A large pile of yellow taxi cabs

Robo-taxis could shake up the car manufacturing industry

Innovations in cars with internal-combustion engines have become progressively less significant; the major challenges facing motor manufacturers now are electric vehicles and self-driving cars.

Car companies are working on both these advances, but the challenges from self-driving cars are still underestimated, in our view. Robo-taxis and ride-hailing are big threats that could lead to a de-coupling of car usage and car ownership.

If robo-taxis are cheaper in cities and more convenient than owning a car, the motor industry could change from a consumer product into a business-to-business market where ride-hailing companies prefer to buy cheap vehicles. We don’t expect to see such changes before 2030, but some carmakers and suppliers say robo-taxis could become a reality by 2025.

The rise of self-driving cars is likely to lead to a decline in the number of vehicles on the road and in sales

Meanwhile, emissions regulation is forcing carmakers to increase penetration rates for electric vehicles. They need to be sold at a similar price to traditional vehicles to avoid raising the total cost of car ownership, and that will be a significant cost challenge that dilutes manufacturers’ profit margins.

The large carmakers are addressing the threat. However, the emergence of electric vehicles and autonomous driving is an opportunity for new entrants to the market. These technologies are not the core business of existing carmakers, which have done little research on battery cells and don’t have much software expertise.

Japanese carmakers and suppliers are leaders in electric vehicles and batteries, whereas the US companies seem to be focusing on autonomous driving. German suppliers have some edge on driverless cars too but currently rely heavily on Korean companies for batteries for electric vehicles. China is keen to be a world player: it has little to offer on electric vehicle technology but its tech companies could have an advantage with autonomous driving. 

However, we think ride-hailing services are the most severe threat, especially if internet tech companies combine with ride-hailers and disrupt the industry with a swift launch of robo-taxis.

We believe traditional carmakers are well aware of disruption threats. They have already taken considerable action in the case of electric vehicles and have started working on autonomous driving.

But the risk is that they choose the wrong way forward. They saw how the photographic companies made the leap from film into digital cameras – only for smartphones to make those obsolete too. Advances in cars could prove similarly destructive.

There are 1.2 billion cars on the world’s roads with about USD1.75 trillion spent on new vehicles each year, plus payments for fuel and maintenance. Electric vehicles should bring significant change but the rise of self-driving cars is likely to lead to a decline in the number of vehicles on the road and in sales. Robo-taxis could lead to a de-coupling of car usage and car ownership, bringing about a change in market dynamics.

This research was first published on 19 September 2017.
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