Navigant Research Blog

Automotive Subscription Services May Aid in EV Adoption and Software Updates

— October 19, 2017

When Karl Benz went for his first test drive in 1886, the automobile changed the way that we live in ways that were unimaginable. Over the course of the 20th century, motor vehicles expanded our horizons, making travel easier and more affordable than it had ever been. The need for vehicles to keep pace with always advancing technologies like automation and connectivity will probably end personal vehicle ownership for most of us in the coming decades, but only after manufacturers create business models that replace individual sales. One increasingly popular approach is vehicle subscriptions.

Pro and Cons of Auto Subscriptions

The idea of getting customers to subscribe rather than purchase products outright has been an appealing one for companies in many markets. From the provider’s perspective, creating a recurring revenue stream is good for business and helps to add some predictability for planning purposes. For certain businesses such as software, recurring subscription revenue can be hugely important to help fund ongoing development and product improvement.

For automakers that have endured some spectacular market cycles over the years, the prospect of stable monthly revenue is particularly enticing. As automobiles become more software-defined, the prospect of continuous recalls to update bugs and security vulnerabilities is something of a nightmare scenario if automakers can’t charge customers for those fixes.

For customers, on the other hand, the thought of a perpetual monthly car payment is significantly less appealing. Thus, automakers have to strike the right balance between what customers have to pay and what they get in return.

Early Movers

Enter the car subscription model. In the United States, Porsche is the latest company to announce a subscription service, joining Cadillac, Volvo, and Atlanta-based startup Clutch. Porsche Passport and Cadillac Book are the most similar. For a flat monthly rate that includes insurance, registration, taxes, and maintenance, subscribers can choose to drive any of the vehicles available from those brands. Porsche offers two price tiers. The entry-level $2,000 per month plan gives access to the Boxster, Cayman, Macan, and Cayenne, while the $3,000 tier lets subscribers pick any current Porsche.

Clutch is similar, but rather than being restricted to a single brand, the company works with dealer groups to build local fleets of a broader range of vehicle types from multiple brands. Clutch currently offers three price tiers, each with more expensive vehicles. Care by Volvo is structured more like Apple’s iPhone upgrade program. Rather than allowing drivers to swap cars at any time, the Volvo plan is similar to a lease that includes maintenance, insurance, and registration but allows customers to switch vehicles annually.

Promise for the Future

These early subscription models are aimed at more affluent premium customers who are more likely to stomach a relatively high monthly fee. However, if these models prove popular, mainstream brands are likely to follow suit with similar programs. Regardless of the price point and brand, the recurring revenue provides an opportunity to fund continuing software updates. The inclusion of maintenance and regular vehicle swaps will provide an opportunity to keep vehicles fresh. Once over-the-air software updates become common, shop visits for those updates will become unnecessary.

Window to Increasing PEV Use

In addition to regular updates, the subscription model also provides automakers with another opportunity to increase plug-in EV (PEV) use. Customers that might not otherwise make a multiyear commitment to a PEV may be more willing to try one as part of a subscription, especially if they can skip a traditional dealer in the process. The transportation business is changing, and we’ll see plenty more experiments before everything settles out.

 

Safety Must Come Before All Else with Automated Driving

— September 21, 2017

There are plenty of potential benefits that go along with automated driving, including providing mobility for those that can’t drive, making more work or leisure time available while commuting, and eliminating the parking lot crawl. But the foremost priority in introducing automated systems must be safety. That may mean slowing down deployments to make sure we have all the right pieces in place first.

Examine the Data

On the same day that US Secretary of Transportation Elaine Chao announced updated and streamlined federal guidelines for automated driving, the National Transportation Safety Board (NTSB) issued its report in a fatal crash involving Tesla AutoPilot in May 2016. While the Department of Transportation (DOT) streamlined the voluntary guidelines first issued by the Obama administration in 2016, no new enforceable regulations have been proposed. In fact, enactment of any new federal motor vehicle safety standards is unlikely during the current administration in Washington.

The NTSB examination of the crash that led to the death of Joshua Brown was its first involving automated driving technologies. “In this crash, Tesla’s system worked as designed,” NTSB Chairman Robert Sumwalt said. However, the AutoPilot interface did an inadequate job of informing drivers of what it was actually capable of and ensuring that it was only used in appropriate circumstances.

