By on April 29, 2019

As we continue reporting on how costly mobility projects, connectivity, and autonomous development are weighing on automakers’ bottom line, readers want to know exactly when these endeavors will become profitable. While the path for data acquisition and in-car marketing is fairly clear, self-driving cars are new territory. But it’s all speculative. Logistical, ethical and regulatory issues abound — and legislators seem rather poorly informed on the technology in general.

For now, companies have a pass to test autonomous vehicles in limited quantities across the United States. The next move, which some firms (like Waymo) have already undertaken, involves adapting test-bed AVs for use in commercial fleets. Profitability is another matter, and concerns are mounting that the technology isn’t ready and might not be for some time. 

While we already know that automakers and tech firms have grossly oversold autonomy, they’re continuing to make meaningful progress toward its development. Advanced driving aids have trickled into mainstream models and now offer an interesting mix of trusting your car’s sensors and never letting your guard down — as you’re wholly responsible in the event of a crash.

Consumer confusion and a series of high-profile accidents involving advanced driving systems over the past few years hasn’t helped the general populace feel any better about the technology. Still, an increasing number of people are being made aware of its existence, which we suppose is better than nothing.

However, automakers probably won’t have to worry about AVs getting love on dealer lots. The initial autonomous push will come via ride-hailing services, delivery companies, and e-commerce, according to The Detroit News.

The outlet recently broke down what the industry plans to do with these vehicles as they approach a point where they can be reliably counted on. There’s still a sense that chasing down the technology could also be a fool’s errand. While still incredibly fast, progress has proven less swift and more costly than automakers initially presumed. Partnerships are springing up as firms look to share development costs or simply buy the technology outright by acquiring companies that are already working on things like artificial intelligence or sensor technology.

It’s a two-way street, though. Industrial collaborations include everything from Waymo buying minivans directly from Chrysler (to be modified for use as autonomous testbeds/taxis), Ford’s purchase of Argo AI, and even BMW Group’s unlikely mobility partnership with Daimler. Few companies are going it alone anymore, and their earnings reflect why. It’s just too expensive to keep shoveling heaps of money into something that hasn’t yet proven itself as financially viable or logistically feasible to attempt alone.

Experts are gently torn on the matter, but some truly believe that autonomous vehicles won’t be able to function en masse without some kind of universal standard for the associated technologies and permanent communications between cars and/or the infrastructure they’re dependent upon.

“One of the key elements [in deploying a business model] is going to be building partnerships,” Alexandre Marian, a managing director in the automotive and industrial practice at AlixPartners LLP, told The Detroit News. “The [manufacturer] used to be at the center of everything, but now they have to be realistic about what their core capabilities are and what they need in this field to be a key player.”

Development is only a part of the overall recipe. Once these vehicles actually exist, companies will have to find a way to make them profitable. On the consumer end of things, less driving would free up occupants to play with their infotainment systems and potentially make on-board purchases or be fed advertisements through corporate tie-ins. However, before that happens, commercial fleets will need to find a legitimate reason for existing.

From The Detroit News:

Think of it like plant utilization, said Alexandre Marian, a managing director in the automotive and industrial practice at AlixPartners LLP. Plant-capacity utilization is an important indicator of financial health for automakers, with unprofitable and under-used plants squeezing already narrow profit margins.

Developing these driverless fleets already is pinching margins and the core business. The pressure, for example, is motivating GM to address its plant utilization as part of a restructuring designed to slash costs and redirect capital toward expensive autonomy, mobility and electrification efforts.

Ford is also executing a restructuring as it pivots to what it sees as the next iteration of the automotive industry. Executive Chairman Bill Ford has said he sees driverless vehicle services as a path to fatter profit margins and a “less capital-intensive” business model, if done right.

“If you can increase utilization of the vehicles, that will be the true driver of profitability,” Marian said. “The company’s profit on a driverless fleet will depend on an effective asset-utilization model.”

That makes all of this a gamble, albeit one that’s supported broadly by the industry. And, while that could certainly help ensure that true autonomy comes to fruition, it also means billions are tied up in projects companies can’t clearly define or ensure will be a successful source of revenue.

At present, it seems the industry is planning for a future that may not exist for decades. But Ford hooking up with Domino’s to test a fake self-driving food delivery service in Miami and GM hoping to launch an autonomous taxi service — mimicking a business model (sans drivers) that hasn’t managed to be profitable for either Uber or Lyft — doesn’t leave one feeling optimistic.

