The August 2017 Strategic Case Study introduces us to AutoAuto, a car electronics and design company. The primary focus of the company is the design and production of navigation technology that can be integrated into cars in a way that moves cars closer to “full autonomy”. This is a really fascinating real-world industry. The race to reach full autonomy amongst car manufacturers is a highly competitive and dynamic one. Car manufacturers are among the highest spenders on R&D of companies in any sector, and unsurprisingly, their demand for innovative technology is high. In this preview of VIVA’s full industry analysis for the August 2017 SCS, we introduce you to some key information and data points from the real world auto tech industry, to better help you anticipate some of the issues and scenarios that may arise in the case study exams.
The supply-side of the car manufacturing industry can be highly complex, with many modern car manufacturers sourcing their parts from as many as 100 different suppliers. The electronics and tech side is becoming a more and more important part of that mix, as manufacturers are increasingly differentiating their brand by boasting more innovative onboard and navigation devices. But within that niche there are a huge number of small, dynamic tech companies and startups competing for manufacturer contracts. We have picked out 4 such companies that manifest notable similarities to AutoAuto. We simply list them here for you to consider in your own time, though we look at each in more detail in the full industry analysis. Those companies are: TomTom, FiveAI, Mobileye, Waymo. Some of the recent history of these companies is very interesting with respect to AutoAuto, and some of the controversies they have been involved in with car manufacturers may signal some possible scenarios for the exams in August.
The Race to Autonomy
The “holy grail” of full autonomy may appear to be within reach. However, it’s worth taking some time to reflect on just how complex reaching full vehicle autonomy is from a technical perspective (not to mention from a regulatory and legal perspective, which we return to below). First of all, it’s worth knowing that it’s common within the industry (especially in the North American context) to refer to five different levels of autonomy. Level 1 autonomy refers to a vehicle in which one function is automated, e.g. electronic stability control. Level 2 autonomy consists in two or more automated functions working in unison. Level 3 autonomy is where a car is technically capable of driving itself, but drivers need to be present to intervene at key points—like the beginning and end of the journey, for example. Level 4 autonomy is achieved when human intervention is not required at any stage of the journey, and in principle the car could reach a destination without any input save the initial destination selection. Level 5 autonomy is basically a more demanding version of Level 4, in which a car could in principle drive itself through unfamiliar and challenging environments like unmapped dirt roads and obstacle ridden roadways.
The level of complexity involved in reaching level 5, and even level 4, should not be underestimated. Though it may seem a simple matter of fitting a car with good integrated sensors, pointing it in a certain direction and pressing “Go”, it is in fact far more challenging than that. Consider for a moment something as mundane as a plastic bag blowing across your path as you drive down a highway. How is an autonomous system to distinguish between such a non-threatening obstacle and something that it ought to take drastic evasive action to avoid? This is a very tricky thing to program in advance. Likewise, the way in which autonomous cars are supposed to interact with such common features of a daily car journey as traffic lights (and broken traffic lights!), roadworks, policed diversions, and potholes is a challenge that continues to vex tech companies and car manufacturers alike.
Demand and Trends
Of course, the demand for electronics and tech supplies for car manufacturers depends in large part upon the demand for cars in general, and particularly the condition of new car sales. It is therefore worth looking at the broader figures from the car industry to get a sense of what demand for such supplies is likely to be in coming years. As you can see in the table below, global new car sales in recent years have been growing consistently, if unspectacularly. But the general figures conceal some more interesting regional differences. Asia is clearly the leader in terms of growth—unsurprising given China’s and India’s strong economic growth in the first two decades of this century. South America, by contrast, has been in decline in the same period and is looking like an increasingly risky market—at least in terms of sales. Interestingly, Central America in particular has become a relatively attractive hub for major global car manufacturers to establish their factories, given its relatively low labour costs and strategic location next to the large North American market. Europe meanwhile has grown more or less in line with North America over the last 5 years, though it is a smaller market in absolute terms. Nevertheless, Europe and North America are generally considered relatively reliable markets for new car sales. Asia is the big emerging market as a new middle class establishes itself.
Now in terms of autonomous technology, future demand will depend more specifically on whether markets are receptive to and progressive with respect to increasingly autonomous vehicles. In terms of regulation, undoubtedly the US is one of the most permissive countries in terms of allowing companies a lot of leeway with testing autonomous prototypes on public roads. There are currently no federal prohibitions or legal limits on autonomous technology. The regulatory prerogative rests with the individual states, and in most cases, states are willing to allow self-driving technology to be gradually phased in and tested on public roads. Already, Tesla vehicles are deploying level 2 autonomous technologies on public streets in consumer vehicles, and even approaching level 3 with their Autopilot software updates. Europe, by contrast, is much more complex. One outdated regulation currently in place restricts vehicles without a human driver from travelling above 10km per hour. European regulators are currently negotiating on this and other prospective regulations regarding autonomous technology, but that process could take years and there’s no indications yet as to how permissive or otherwise they will be.
China, being the biggest emerging market, is the one to really keep an eye on here, as the government there has been very proactive in trying to encourage the development of autonomous vehicles. The "Made in China 2025" roadmap has made self-driving technology a key national priority, promising the swift implementation of massive infrastructure projects that will accommodate such new technologies over the coming decade. With the Chinese government committed to heavy subsidisation of such technologies, and with a growing Chinese middle class with ever more disposable income, the Chinese market may be the biggest driver of growth for electronics and car-tech companies like AutoAuto.
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