Global auto industry faces disruption – and a rude awakening

Megan Lampinen talks to Tony Seba, co-author of ‘Rethinking Transportation 2020-2030’, about imminent and inevitable disruption in the global automotive industry

Autonomous, shared and electric – that’s the winning formula for passenger transportation of the future, according to RethinkX. But the independent think tank is not talking about a distant future: it predicts that by 2030, 95% of US passenger miles travelled will be served by on-demand autonomous electric vehicles (EVs) owned by fleets.

RethinkX has conducted exhaustive analysis of data along with market, consumer and regulatory dynamics, using well-established cost curves and assuming only existing technology. Unlike many other models, however, the analysts claim that this approach incorporates systems dynamics that better reflect the reality of fast-paced technology-adoption S-curves. On the whole, it makes for a wild ride that will end with a new paradigm almost unrecognisable from today.

What makes RethinkX so confident in its vision is that it is based on an economics-driven revolution. According to the numbers, laid out in the May 2017 report ‘Rethinking Transportation 2020-2030’ co-authored by Tony Seba and James Arbib, this combination of transportation as a service (TaaS), autonomous drive and electric propulsion will offer the cheapest transportation option by far. Just using TaaS alone, says RethinkX, will save the average American family more than US$5,600 per year in transportation costs, leading to a boom in consumer spending.

On-demand electric autonomous vehicles will essentially become ten times cheaper than owning a vehicle. This will make economic sense as much in India as in Africa as in the US as in Europe. This is a global disruption

“The economics mean that on-demand electric autonomous vehicles will essentially become ten times cheaper than owning a vehicle,” insists Tony Seba, one of the founders of RethinkX and an expert on disruptive technologies. “This will make economic sense as much in India as in Africa as in the US as in Europe. This is a global disruption.”

When RethinkX says the future will be ‘electric’ it means fully electric, not hybrid or extended-range hybrid. “Hybrids don’t count,” Seba tells Megatrends. “Hybrids are an extension of the internal combustion engine (ICE) and when you do the numbers, the technology doesn’t pan out. When you do the numbers for on-demand autonomous EVs versus on-demand autonomous ICEs, essentially the economics of EVs overwhelm the economics of ICEs.”

ACE will replace ICE

The main element that most mainstream analysts and experts have overlooked, according to RethinkX, is the vehicle lifetime difference between an ICE model and an EV. The former may last between 140,000 and 200,000 miles today, compared to 500,000 miles for an EV. By 2030, an EV’s lifetime could rocket to 1 million miles. While nobody today is taking advantage of this sort of EV mileage, that’s only because most vehicles are individually owned. This is where the TaaS part of the equation kicks in.

RethinkX chart 1

“We drive about 10,000 miles a year, but when cars are owned by a fleet, such as Uber or Lyft, that will rise,” Seba points out. Utilisation rates of individual owners average around 4%, meaning the vehicle sits unused for 96% of the time. Uber and Lyft can up the utilisation rate to about 40% or even more. “When you do that, you can drive a car 100,000 miles per year as opposed to 10,000 miles per year,” he adds. Over five years, therefore, an EV could cover 500,000 miles.

“Much of the conversation about EVs versus ICE vehicles has been about the purchase price, but that assumes individual ownership, that assumes that you can’t drive it 500,000 miles. If you could, that parity in purchase price goes away because over 500,000 miles you need just one EV,” Seba argues. On top of this, EVs also bring cost savings on maintenance and fuelling on a per mile basis. When the autonomous card is added in, insurance costs should go down.

The Chinese are accepting that the whole world of cars is going to be electrified, and very soon. If you’re not fully electric by 2020, essentially you’re out

This combination will result in EVs that are anywhere from two and a half to three times cheaper than autonomous on-demand ICE vehicles. “That’s why it’s going to be all EV,” he emphasised.

Famous last words

The revolution playing out brings big risks for incumbents, with hefty sunk costs and high expectations for return on investment. “Disruption usually happens from the outside. Kodak did not disrupt itself; it was other companies that did it. Newspapers did not disrupt themselves; it was web companies – the Googles and the Facebooks,” noted Seba.

He suggests that the current leading players will remain in denial of the revolution to their own detriment. While most OEMs offer some form of electrification in their fleet, many are still backing the near-term viability of gasoline and diesel. Most of the German OEMs, for instance, have recently come out with statements to this effect. Meanwhile, Mazda doesn’t even offer a single electric vehicle. Instead, it has been investing heavily in the development of homogenous charge compression ignition (HCCI) technology. All are in for a rude awakening, believes Seba.

RethinkX chart 2

“If you look at Kodak’s annual report in the year 2000, the Chief Executive gushes about how this has been a record year in visual imaging and never in history have so many pictures been printed,” says Seba. “Famous last words. Kodak invented digital cameras, it knew the technology, it had 1,000 patents. Basically it was addicted to the cash flow from the existing business. It’s very hard once you become so good at one thing to even admit that change is going to happen very quickly.”

One group that stands out as relatively quick adaptors are the Chinese companies. Volvo Car may have grabbed headlines with its plans to electrify, to some extent, its full range by 2019, but that momentum came from its Chinese parent company Geely. “It is Geely, not Volvo, that comes into this without the decades of culture of internal combustion engines. Geely is the one that sees the market as it is and not as it wishes it would be,” observes Seba. “The Chinese are accepting that the whole world of cars is going to be electrified, and very soon. If you’re not fully electric by 2020, essentially you’re out.”

The upside of this is tremendous but on the other hand, we are going to have unemployment and it will happen very quickly. We need to prepare on a societal basis and have some sort of financial support and retraining for those folks whose jobs are not coming back

Emotional pushback, upwards revisions

The modelling analysis published by RethinkX entails some stark consequences for most of today’s players across the industry. Their reactions are telling: “Since the report came out, everybody’s predictions of EV growth over the next few decades have gone up, even those who are denying the disruption,” notes Seba. “Volkswagen is still denying it but the company has since said it would increase investment in electrification by 33%. The oil industry also sees it coming.” In mid-2017, OPEC boosted its forecast for EV sales by 500% compared to last year. Upward revisions in the analyst community have averaged between 50% and 60%.

“The pushback that I have seen is emotional. Nobody has actually said ‘this number doesn’t make sense’ or ‘these figures don’t add up’,” he observes. “I expected more pushback, but it’s all about the economics. We are not making an argument based on climate subsidies or pollution. The pushback I have seen has been emotional, along the lines of ‘we love our car’ or ‘it can’t happen this quickly’. That’s normal in disruption.”

RethinkX chart 3

And the disruption that Seba and his team predict is huge. The cost savings of a transportation model based on electric, shared and autonomous will play out across the wider economy. “The average family saving is US$5,600, but on an aggregate level in the US, for instance, that’s an extra US$1tr in cash in the pockets of consumers,” he emphasises. “That is a huge addition to the economy. When you take into account that we are not going to drive – and we waste billions of hours driving – we can do other things. That contributes another US$1tr to GDP.” That makes for a total estimated US$2tr addition to GDP in the US alone. Transpose the RethinkX calculations to Europe and beyond, as this will surely prove a global phenomenon, and the implications are huge.

There’s a sobering side to these developments, however. “The upside of this is tremendous but on the other hand, we are going to have unemployment and it will happen very quickly,” Seba warns. This will impact drivers, dealers, repairers, etc. “Those jobs are going. We need to prepare on a societal basis and have some sort of financial support and retraining for those folks whose jobs are not coming back.”

This article appeared in the Q4 2017 issue of Automotive Megatrends Magazine. 

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