honda’s strength in vehicle packaging (maximizing interior volume and utility). That makes us think this product is still in the very early stages of development.

As for the “underappreciated” part of the autonomous vehicle narrative, a recent interview caught our eye. It is with Larry Burns, who used to run R&D for GM and is more recently an adviser to Google’s Waymo autonomous vehicle effort. A few of his observations, and a link to the full conversation here:

  • Autonomous vehicle rollouts will likely be very geographic-specific, so the societal changes wrought by self-driving cars will be visible at a micro level. Waymo’s highly publicized trials in Arizona mean that the US southwest will see self-driving cabs long before midtown Manhattan.
  • The underlying technology is getting better, but the need for 99.99% accuracy means it isn’t ready for widespread rollout just yet. Larry is optimistic it will get there soon, however.
  • The only way autonomous goes mainstream at the consumer level is if/when it is substantially more affordable than personal car ownership. That requires localized rollouts at critical mass so users have cars available when they need them.
  • Autonomous vehicles will reshape every aspect of how humans and freight move from point A to point B. There will be customized last-mile solutions for cities, but entirely different modes of transportation for suburbs and highways.
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