In a driverless world, carmakers are still clutching for the steering wheel.
The advent of self-driving vehicles will force manufacturers to make a choice: do they want control of their vehicles as they become service providers to consumers directly or are they happy to become a supplier to tomorrow’s robo-taxi operators?
By striking partnerships with ride-booking groups while also developing new technology in-house, many carmakers have so far dodged making a choice.
Two recent fatal crashes involving self-driving vehicles — one from Tesla using its semi-autonomous autopilot and one from Uber that struck and killed a pedestrian — show the limits of current technology, serving as a reminder that many in the industry predict full autonomy is decades away.
For carmakers that are still on the fence over their business models, this gives them more time.
But they cannot stall forever — the first companies are coming off the fence, signing long term, lucrative deals to provide hardware to the self-driving taxi industry.
Waymo’s agreement last week to buy 20,000 electric Jaguar Land Rover cars was the second major deal in the sector after Volvo’s sale of up to 24,000 XC90 sport utility vehicles to Uber last year.
“Our model at Waymo isn’t to be a car company,” said John Krafcik, chief executive of Waymo, a subsidiary of Google’s parent Alphabet.
“Our role in the world we see clearly is to build the world’s most experienced driver, and to deploy that driver in as many places as we can to help move the world to a better place.”
While ride-hailing remains nascent, with the vast majority of consumers still owning cars, it is expected to expand rapidly as services become more common in towns and cities, helped by self-driving technology that will remove the cost of employing drivers.
Overall, the potential for businesses in ride-hailing and autonomous driving is enormous, with $3tn in revenue to be generated by 2050, according to a study by Intel and research group Strategy Analytics.
Credit Suisse also estimates the global car-sharing and ride-sharing market to expand from $17bn in 2015 to $81bn in 2030.
Yet competing in this market — something that companies such as the Nissan-Renault-Mitsubishi Alliance and General Motors aim to do — takes vehicle manufacturers far out of their comfort zone.
“Carmakers have never been in services. Their job ends with developing, manufacturing and delivering safe vehicles to the mass market. Even maintenance is a service that is done by their dealers,” said Ryosuke Izumida, chief executive of research firm GFResearch and a former fund manager at Fidelity Investments.
“[By going into services,] they’re attempting to do something that they have never done before and that’s why it’s so tough and why progress is slow.”
It is notable that companies considered technological laggards, such as Jaguar Land Rover or Fiat Chrysler, have been happy to jump into partnership with technology companies.
In contrast, groups with more of their own technology to defend such as Germany’s Daimler or GM have eschewed handing over their vehicles to other businesses for added technology.
While GM invested $500m into ride-booking group Lyft in 2016, the US carmaker has pursued its own strategy for developing a robo-fleet, buying technology group Cruise and announcing ambitions to launch a ride-booking service next year.
Meanwhile Ford, which some analysts say has trailed arch-rival GM in technology, recently struck its own deal with Lyft.
One of the fiercest advocates of co-operation between car and technology groups is Sergio Marchionne, the chief executive of Fiat Chrysler.
He has repeatedly lambasted the industry for failing to split costs of developing expensive new technologies such as battery cars or self-driving systems.
He thinks there is little reason to pour billions into the new systems while others more experienced in building software and deep learning systems are developing the same technology.
In a sense, this is little different to the historical practices of car manufacturers buying in components they do not specialise in, such as tyres or gearboxes, in order to specialise on areas such as engines.
In a bid to transform its business, Japan’s biggest carmaker Toyota said it would form a new mobility alliance with technology rivals including Amazon, Uber and Didi.
As Akio Toyoda, the chief executive of Toyota, bluntly put it last year, the battle to capture a leading role in the autonomous, connected, electric and shared car markets is “not about winning or losing, but one about surviving or dying”.
Honda, Japan’s third-largest carmaker, has been in discussions with Waymo for months and has invested in Grab, the Singapore-based ride-hailing group, in a deal that will include offering Honda bikes for sale to Grab drivers.
“Cars have been a business-to-consumer model but we want to study other business models that are being considered by these partner companies. We need to make sure we don’t fall behind,” said Takahiro Hachigo, Honda’s chief executive.
Nissan, Japan’s second-biggest carmaker, has partnered with DeNA, the mobile game producer, as they recently launched public tests of their “robo-taxis” in Yokohama where they will gather feedback from 300 participants.
The group, which also includes France’s Renault and Mitsubishi, will aim to launch self-driving taxis by 2022.
Elsewhere, Volvo has stated an ambition to be the “supplier of choice” for the ride-sharing industry, while also working on its own self-driving systems alongside Autoliv.
Chief executive Hakan Samuelsson said last month that the company was also in advanced discussions with several other ride-hailing groups, without specifying individual companies. “It’s not an exclusive deal with Uber . . . We are hoping to close the deal with others.”
He added: “That is very interesting, growing a new segment, it will be a significant part of our business we expect by 2025, but we are not ready to quantify that yet.”
Despite striking the deal with Waymo this week, JLR has rowed back from claims that it will become merely a kit supplier to technology businesses.
Strategy director Hanno Kirner told the Financial Times that the UK carmaker’s interest in autonomous vehicles extended beyond being a hardware supplier to companies such as Waymo and Lyft, in which JLR has invested.
“Customers will continue to own cars, we believe, for a long time,” he said.
“Because we will be in both areas, we don’t think we’ll become a mere hardware provider. At the premium end, look at houses, watches, telephones, whatever. It’s all about the total customer experience and it goes beyond just being a piece of hardware.”
Mr Kirner said JLR was seeking partnerships with a range of companies to span the spectrum of uses of self-driving vehicles, from ride-hailing services to public transportation to individually owned cars.
“We believe that this is a world where we don’t have to be afraid of anyone. Co-operating with several people on several different products is good for us,” he said.
He added: “We are today supplying cars for Lyft to use in their fleet, and we are co-operating on concepts and mobility concepts with them and developing them. That shouldn’t keep us from working with Waymo at the same time.”
Others think partnerships are essential to survive.
Indeed, after the two fatal accidents involving self-driving cars, this need for co-operation has become even more important in the eyes of some chief executives, who think it is the best way to tackle safety issues.
Stefan Heck, chief executive of Nauto, a Silicon Valley self-driving technology start-up, which Toyota, BMW and GM have invested in and partnered with for data gathering, said: “No one automaker can get enough experience quickly enough to make an autonomous vehicle as safe as everyone wants it.”
Next destination: self-driving motorbikes
Waymo’s discussions with Honda, which have been going on since late 2016, may lead to the Alphabet company buying autonomous motorbikes from the Japanese group, writes Shannon Bond.
John Krafcik, Waymo’s chief executive, said the company would strike more partnerships with car manufacturers as it builds out its fleet for its ride-hailing service and other business lines, including trucking and logistics.
Waymo is in “ongoing” discussions with Honda about a collaboration, and Mr Krafcik emphasised the breadth of Japanese automaker’s portfolio, from cars to trucks to motorcycles.
“They make the entire range of cars, but also other things with wheels,” he said.
Motorcycles in particular are “interesting”, he noted, declining to speculate further.
“What we’d like is to be able to serve the perfect vehicle for each trip and each purpose,” he added.
“As Waymo grows, you’ll see a diversity of [car manufacturer] partners. You’ll see a diversity too for the cars that will enter our fleet.”