AI in Transportation: Driving the Future of Innovation

Each year, McKinsey & Company publishes a report called the "McKinsey Technology Trends Outlook ," where the consulting firm outlines the top 15 technology trends that currently matter most for companies. As you can imagine, the top 3 trends for 2024 all involve artificial intelligence.

AI has become one of the most transformative technologies of the 21st century, revolutionizing industries such as healthcare, finance, and education. Among the most impactful trends outlined, Applied AI won the number two spot. As this technology continues to evolve, it promises to reshape how we move—both personally and commercially. This article delves into the impact of AI on transportation, with a focus on three industry pioneers: Waymo , Zoox , and Tesla , each offering distinct visions of AI-powered innovation.

What Is Applied AI?

"Applied AI technologies and techniques use models trained through machine learning to solve classification, prediction, and control problems in order to automate activities, add or augment capabilities and offerings, and improve decision making" (McKinsey).

Unlike more generalized AI, Applied AI is geared toward specific use cases such as classification, prediction, and control tasks. Through machine learning, these models gain the ability to perform complex tasks autonomously, enhancing decision-making, automating processes, and augmenting existing capabilities. In transportation, this means using AI to build autonomous vehicles (AVs).

The Future of Applied AI in Transportation

McKinsey estimates that AI applications are capable of unlocking between $11 trillion and $18 trillion in economic value annually. Of that pie, transportation represents a major slice where this value can be realized. The future of AI in transportation is characterized by continued advancements in autonomous driving, further integration of AI in public transportation systems, and the eventual mainstream adoption of autonomous vehicles.

In transportation, AI has the potential to revolutionize personal and public transit. Autonomous vehicles can improve safety by reducing human error, a major cause of traffic accidents. They can also optimize traffic flow and reduce congestion in urban areas through smart, AI-driven route planning and coordination of traffic systems. AI will likely play a central role in sustainability as well, as electric, autonomous fleets replace gas-powered vehicles, reducing emissions and promoting cleaner cities.

For companies like Waymo, Zoox, and Tesla, the future holds promise in the widespread deployment of AI-powered solutions that will not only make transportation more efficient but also safer and more sustainable. In fact, these companies are already at the forefront of turning the concept of full autonomy into reality.

How Each Company Harnessed AI to Success

Key Innovation

• Waymo: Waymo’s key innovation is the elimination of human drivers. While many companies have focused on driver-assist technologies or semi-autonomous features, Waymo took the bold step of designing a system where the vehicle operates entirely independently, with no need for a human driver at any point in the ride-hailing process.
• Zoox: Zoox’s core innovation is its vehicle design. Unlike traditional car manufacturers, Zoox built its vehicle from the ground up, prioritizing autonomy and the unique needs of urban environments. The symmetrical design, with the ability to drive equally well in both directions, allows for seamless navigation in crowded city spaces, reducing the need for cumbersome maneuvers like three-point turns.
• Tesla: Tesla’s key innovation has been its incremental approach to autonomy, using real-world consumer data to fuel its AI advancements. By rolling out semi-autonomous features like autopilot early on, Tesla gathered immense data from millions of miles driven, which allowed them to improve their Full-Self Driving system progressively and put them ahead of competitors in terms of consumer adoption and real-world experience.

Value Proposition

• Waymo: Waymo’s value proposition centers around providing a fully autonomous, driverless ride-hailing service. The company aims to offer a transportation experience that feels as safe and comfortable as riding in a traditional car, but without the need for human intervention. Waymo’s promise is complete autonomy, allowing passengers to focus on their journeys without worrying about traffic or navigation.
• Zoox: Zoox differentiates itself by offering not just autonomous ride-hailing, but an entirely reimagined vehicle. Their value proposition is based on the idea of creating a more efficient and futuristic urban transportation experience. Zoox's bidirectional, symmetrical vehicle design enables flexible, space-efficient movement in congested city environments, providing a radically new type of mobility.
• Tesla: Tesla’s value proposition lies in its Full-Self Driving (FSD) software, which allows individual car owners to experience semi-autonomous features today, with a promise of full autonomy in the near future. Tesla’s approach is about enhancing personal vehicles with cutting-edge AI, gradually offering more autonomy while maintaining the familiar ownership model that customers are accustomed to.

Launch Strategy

• Waymo: Waymo’s launch strategy has been more cautious and research-driven compared to its competitors. Rather than rushing to market, Waymo has focused on extensive testing in controlled environments before expanding to real-world cities. This conservative approach has allowed Waymo to refine its technology, ensuring safety and reliability before offering fully autonomous rides to the public.
• Zoox: Zoox opted for a bold, disruptive launch strategy by introducing an entirely new type of vehicle designed specifically for urban ride-hailing. Their emphasis on creating a futuristic, autonomous transportation experience from scratch targeted city-dwellers and early adopters interested in cutting-edge mobility solutions. Zoox’s approach appeals to consumers looking for a complete overhaul of the traditional car experience.
• Tesla: Tesla’s strategy was to launch semi-autonomous features early and use consumer vehicles as a data-collection tool. By embedding Full-Self Driving software into its existing electric vehicle lineup, Tesla was able to launch in phases, steadily improving autonomy features while maintaining strong consumer interest. This strategy allowed Tesla to scale quickly and leverage its loyal customer base to accelerate development.

