Navigant Research Blog

US Smart Cities Market Continues Momentum through Readiness Challenge Grants

— February 22, 2017

SmartCityThis month, the Smart Cities Council announced the five winning US cities of the Smart Cities Council Readiness Challenge Grant program. These cities—Austin, Texas; Indianapolis, Indiana; Miami, Florida; Orlando, Florida; and Philadelphia, Pennsylvania—will receive a package of benefits from the Smart Cities Council, the world’s largest smart cities network. These benefits include city-specific readiness workshops, as well as an array of products and services from Council member companies. The workshops are expected to help the chosen cities develop a strategic approach toward utilizing smart technologies in a way that increases infrastructure innovation and investment. Some examples of the smart city products and services that Council member companies will be providing to the winning cities include:

  • Ameresco: Consulting services to optimize smart street lighting
  • AT&T: 25 AT&T Internet of Things (IoT) Starter Kits
  • Sensus: Free citywide hosted communications network for 1 year
  • Telit: Free access to the Telit IoT platform
  • Transdev: Up to 3 days of technical assistance in developing more efficient urban mobility options

Each city is focused on its own unique challenges as part of the Readiness Challenge Grants:

  • Austin is focusing on affordable housing, mobility, and economic development
  • Indianapolis has placed an emphasis on smart utilities and transportation
  • Miami is targeting urban resilience and climate adaptation
  • Orlando is centering on a comprehensive smart city plan with multiple department integration and regional stakeholders (with a particular focus on smart transportation and security)
  • Philadelphia is building a regional smart cities ecosystem through a coalition of city, community, business, and educational institutions

Evolving Initiatives

The Smart Cities Council Readiness Challenge Grant program is expected to help the selected cities reach their goals for improved public services and build on the momentum generated by several important initiatives in the United States over the last few years. The White House Smart Cities Initiative was originally launched in September 2015 and included an initial investment of over $160 million for federal research and technology collaboration efforts to help municipalities address key challenges such as reducing traffic congestion, fighting crime, fostering economic growth, managing the effects of climate change, and improving the delivery of city services. In mid-2016, Columbus, Ohio was officially announced as the winner of the US Department of Transportation’s (DOT) Smart City Challenge. The city is set to receive a total of $140 million, with combined contributions from the DOT ($40 million), Seattle-based company Vulcan ($10 million), and a group of local businesses called the Columbus Partnership ($90 million).

These initiatives demonstrate how the smart city concept is being embraced and implemented in the United States. With over 130 cities applying for the Readiness Challenge Grants, US cities are increasingly looking to achieve greater efficiency in the delivery of important public services such as transportation, water delivery, and public safety. Initiatives such as these from the Smart Cities Council, in addition to several national programs, are helping US cities develop long-term digital infrastructure strategies and implement high-impact smart city projects.

 

Ford Makes $1 Billion Bet on Artificial Intelligence Startup as Recruiting Tool

— February 10, 2017

Electric Vehicle 2Over the past 4 years, Ford has made a concerted effort to move from also-ran status to vying for the lead in the race to produce automated vehicles. The latest move by the company is a 5-year, $1 billion investment in Pittsburgh-based Argo AI. The artificial intelligence startup will operate semi-independently while developing the virtual driver platform for the automated vehicles that Ford has promised to start producing by 2021. However, the deal seems less about acquiring technology today than acquiring new talent in the coming months and years.

Startup Power

Argo AI was founded in late 2016 by Google self-driving car program veteran Brian Salesky and Peter Rander, who led Uber’s automated car program until September 2016. The total investment of $1 billion will be parceled out over the next 5 years to fund the operating expenses of the company and to provide equity incentives to new employees in order to help with recruiting.

Ford plans to retain control of all hardware product development and manufacturing internally, as that’s where the automaker’s expertise lies. The Argo team, which has plans to grow to a staff of 200 engineers by the end of 2017, will work on developing the so-called virtual driver software platform that will control the vehicle. The software team will be integrated into the product development process as it moves forward with trying to make the system robust enough to be able to fully operate without a human driver. Ford has been developing its automated driving platform over the past several years to get its software platform where it is today.

The fact that Ford has gotten this far down the development timeline with a committed production date only about 4 years away does raise some questions. An investment of this size into a startup at this stage implies that there may be issues with the automaker’s in-house software platform. However, Ford chief technology officer Raj Nair emphasized during a conference call to announce the deal that Argo’s expertise will be used to further enhance what Ford has already built.

Attracting Talent

The existing engineers working on Ford’s platform will move over to the Argo AI team to become core employees of that company. As such, they will be eligible for the stock compensation plan that Argo is putting in place, which is typical of Silicon Valley startups. Since Argo has only existed for a few months, it’s unlikely that the company has built a complete system that would replace what Ford already has. Instead, it appears that Ford saw an opportunity with Argo to put in place a corporate structure that would enable it to tackle one of the thorniest issues that the auto industry faces in the race to deploy advanced technology: recruiting.

Traditional companies have long had difficulty attracting some of the top talent away from Silicon Valley, where they see startups as a potential pathway to a huge payday with an initial public offering. Many of those companies with limited funds pay employees with stock options that can be worth millions if the company succeeds and the employee sticks around. That doesn’t happen with regular Ford employees.

