Saturday, May 14, 2016

Four Technology Revolutions that are Disrupting the Auto Industry

photo credit: Tesla Autobots via photopin (license)

There is no doubt that the automotive industry is in for a major transformation over the coming decade. New technology will change the way cars are built and used. Savvy entrepreneurs are taking advantage of these technologies to enter this very lucrative market using new business models. The traditional auto manufacturers are actively working to counter these threats by investing in new technology themselves, and trying to be part of the revolution to avoid being left behind.

In my view, there are four distinct but somewhat related technological revolutions that are disrupting the traditional auto industry.

1) Propulsion Technology

Advances in electric car technology have made electric cars an increasingly practical alternative to the internal combustion engine. Electric cars are quieter, cleaner, and potentially easier to maintain. However, they face two major obstacles that limit their adoption. One is that electric cars currently have relatively short range compared to traditional cars. As battery technology continues to improve, car manufacturers are able to increase the range of their electric models with each model year. So it will likely be soon that electric cars will have a similar range to traditional cars.

Even with longer range, charging technology represents the second major obstacle for electric cars. Currently, charging an electric vehicle's battery takes anywhere from 30 minutes to 8 hours or more, depending on the charging technology used. On the other hand, a gas car can be filled up with gas in a couple of minutes. What makes this worse is the lack of an established electric charging infrastructure, which makes finding a charging station much more difficult than finding a gas station. Even as charging infrastructure is built out within cities, traveling outside of a city with an electric car is difficult, due to both the lack of infrastructure and the long charging time that would be required. However, it is likely that innovative battery charging technology will eventually solve this problem.

Nonetheless, there is no doubt that electric car adoption will continue to increase, and with it the amount of investment and competition, which will eventually remove barriers and make electric cars the mainstream. Gas vehicles are likely to continue for certain applications, such as for trucks, construction equipment, military vehicles and high performance race cars. But it is likely that within a couple of decades, the mainstream family car will be electric rather than gas.

2) Connected Cars

Certain luxury car models have had internet connectivity features for a number of years. However, connecting cars to the internet is likely to become a standard feature in many vehicle models over the coming years. Internet connectivity can either be provided through the driver's smartphone, which is plugged into the vehicle, or through its own dedicated hardware to provide connectivity through cellular networks.

Regardless of how connectivity is provided, having an internet connection enables a wealth of new applications and features that will change the car driving and passenger experience. Streaming entertainment directly to vehicles will become a large market, and innovative businesses that come up with suitable apps fitting for drivers and passengers will be able to capture this new market. Whether it is streaming audio programs, video or gaming, connected cars will likely eliminate the radio or greatly reduce its use in cars.

In addition to entertainment, information such as driving directions, maps, weather, news, road conditions, detours, safety announcements will enable drivers and passengers to continuously be updated, connected and informed.

Productivity tools can also be provided that would enable passengers and potentially drivers to perform some work related tasks such as email, reading or editing documents, logging into conference calls.

The opportunity here is not only for providing internet service, but rather all the apps and content that will be provided to users and monetized directly or through advertising. A number of technology companies are building solutions and working with traditional car companies to install technology into cars that would enable all of these features.

The effect of this on car companies will be that buyers in the future will likely put a lot of weight on these technology features in their buying decision making process, compared to some of the traditional features such as the horsepower of the engine, or other cosmetic finishings of cars. Traditional car companies will have to provide competitive solutions or partner with technology companies and be willing to share the market with them.

3) Car / Ride Sharing

Car or ride sharing is not a new concept. A number of companies have operated car sharing programs for years. However, Uber revolutionized this industry by providing rides as a service to consumers, based on the use of technology to manage the entire process. A number of companies are working on competing with Uber by providing similar services, and traditional car companies are also investing in this area by building their own services or acquiring companies that are working on car sharing programs.

The potential here is not only with technology, but also with innovative business models that use the technology to provide new services that consumers need and want. In addition to providing rides to consumers, the same type of technology can be used to enable car sharing programs where subscribers can use cars located at certain locations. Delivery services is another potential area where this type of technology can be adopted.

The impact on the traditional car industry will be that many consumers are likely to change the way they see cars. Urban consumers, especially those living in dense cities with good public transportation and limited parking, will be much less likely to want to own a car, but will rather depend on ride and car sharing programs. While urbanites have avoided owning cars for many years, this is likely to become an easier and more common lifestyle that will expand to a larger proportion of consumers.

From the point of view of a consumer, it will make less and less sense to take responsibility for owning a car, keep it maintained, perform oil changes, pay for insurance, and then worry about its value when they need to sell it. Instead, consumers will want to get transportation as a service, whether it's use of a shared car for a few hours or a day, or just getting a ride to a destination.

Interestingly, there are some parallels here to cloud computing, where businesses and even consumers can buy computing power and software applications as a service and pay per use, rather than having to invest in buying and maintaining their own hardware and software.

4) Self-Driving Cars

Self-driving cars is where the most significant revolution will happen. It is also the most complex and the most distant, although it appears to be getting closer and closer to reality. It builds on the previous technological trends discussed above, and will also have an impact on them, particularly on ride sharing, where ride sharing companies will no longer need drivers to be able to provide their service.

Self-driving cars will not only disrupt the transportation services market by eliminating the need for drivers, whether they are taxi or ride sharing service drivers, and eventually truck and bus drivers. They will also greatly impact the traditional car companies, because the main selling feature of the vehicles will focus on the technology, and a greater share of profits will go to technology companies, unless the traditional car companies can build credible systems of their own. But even if they do, they will transform themselves into technology companies in the process, with just as many hardware and software engineers as mechanical engineers, if not more.

Beyond that, self-driving cars will free the driver and enable commuting time to be available for consumption of entertainment, or for productivity, as discussed previously. This will open the doors for many new and innovative applications and services that can be tailored to car occupants. 

Self-driving cars will eventually also impact the entire transportation system, including how roads are built and how intersections are managed. They will also eliminate parking difficulties, allowing passengers to be dropped off at their exact desired destination while the car travels to a designated parking location and await the passengers to call it back for pick-up. This will have a huge impact and will further re-enforce the notion with consumers that cars are a transportation service, not an object to be owned.

It is likely that at that point, transportation services companies, like taxi and ride sharing companies, will flourish and maintain large fleets of cars ready to service their subscribers, who can obtain transportation services anywhere and at anytime by requesting a ride through a smart device. 


The auto industry will continue to undergo rapid change and disruption, and the winners will be those companies that invest in new innovative technology and business models that take advantage of new technology and changing consumer views on cars.

Nonetheless, it is important to note that some people will continue to enjoy having a traditional gas car, without any technology, that they can drive themselves. However, as a proportion of the overall consumer base, they will be decreasing in number over time. None of these changes will happen overnight. But rather, over a couple of decades, these trends are likely to pick up steam as consumers adopt these technologies and start to demand these features.

So what do you think? Do you believe the future will be dominated by electric, self-driving vehicles? Or do you think it is all hype and that gas cars will survive for another century?

Please share your thoughts with me in the comments section below!

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