[Image: Metamorworks/Shutterstock]

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21 Comments on “How Are Autonomous Vehicles Supposed to Make Automakers Money?...”

  • avatar
    SCE to AUX

    This is a question the automakers need to answer for the shareholders.

    But AVs *will* be a bonanza for the lawyers.

  • avatar

    I know no one who has even the slightest interest in autonomous cars. Or electrics. How about an interior that wasn’t made by Rubbermaid?

  • avatar

    I think the answer here depends on which end of the telescope one is looking through. If autonomy is the GOAL, at some high level (“Car, drive me to Vegas while I take a nap”) then these bets are huge and hugely risky. This is for example the Uber or Waymo approach. If autonomy is just a RESULT, something that happens along the way as we add more driving aids (“Wow, this car has lane-keeping, automatic cruise, self-parking, and other goodies… it’s almost like it drives itself!”), then these bets can be smaller and less risky. This is the Toyota approach. The new entrants see the AV as a Next New Thing, but some incumbents can see it as Just Adding Features as We Always Have Done. More like an airplane: keep adding pilot aids and eventually it almost flies itself… not the same as seeing “flying itself” as the goal IN ITSELF. We’ll see how it all sorts out, but I would put my money on the Toyota approach. Which may make me a dinosaur.

  • avatar

    “…GM hoping to launch an autonomous taxi service — mimicking a business model (sans drivers) that hasn’t managed to be profitable for either Uber or Lyft — doesn’t leave one feeling optimistic.”

    What if you remove the driver from Uber’s or Lyft’s income statement? What percentage of a ride share’s cost is the driver? My guess is at least 30%, and my guess is that automated Uber rides will be quite profitable for Uber.

    Boomers are aging. They want to stay in their spacious suburban houses but are losing their drivers licenses and don’t want to rely on someone else for mobility. They want autonomous cars. And what boomers want, boomers get. Those rich boomers might buy AVs of their own but more likely they’ll subscribe to an AV car service.

    • 0 avatar

      You are replacing an independent contractor model where Uber/Lyft own nothing with more of a direct model where the capital cost of 100,000+++ expensive cars needs to be paid, and then still have to pay for someone to maintain them. And they will end up having to have on call customer service that passengers can access immediately if there is a problem with the car (think of how many people that would be manning the phones to cover the millions of trips). How much money will it really save?

      • 0 avatar

        Current Uber cost: car + driver + overhead

        AV Uber cost: car + overhead

        Will there be some additional overhead with AV’s? Probably; as you said, if there’s a problem with the car then they’ll have to spend time dealing with that, time that the driver spends now if there’s a problem with his/her car.

        But still, driverless cars will be less expensive for ride hailing services to operate.

  • avatar

    Once the autonomous vehicles are loose in the wild, do the automakers really believe they can be competitive with the third-parties that will offer services in this marketspace? If they think it’s rough competing against the world’s few dozen significant auto manufacturers, just wait when potentially hundreds of would-be service providers rush in to burn investor money.

  • avatar

    Commercial AVs is not that difficult if AVs will be optimized to drive the same route very day with minor variations related to traffic conditions. They can learn to perfection to drive the same route again and again much better than human drivers.

  • avatar

    “How Are Autonomous Vehicles Supposed to Make Automakers Money?”

    The way all money is made in the age of financialization: By selling stocks, bonds and hype to marks on generous, Fed provided, welfare.

  • avatar

    Referring to the picture, I hope the crash avoidance system works, because no way is the shoulder belt going to function properly like that. Submarining is a thing.

    • 0 avatar

      Agreed re use of the belt.

      Pictures like this are crafted to lead the viewer to an intended conclusion; here it is arranged to convey an image of irresponsibility or stupidity. And it worked.

  • avatar

    The industry is smart to rethink the relationship between people and cars in an autonomous environment. I’d wager most people would ditch car ownership for a convenient ride hailing service. Thing is there definitely don’t need to be (insert number of car brands here) different ride hailing services available… so we will see.

  • avatar

    They can always use it as a subscription service so you pay a royalty for the use, this will likely cover the insurance cost for autonomous driving and make it more affordable.

    I’m actually surprised that auto insurance haven’t gone the pay per mile model yet already.

    • 0 avatar

      pay per mile is already available. i spend most of my time on my 2 scooters, car sits in the garage a lot. last time i compared, still not worth it compared to my rate from geico- about $600/yr. scooters are about $100/ea/yr.

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