Ford CEO Mark Fields acknowledged on the call that an Argo IPO at some stage is a possibility if the company succeeds. Investing in what is essentially a brand new company with some proven leaders in the form of Rander and Salesky is an interesting new approach to the talent acquisition problem.

 

A New Culture for Carsharing

— February 8, 2017

Carsharing continues to make the transition from a startup or non-profit culture to a corporate culture. More and more large companies are entering the space and acquiring smaller carshare services, and automaker services are adding high end vehicles to the quirky two-seaters. But the bigger news may be that carsharing is starting to show traction outside its traditional markets of highly developed car cultures—namely North America, Western Europe, and Japan.

A spate of recent announcements from automakers reflects continuing interest in on demand mobility services—not just carsharing, but also ride-hailing services like Uber and Lyft. The latest automakers to announce carsharing expansions are AB Volvo, the PSA Group, and Daimler AG. Volvo has been in the carsharing business since the late 1990s through Swedish carshare service Sunfleet. In January, the automaker announced it would create a business unit for global carsharing based on the Sunfleet service.

The PSA Group will be supplying EVs for a new carsharing service in Paris, targeting professionals as its primary customers. This mainly seems to entail offering larger vehicles such as the Peugeot Partner and Citroën Berlingo, both small panel vans. Daimler is also making a play for carshare users who want larger vehicles than the tiny smart fortwo vehicle that has made up its car2go fleet to date. But Daimler is going more upscale than panel vans. The company announced that it would begin incorporating Mercedes Benz sedans and SUVs into its car2go fleets in seven US cities.

Experimental Phase

These announcements reflect the wide range of approaches to carsharing that automakers are pursuing. Although automakers are demonstrating real interest in carsharing, they are still largely in an experimental phase, trying out different business models to see what gains traction and what best supports their respective brands. While some will likely find that the service does not suit their customer base or business strategy, the trend of establishing a separate business unit for shared mobility suggests that automakers are taking the carsharing market seriously.

Automakers that see shared mobility as a first application for automated vehicles will certainly continue to pursue these services. Small, quirky startup carshare companies may find it difficult to compete in that environment. It is likely that some small carshare companies will be acquired by automakers looking to establish a beachhead for carsharing in new markets. Note that consolidation is also happening through other big players in the shared mobility space, including Europcar. Through mobility startup Ubeequo, Europcar recently acquired a Milan carshare service called GuidaMi.

But it is even more interesting to see carsharing starting to break through in new geographic regions such as Thailand, India, the United Arab Emirates, and Kazakhstan. These are not necessarily locations that would seem obvious for carsharing—in some cases due to a lack of public transit, which is seen as a supporting pillar to a shared mobility environment. Perhaps most significantly, China is seeing a surge in on demand mobility services, as the government has begun encouraging shared mobility as one of many tools to combat congestion and pollution problems. These new markets have the potential to help the carshare market continue to grow as the mature markets become saturated.

 

Forward Momentum in EV Charging

— February 7, 2017

Let me join the many analysts writing to declare that “the private sector will move forward with XX energy innovation even if the US federal government stops supporting it.” This insight has gone from a contrarian hot take to conventional wisdom in record time. And it is a perspective that occasionally carries with it a whiff of wishful thinking.

That said, I can offer the projection that the deployment of charging infrastructure to meet the demands of a growing plug-in EV market will be pushed forward by the industry regardless of any changes in federal policy.

There is something to be said for industry stakeholders acting as if they are on their own in pursuing this goal. Not that the US federal government role has not provided momentum for the EV charging market. Federal funding helped fund the first rollout of public charging, though that program’s results were decidedly mixed. Some installations proved to be poor long-term opportunities and poorly maintained. But many others did help form the backbone of a nascent US public charging network.

The US Department of Energy’s (DOE’s) Workplace Charging initiative supported significant growth in workplace charging growth from 2014 to 2016. In its Mid-Project Review from December 2015, the DOE reported that “the number of planned and installed charging stations has increased by 70% since June 2014.” Granted, that was from a small installed base initially, but that did amount to over 2,000 stations. Most recently, the DOE collaborated with an effort by the US Department of Transportation to identify a network of locations that can be designated as ready for installing direct current (DC) fast charging.

Moving Forward

The EV market has changed significantly since 2009. Major automakers are planning to offer EVs in multiple segments over the next 5 years. Battery EVs (BEVs) that have over 200 miles of range are coming to market at more moderate price points. Automakers in Europe are already partnering to roll out ultra fast charging infrastructure. In the United States, utilities are waking up to the potential for EVs to provide new revenue.

In this environment, stakeholders are ready to work together to move the US market forward—and there is some benefit to industry not looking at the federal government as a white knight. This can direct focus toward coming up with innovative solutions to challenges like developing business models for the needed public fast charging infrastructure, managing spikes in electricity load, recognizing the potential for demand charges, and educating consumers about EVs in a compelling way, to name a few. If the federal government continues to play a role, that will be a bonus to any industry efforts, but industry seems prepared to take action regardless.

 

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