Automobile manufacturers are taking huge risks by investing heavily in autonomous vehicles (AVs). Some are partnering with or acquiring companies specializing in AV technology, while others are moving into fleet management. It is understandable that companies are trying to position themselves for the coming disruption, but it is critical they do not jeopardize their core business of vehicle manufacturing.
Many important technical, regulatory, and infrastructure challenges related to AVs are still unresolved. It’s now apparent that AVs will not become a common sight on the roads anytime soon. Even once most issues are resolved, it will take a long time before the average car buyer will be able to afford a self-driving vehicle. Given the significantly high upfront cost, we expect early buyers will be companies that manage large fleets. They have the upfront capital to purchase AVs and also stand to benefit from reduced labor costs and increased asset utilization.
Auto manufacturers that take on radically new functions are facing a tough, uphill climb. They do not have experience or expertise in software development or fleet management. If we consider aerospace as an example, we find that airframe makers do not also manufacture avionics or jet engines, nor do they operate airlines. The differences in scale, capabilities and capital structures are too great for one company to successfully compete in all of those areas.
But the industry is already facing disruption, and more is to come. What should auto manufacturers do? They can focus on their current strengths in manufacturing or try to subsume more of the value chain. Below we consider three possible scenarios, which are also addressed in our recent report:
OEMs will be facing a radically different marketplace in the future. The good news is that they have the time to carefully weigh potential strategies. To determine the best path forward, auto companies must first rigorously assess their capabilities, financial structure, workforce, and assets. By doing their homework upfront, companies can avoid costly failures and maximize their opportunities in a transforming industry.