Drivetrains and Free Time

Autonomous cars will be commonplace by 2025 and have a near monopoly by 2030, and the sweeping change they bring will eclipse every other innovation our society has experienced. They will cause unprecedented job loss and a fundamental restructuring of our economy, solve large portions of our environmental problems, prevent tens of thousands of deaths per year, save millions of hours with increased productivity, and create entire new industries that we cannot even imagine from our current vantage point.

Never heard of Zack Kanter before, but his post about self-driving cars definitely caught my attention. I do not entirely share his dramatic view of the job market fallout. I ultimately believe we are tool builders, that’s what we do. New tools always spur new opportunities and create needs that were not even imaginable before.

There are countless examples of this narrative, from profound industrial shifts, such as the transition from craft production system to the mass production system — where the figure of the Industrial Engineer and a subset of highly skilled workers erased massive portions of the craftsman workforce, to more contemporary figures such as bloggers, youtubers or an enabled distributed workforce, that simply was not even possible ten years ago.

I do agree though, that this transition will bring along huge societal changes, but further than that, Zack’s words made me reflect on how autonomous cars might reshape cities and shake some patterns that we, nowadays, consider as a given.

First of all, we have to acknowledge that this is already happening. There are several partially self-driving "ideas" in the market such as self-driving trucks fleets crossing entire countries, and this party is just getting started.

On a more emotional layer the interest in cars is dropping among younger generations. Smartphone are replacing cars as a proxy for freedom and social status, and paradoxically, they can’t used while driving. Nowadays cars embody a wide range of negative values such as pollution, accidents, congestions… even Toyota’s USA President, Jim Lentz, agrees:

We have to face the growing reality that today young people don’t seem to be as interested in cars as previous generations.

The problem though, is that most conversations I hear are revolving around self-driving cars when in fact they attempt to describe three different — and partially independent, dynamics.

  • Drivetrains moving from ICE to electric i.e. Tesla
  • Ownership moving away from individuals to fleets i.e. Uber or Lyft
  • Operations moving from human to computer-based i.e. Google’s self-driving project

Drivetrains

In an ICE-centered world, the engine is the most complicated and important component of a car. Electric motors are much simpler than their ICE counterparts. An ICE engine is built out of hundreds of components, moving parts and complex mechanical systems, think of it as a mechanical watch. On the other hand, electric motors are extremely simple, they can be easily assembled with less than ten components.

The immediate consequence of this transition is that barriers of entry for the industry are torn apart. The ICE is by far the most complex piece of a car and few manufacturers can afford the capital expenses required for its development. Moving to an EV centered world, engines get commoditized, it literally means that they can be bought from a local supplier.

In other words, the craft and expertise amassed building ICE cars is worth nothing when EV simply use batteries, computation and software to control a drivetrain.

Another interesting factor to this narrative has to do with batteries, since they will be the most critical component of an electric vehicle. Even more important — and that’s pure speculation, EVs might only be a piece of a much larger shift in energy usage and generation. Batteries, on wheels or stationary, might become a key role as the link between multiple energy generation sources.

Ownership

Owning a car is expensive, one of the largest expenses of an average family. On top of that it is a really crappy asset, since it quickly loses value, it is hard to maintain and it is not liquid in the marketplace.

On top of that, the (sad) fact that cars spend more than 95% of their lifetime parked, doing nothing, has created an entire new market of transportation as a service, led by Uber, Lyft, Cabify and an army of local operators.

If this model gains traction and becomes the default option for most people to move from A to B, it follows that cars will be owned by fleet operators, not individuals. Which in turn has even more profound implications:

  • In an individual ownership world, manufacturing and selling are bundled. But if ownership changes, car manufacturers are left in the middle, with no leverage across the value chain.
  • It is not just leverage, but also incentives. Car manufacturers are currently incentivized to optimize for driver's delight i.e. getting a ZF transmission that shifts smoother and quicker. But if the driver is not the buyer anymore, does it matter?
  • Does it mean that flying in a Boeing / Airbus or economy / business becomes much like hailing a BMW / Mercedes or UberX / Uber Black?
  • Parking is interesting as well. Cities are nowadays built around cars, at any given moment there are more cars parked than moving. Although this is a given for most of us, we can all agree that it doesn’t make much sense, since parking is wildly mismanaged and it is probably our most inefficient use of resources within urban areas. But if cars are not owned, but hailed on demand, what happens to the parking industry?
  • The issue goes deeper though, no parked cars, means less cars, since its idle time will dramatically decrease: the perfect on-demand car is one that never stops. It follows then that less cars reduce collateral industries as well i.e. $198 billion automobile insurance market, $98 billion automotive finance market, $100 billion parking industry and $300 billion automotive aftermarket will be most certainly threaten.

Operations

The most interesting piece of this triangle is the transition to self-driving or what happens when we add "autonomous cars" to the equation.

The obvious one is that driver as a job won’t be needed anymore. On one hand this is a good thing because we have to admit it, overall we are really bad drivers. The bad news it that driver represents the single largest profession, in the USA and around the world.

This inevitably ties back to the EV conversation, since automakers will find themselves with misaligned incentives when it comes to pursue self driving capabilities: how come they can compete selling a "driving experience" when there’s no driver in behind the wheel? It's just a "feature race" to a place where they don't matter anymore.

It reminds me to the PC industry in the 2000s, when PCs started being purchased by consumers, but the other way around: the purchaser stops being the driver, but a fleet, who values other things.

I could go on and on, but what fascinates me the most is the amount of combined time we will save as a whole. Millions of hours we will get back "for free" to engage in creative endeavors, leisure, family time, reading, drawing, whatever!

And of course, the most important question: what we will make of it?