Recognize Limitations

AutoPilot is designed to provide semi-automated driving only on divided, limited access highways. The technology used—forward-facing radar and cameras—is currently not adequate to reliably detect vehicles crossing the path of travel in challenging lighting conditions or even to consistently detect lane markings for the steering control.

NTSB recommends that automakers add safeguards to limit where these lower level automation systems can be engaged and more actively monitor drivers to ensure they are ready to take over when the system cannot function. Some automakers have already started doing this, including General Motors. GM’s SuperCruise system includes high definition maps of more than 160,000 miles of divided, limited access highway across North America, and the system is geofenced to prevent activation anywhere but these roads. GM delayed the introduction of SuperCruise prior to the Tesla crash to add these and other features.

Educate Customers and Staff

Companies developing automation technologies also need to get more actively involved in educating customers and their sales and support staff about how these systems work. The National Safety Council launched an education program in 2016 dubbed “My Car Does What?” to put materials in state motor vehicle licensing offices. More recently, supplier Bosch launched the online Automated Mobility Academy to help educate consumers about new technology.

Deploy Highly Automated Vehicles

As highly automated vehicles (HAVs) approach initial deployments in the next 4 to 5 years, engineers working on the production designs are beginning to implement the features that will be required to ensure safety. Current advanced driver assist systems (ADAS) do just that, assist the driver. Ultimately, the driver can still control the vehicle and bring it to a stop even if traditional or advanced assists fail. In an HAV, there may not be anyone to take over or a control interface to use.

Navigant Research’s Automated Driving Vehicle Technologies report projects that by 2026, nearly 9 million redundant high performance compute platforms will be needed for HAVs. GM’s third-generation automated Chevrolet Bolt prototype has been developed with production in mind and it includes the necessary redundant systems.

User experiences that properly inform the people in the vehicle and are ready to operate safely even with no one aboard will be crucial to successful deployment of HAVs. Every company—from upstarts like Tesla to the oldest like Mercedes-Benz—must take this into account.

 

The Demise of the Uber Leasing Program

— August 22, 2017

Recently, Uber announced that it will discontinue the vehicle leasing program it has offered to drivers for the past 2 years. Average losses of $9,000 per leased vehicle were cited as the reason, but this only serves to highlight the problem that independent transportation network companies (TNCs) like Uber, Lyft, and Didi are likely to face as the transition to automated vehicles (AVs) begins. Companies that currently operate with minimal physical assets, relying instead on independent contractors, will face a huge challenge surviving as standalone businesses when confronted with building or buying massive fleets of costly AVs.

The leasing program was designed to provide drivers operating on the Uber platform with access to new, well-maintained vehicles at a relatively affordable price that also included unlimited mileage and free maintenance. For passengers, knowing that a ride won’t be a broken-down rattle trap makes using the service much more appealing. Many of the drivers operating on these services don’t have the financial wherewithal to get a loan or a lease on a new vehicle, so the program seemed like a great path toward earning more money.

Since Uber doesn’t manufacture vehicles, it has to acquire them before leasing them to drivers. Wall Street banks loaned the company $1 billion in 2015 to get the program launched, but Uber’s lack of vertical integration means added costs at every level in the value chain. Losses originally projected to be about $500 per leased car increased 18-fold. This is not a formula for a building a sustainable enterprise.

Not Just Uber

Uber is not the only company acquiring cars. Following General Motors’ (GM’s) $500 million investment in Lyft in early 2016, the automaker launched Express Drive to provide low cost rentals of GM cars to Lyft drivers. Unlike Uber, GM has a ready supply of relatively new off-lease vehicles available. GM tapped this supply for Express Drive as well as its more traditional carsharing service, Maven, that also launched in 2016.

Like most other automakers, GM has a captive finance arm through which it could fund the program at lower cost than Uber. Repurposing off-lease vehicles for these mobility services reduces the supply of used vehicles in the market, helping residual values. Having these relatively new vehicles in the field also exposes people to contemporary GM products that may have a marketing benefit. The network of thousands of GM dealers can provide maintenance and repair services, something for which a TNC would likely have to pay a premium. In spring 2017, GM added Maven Gig, which provides similar low cost rentals to drivers on platforms beyond Lyft.