Incumbent Response: Traditional Automakers Rise to the Challenge

The rise of AI-powered autonomous vehicles has spurred significant action among traditional automakers. While startups like Waymo, Zoox, and Tesla push the boundaries of innovation, legacy manufacturers are responding by ramping up their own development of electric vehicles (EVs) and autonomous technologies. Leveraging their manufacturing expertise and global scale, these incumbents are determined to stay competitive in an industry undergoing rapid disruption.

• General Motors (GM): GM has made some of the boldest moves in the autonomous vehicle space through its subsidiary, Cruise, which focuses on developing fully autonomous ride-hailing services. GM’s acquisition of Cruise for over $500 million was a strategic play to leap into the AV industry. In addition to its AV efforts, GM has committed to an all-electric future, pledging to eliminate tailpipe emissions from its light-duty vehicles by 2035. The Chevrolet Bolt EV and Cadillac LYRIQ are key examples of its push toward electric, autonomous-ready vehicles. GM is combining its legacy in car manufacturing with future-focused investments in AI and autonomy to ensure it stays competitive.
• Ford: Ford is another traditional automaker that has invested heavily in autonomous technology. Though it shut down its self-driving unit Argo AI in 2022, Ford remains committed to integrating autonomous features across its vehicle lineup. The company is pursuing advanced driver-assistance systems (ADAS) in models like the Ford Mustang Mach-E and is focused on creating a pathway toward full autonomy. Ford’s strategy includes a strong emphasis on partnerships, working with tech companies to accelerate development while using its existing consumer base to gradually introduce autonomous features.
• Volkswagen: As one of the largest automakers in the world, Volkswagen has been proactive in addressing the shift toward autonomous and electric vehicles. The company launched its ID. series of fully electric vehicles, with the ID.4 being a flagship model aimed at mass-market consumers. Additionally, Volkswagen has invested heavily in autonomous driving research, forming partnerships with companies like Argo AI before its shutdown, to develop self-driving technologies that can eventually be integrated into their electric fleet. The company’s focus on making autonomous EVs accessible to the average consumer shows a strategy aimed at wide-scale adoption.
• Porsche: Known for luxury and performance, Porsche has also embraced the electric vehicle revolution with models like the Taycan, its high-performance electric sports car. While Porsche has not yet entered the fully autonomous space to the extent of Tesla or Waymo, it is developing advanced driver-assistance systems (ADAS) and semi-autonomous features. Porsche’s strategy is centered on maintaining its brand's ethos of superior driving performance, while also meeting consumer demand for sustainability and cutting-edge technology.

Legacy automakers are leveraging their established market presence and expertise to not only compete with newer players but also lead the charge in reshaping the future of transportation. By combining electrification with AI, they aim to balance innovation with the familiarity of trusted automotive brands.

As incumbents adapt to the rise of autonomous vehicles, Tesla continues to assert its dominance in the space by fending off their competition. At its recent We, Robot launch event, Tesla introduced the Robotaxi and Robovan, marking a direct response to competitors like Waymo and Zoox. The Robotaxi aims to rival Waymo’s driverless ride-hailing service, while the Robovan challenges Zoox’s innovative vehicle design with a more versatile, consumer-friendly autonomous option. By leveraging its electric vehicle platform and vast data collection, Tesla is not only keeping pace with these pioneers but also positioning itself to lead in the race toward autonomous mobility at scale.

Challenges Down the Road

While AI in transportation is progressing rapidly, it is still in the early stages of widespread adoption. Autonomous vehicles, though in development and testing, are not yet fully integrated into the public sphere. Regulatory frameworks, such as the EU’s Artificial Intelligence Act, are also still evolving, aiming to address the ethical and societal implications of these technologies, including job displacement and systemic biases in AI models. How this will affect the automotive industry, though, is something we'll have to wait to see. Furthermore, the market is still grappling with high development costs and the challenges of building reliable, real-world AV systems.

How We're Impacted

The rise of AI in transportation is not just about cool tech—it will fundamentally change how we live and work. Autonomous vehicles promise increased convenience and safety, reducing accidents caused by human error. The economic impacts are equally profound, with new job opportunities emerging in AI development, data science, and vehicle maintenance. Moreover, the environmental benefits of autonomous electric vehicles could significantly reduce urban pollution levels, making cities more livable.

In conclusion, Applied AI in transportation is not only an exciting trend but a harbinger of the future. Companies like Waymo, Zoox, and Tesla are already shaping the industry, and their innovations could soon change how we think about mobility. From revolutionizing urban transport to enhancing personal vehicle autonomy, AI's potential in this space is virtually limitless. As AI continues to evolve, its applications in transportation will become increasingly essential to our daily lives, and its influence will extend well beyond just getting us from point A to point B.