The Sun is Shining; Let’s Make Hay
Warning: This is not a happy and optimistic column. It features a report that spells doom for not only our industry, but for the automotive aftermarket and the entire automotive industry. This includes the oil and insurance industries, too. There is an overall silver lining, but we may be in a buggy whip business. More on that later.
Choose wisely, your next new car could be the last one you buy. A major new report predicts by 2030, the overwhelming majority of consumers will no longer own a car. Instead, they will use on-demand electric autonomous vehicles. The executive summary can be found at: https://www.rethinkx.com/executive-summary
By 2030, within 10 years of regulatory approval of autonomous electric vehicles (A-EVs), the report says, 95 percent of all US passenger-miles traveled will be served by on-demand, autonomous, electric vehicles that will be owned by fleets rather than individuals.
The-end-is-near fears about electric vs. carbon fuel powered vehicles have ebbed and flowed over the last couple of decades. First driven by fears of oil shortages, then came the global warming (think shale), save-the-planet argument that picked up steam. The whole “green” movement is mostly a wash out, as consumers always vote with their wallets. Consumers will only choose to go green when costs are all equal.
The report by RethinkX, an independent think tank that focuses on technology-driven disruption and its implications across society, said this stunning and radical progression will be driven entirely by economics and will overcome the current desire for individual car ownership. It is said that this will begin first in the big cities and then spread to the suburbs and regional areas.
It has already started — think Uber and Lyft. The report calls these Transport-asa-Service (TaaS). I tried them first to save money, but then I loved the convenience. I often choose this option versus renting a car in certain markets, and those markets are becoming smaller and smaller. As drivers, we have the ability to choose convenience and save time. Where have we heard that before?
Every day you can read about driverless vehicle testing by tech giants — Amazon, Uber, Google and others are spending massive dollars refining the technology. The articles usually feature the accidents and have a tone of humor on this crazy new idea. They must sound like the old days when people laughed at smelly, loud and dirty horseless carriages.
This disruption will have enormous implications across the transportation and oil industries, decimating entire portions of their value chains, causing oil demand and prices to plummet and destroying trillions of dollars in investor value, not to mention the value of used cars.
At the same time, it will create trillions of dollars in new business opportunities, consumer surplus and GDP growth.
Co-author, Tony Seba, does not say that individual car ownership will completely disappear. By 2030, 40 percent of cars will still be privately owned, but they will only account for 5 percent of miles traveled.
Autonomous cars will be used 10 times more than internal combustion vehicles were. They will last longer — maybe one million miles — and the savings will inject an additional one trillion dollars into the pockets of Americans by 2030.
Why is this? Because everything will be cheaper.
Maintenance costs will be significantly lower thanks to 20 moving parts in the powertrain, compared to 2,000 for petrol cars. Battery technology will improve. The cost of maintenance will be one-fifth the cost of current cars, the cost of finance one-tenth and the cost of insurance will be one-tenth.
“The survival of car manufacturers will depend on building cars with long lifetimes and low operating costs. This means they will optimize for minimum waste of resources in building and operating vehicles, including designing vehicle platforms with parts that are interchangeable and recyclable.”
The report outlines the huge benefits from this transformation. Unclogging city roads, removing the pollution that is choking major cities, savings millions of lives from accidents and trillions of dollars in health impacts and freeing up parking space.
We often forget about the health impacts of fuel cars. In 2015, according to the Organization for Economic Co-operation and Development, outdoor air pollution led to 1.7 trillion dollars in annual economic costs from premature deaths. According to the World Health Organization, 1.25 million people died from road traffic accidents around the world in that year, and another 50 million were severely injured.
“Autonomous vehicles will be safer than human drivers, leading to a decrease in road traffic accidents,” the report said.
Although, to be sure, any such accidents caused by faulty software rather than humans will create huge controversy. The nature of the vehicles may also change — ranging from two-person to four-person, eight-person and larger vehicles in heavily populated areas.
It will also have an impact on geopolitics, because world will no longer be dependent on oil reserves for the bulk of its transportation needs. The “politics of lithium,” meanwhile, are completely different from the politics of oil. Lithium is plentiful, although it needs planning to ensure that the mines are in place to extract it, and its demand can be reduced by recycling.
Seba recognized most people assume the biggest impediments to this scenario are behavioral issues such as love of driving, fear of new technology or just habit. I might add the freedom to move as we want. The cost savings, the speed, the increased safety and the extra free time will be key factors.
Seba explained that “pre-TaaS” companies such as Uber and Lyft have also invested billions of dollars developing technologies and services to overcome these issues. In 2016, these companies drove 500,000 passengers per day in New York City alone.
So what does this mean for us? Let’s look back at the buggy whip metaphor. The carriage trade involved three parts. The original equipment carriage manufacturers finally vanished with Studebaker’s demise in the 1960s. The parts business moved relatively smoothly into servicing the auto industry — Timken is still going strong since 1852. The accessories suppliers (the buggy whip guys) vanished. But did they ever exist? Most were made by shoemakers, and you can still buy them today.
Survival comes from understanding and redefining the business you’re in. The unintended repercussions of technological shifts continue to provide opportunity. Think gasoline direct injection and oil consuming engines. The sun is shining; look for the hay. Add new services to keep up. Consumers love convenience.