Vertical Integration Is Key

GM may be losing some money on the current Express Drive and Maven Gig programs. However, unlike the TNCs, the automaker is profitable and can afford to subsidize this effort. Doing so also helps to reduce potential losses in other parts of the business. For a TNC without this level of vertical integration, it’s unlikely such a program would aid in reaching net profitability in any realistic timeframe.

The same factors that benefit an automaker in this regard also come into play when looking at the deployment of automated mobility services. If Uber has to pay Volvo or some other automaker for very expensive vehicles, plus cover insurance maintenance and fuel, even eliminating the cost of drivers may not lead to profits. It’s likely that only acquisition by an automaker can save TNCs from extinction. Yet, that may only happen if their inflated valuations collapse.

 

The Race to Control the Automated Vehicle

— June 14, 2017

Since the birth of the automobile, manufacturers have raced to claim the most power and best performance. The continuing evolution of the internal combustion engine has been a key component in that competition. That’s all about to change. As we begin the transition to automated and electrified vehicles that are programmed to obey speed limits and play nice with other road users, the performance benchmark for satisfying those in the vehicle shifts from the propulsion system to the computing platform, with both old and new players trying to grab a slice of the prize.

The situational awareness needed by highly automated vehicles (HAVs) requires data from sensors and communications links to be fused into a coherent, real-time 3D image of the space around the vehicle. Current semi-independent systems such as stability control, adaptive cruise control, and lane keeping assist each use discrete sensors, electronic control units (ECUs), and related software. More limited feature set and sensor inputs allow them to work with relatively low powered processors by modern computing standards.

Old Processors Aren’t Good Enough

Those aging, low power processors simply aren’t up to the task of managing HAVs. Thus, we have the integration of these systems under a single umbrella computing platform with more input signals than ever. During early development of automated driving, vehicles were packed full of server racks to handle the necessary processing. Production viability requires that to be condensed down to a much smaller package that consumes far less electrical power than the kilowatts used by those servers with reduced heat generation.

Best known for its graphics processors used in video games and editing, Nvidia has grabbed headlines with its Drive PX2 development platform. At just $10,000, this is an ECU for automated driving development utilized by many of the companies working in this space. It is currently too expensive for mass production. At the 2017 CES, supplier ZF announced that it would commercialize this platform as the ProAI ECU in 2018. Bosch made a similar announcement in March, but it will use a repackaged version that combines the graphics processing unit (GPU) and CPU into a single unit. Toyota recently announced that it too would use the Nvidia platform.

Intel Is Continually Making Strategic Acquisitions

Meanwhile, Intel is moving aggressively to expand its footprint in the HAV space. In 2016, BMW announced that it was building its automated driving technology using Intel CPUs and chips from Mobileye for sensor processing. Supplier Delphi is using the same combination with its own software in its multi-domain controller ECU. The current market leader in vision systems for lane keeping assist and collision warning, Mobileye’s next-generation chips are considered so capable that Intel decided to acquire the company for $15 billion. This follows Intel’s 2015 acquisition of Altera for its powerful field programmable gate array (FPGA) processors. Combinations of Intel CPUs, Altera FPGAs, and Mobileye sensor processors are now being made available to manufacturers as the Intel Go platform.

The traditional automotive chip suppliers don’t intend to be left out of the competition either. NXP, which was spun off from consumer electronics giant Philips, acquired Motorola spinoff Freescale in 2015 and is currently in the process of being acquired by Qualcomm as part of a larger effort to power HAVs. Japanese supplier Renesas already provides processing power for many driver assist systems and wants in on the HAV action as well.

With performance, reliability, and thermal management more important than ever in HAVs and the market projected to grow into the tens of millions of vehicles annually by the late 2020s, don’t expect to see any slowdown in the evolution of these computing platforms anytime soon.

 

Blog Articles

Most Recent

By Date

Tags

Clean Transportation, Digital Utility Strategies, Electric Vehicles, Energy Technologies, Policy & Regulation, Renewable Energy, Smart Energy Practice, Smart Energy Program, Transportation Efficiencies, Utility Transformations

By Author


{"userID":"","pageName":"Automated Vehicles","path":"\/tag\/automated-vehicles","date":"10\/20\/2017"}