Autonomous Vehicles are Coming Sooner than We Think!

There is so much in the news about autonomous vehicles and how companies are maneuvering strategically to create alliances to make sure they are still significant in the near future. The alliances are so intertwined that I tried to create a map of it to simplify them but the result was pretty complex:

Chart developed by Hani AlSaleh with the help of Rafeek MK.

It’s just amazing how alliances are being made in such a complex way. In the end, it’s a race, and from what I’ve read, GM and Lyft seem to be on track to beat the rest of the industry to the finish line. BMW, VW, and WAMO aren’t far behind. However, legislation is still pending on how autonomous cars will be governed. Tesla claims to have L5 capabilities now, but somehow, I’m a bit confused from the recent announcements made if it is actually working properly.

How disruptive will this technology be?

The disruption is huge. The US Bureau of Labor Statistics lists that truck, bus, delivery, and taxi drivers account for nearly 6 million professional driving jobs. That is 3.75% of the total US labor force. If we assume that ratio applies globally, then there are around 100 million jobs at risk.

Then there are manufacturers who are concerned about how this technology would affect demand on cars. The most interesting statistic I saw was that there are an estimated 1 billion cars around the world. 95% of the time they are all parked. People on average use their cars only 5% of the time. After speaking to some friends who are not in the industry, I’ve heard them say that this technology will disrupt a lot of the old automotive industry players from logistics to rent a car negatively. They argued that everyone wouldn’t need to own a car to be mobile and that shared ownership or pay/usage would be a rule. Even currier businesses would suffer as many would rather use an autonomous car to deliver their packages cross-country rather than hand it over to curriers. They also argued that given the statistic of parked cars vs. driven cars, wouldn’t the number of cars globally drop drastically and shut down some large manufacturers? The risk I believe is there, and that’s what’s scaring the auto manufacturers who have huge global capacities and that’s why they are scrambling to be first and to have the best autonomous technology.

Reading the above scenario might be a bit of a shock, but there is something in the scenario that is critically flawed. It does not account for human habits of usage, the cost of pay/ usage vs. ownership, infrastructure capabilities, or fleet care taking. To further examine this, I’ve created a chart below to summarize this.

Autonomous vehicles and our way of life:

What I’ve just mentioned are true statistics but rather extreme in what the effect will be. A proper analysis of consumer behavior and infrastructure capabilities must be done to understand how autonomous vehicles will be used. For example, people in rural areas have different mobility habits and needs than people in cosmopolitan areas. Here is a matrix of what I believe are deferent mobility services:

There is also a fleet management backbone to these autonomous vehicles. Someone at the end of the day needs to wash and clean them, check for damages inside the cars, provide parking spaces, take care of government red tape, fuel them (charge them) and service them (oil & tire change, etc.). Fleet management companies like large operating leasing firms and car rental firms will fit within this segment. ABG (Avis Budget Group) has well positioned themselves not only to be in fleet management (they have an alliance with Lyft and Ford) but also through the car sharing services of Zipcar that would probably merge with the car rental fleet to provide on-demand car sharing for these autonomous vehicles.

As explained above, the complexity of the autonomous car ecosystem and human habits are variables that change the outcome of the initial scenario. What I actually see in the future is an adaptation to a new disruptive evolution that would definitely have a negative impact on the workers in the transport industry. It will also change the roles of the players in the transportation landscape to compete/cooperate in a new hybrid outcome.  

What about Saudi Arabia? What will the impact be of autonomous technology?

The estimated number of vehicles in Saudi is around 14 million vehicles on the roads, which technically speaking are parked 95% of the time. We have 450,000 new car sales/year. We have four major cosmopolitan cities. 25 smaller cities, and around 5000 towns and villages. 30% of the population is in the cosmopolitan cities. Based on these numbers, we can extrapolate some assumptions that can provide us with a tentative description of the market in the next few years. Price/Km, adaptability of the autonomous technology to Saudi roads will play an important factor in how autonomous vehicles will be adopted by people. Given that 70% of the population are not in cosmopolitan areas, we can safely assume that car ownership will still be huge in Saudi. So, by say 2025-2030, and given the above assumptions, I estimate that we will probably have around 2-3 million shared ownership or car-hailing cars mostly in the cosmopolitan cities.

AVIS Saudi Arabia as a fleet leasing and management company has a clear vision of what its role in the car sharing segment will be. While fragmented, we see our industry consolidating into a few large players who manage the fleets for car-hailing companies while at the same time operating the car-sharing service. While some players are scared of the change, my perspective is that we are lucky to be positioned where we are to take advantage of this disruptive technology. Another aspect that we have yet to understand properly is the car subscription service. We might see a lot of competition in this regard from car dealers, especially the luxury car dealers, but this segment is still to be evaluated based on its financial feasibility. Cadillac in the US started this program only to cancel it after a couple of years and only recently has canceled the production of a couple of sedans. I believe that car hire companies do have an advantage in this space and can cooperate with car dealers on this.

Saudi car dealers I believe are more concerned about the other 11-12 million cars that will be owned (autonomous or otherwise). They are not that concerned with autonomous technology disrupting their business model. None of them have ventured into car sharing, car-hailing, or even subscription-based services. Careem, which went on a couple of financing rounds in the past year, hasn’t had any car dealers as major investors. Without naming names, I’ve seen some large and famous car dealers actually start to acquire more cars brands, which I see as a reaction to the economic situation where they hope to add volumes that have been lost. This might work to their advantage in the long term once the market size drops and they grow market share.

This technology is one of the most exciting innovations of our time. It will be an interesting ride over the next few years and we are lucky to be in the midst of this technology shift and witness history in the making.