Synergy between AI companies and Automakers to Drive Connected Cars in Fast Lane
Car technology is one of the key highlights in the last Consumer Electronics Show (CES) and Google & Apple which invests heavily in AI are much talked about in the Geneva Motor Show (GMS). Ironic? Not anymore. The recent CES and GMS are proofs there are growing common interests for AI companies and automakers, primarily in connected cars. What does it mean for the automaker? How are they responding to the challenges and establishing a value for its customers in a rapidly changing market?
“The auto industry is poised for more change in the next five to ten years than it’s seen in the past 50.” — Mary Barra, CEO, General Motors
Connected Cars — The Fast-Changing Ecosystem
Automotive OEMs and suppliers, traditionally focussing on the core business, are now making apps, OS/platforms and AI research to make their cars more intelligent and consumers, more connected. Technology disruption is leaving no stone unturned when it comes to impacting automobile industry. In recent years, the automotive ecosystem has seen new participants from the digital, telecom and semiconductor players mainly because of the disruptive technologies such as AI. Be it the self-driving car from Google, AT&T’s in-car Wi-Fi Hotspot or the Nvidia’s supercomputer car Drive PX2, players from these industries have major plans in disrupting the connected cars market (Table: 1) which is growing at a CAGR of ~30% by 2020 (according to Strategy& and PWC study). Both Automotive and Technology players are watching this space closely as the industry is poised for ‘business unusual’ from ‘business as usual’.
AI companies are heavily investing in connected car projects
There is a deluge of start-ups mushrooming in the tech space and a considerable number of them are addressing the niche connected cars market with AI technologies. The top guns are significantly ahead in terms of research & development cycle in specific areas like self-driving cars, OS/platforms, and connectivity solutions. However, the road is not very clear for them to steer fast. There are roadblocks such as the long development and testing cycles, changing regulations and security issues (Table 2). Also, the decision as to whether to build their own cars or to partner with automakers is one of the biggest challenges as the AI companies do not have the necessary infrastructure or capabilities in building cars.
Automakers have a stronger hold on connected cars despite challenges
Almost all the premium and value OEMs are significantly investing in connected cars to capitalize on incremental revenue streams as the divergence from future car ownership plays out. Applications such as Mercedes Me, BMW’s ConnectedDrive, Fordpass, GM’s Onstar and FCA’s Uconnect are already live and provide value to their customers.
The main challenge these automakers are facing is integrating the technology into the vehicles (Table 3). There are also significant challenges in positioning and bringing the product to market in less time.
Despite the challenges, Automakers are leading the pack. Toyota, one of the oldest Automaker in the world holds more than 1500 patents on autonomous technology (Figure1).
The list is dominated by Automotive OEMs and suppliers such as Denso, Bosch, Nissan, Honda, Hyundai etc. Technology players like Fuji, Hitachi Fujitsu and Google are stacking up only from 10th position in the list. However, a different story emerges when it comes to the number of patents being filed by the tech companies recently. Tech companies are increasingly filing more patents than the traditional automobile companies and the current trend will be will only accelerate. The day tech companies having more connected cars patents than the automobile companies is not very far.
Connected Cars — Synergy to Put You in Driver Seat
Though Silicon Valley companies and automakers have pushed their boundaries to explore connected cars project, the whole is greater than the sum of its parts. Realizing this gap there are automotive business models emerging with a Silicon Valley concept like Tesla. The automakers have started understanding this and partnering with Silicon Valley companies on AI and other related areas to bring the best out of both worlds (Table 4 & 5)
“Partnerships are going to be very important. We can’t have the arrogance to say we’re going to do everything on our own.” ~Mark Fields, Former CEO, Ford Motor Company
“Google wants to form more partnerships with established automakers and suppliers this year to accelerate its work on self-driving cars” ~ John Krafcik, CEO, Waymo (Google Self-Driving Cars)
Some Silicon Valley companies are also keeping their arms open in welcoming and making a partnership with Automaker as it is solving their puzzle of building the cars. This synergy will help both the industries in prioritizing value to the customers over who-is-building-what.
The transition to ‘mobility solutions provider’ from ‘traditional auto companies’ has begun for automakers. Detroit companies have started setting up offices in Silicon Valley and technology players are stepping-up seeking partnerships with automakers. It is not the Detroit or Silicon Valley that will drive the Connected Car market in the fast lane. It is Detroit plus Silicon Valley.
1. McKinsey & Company, Connected car — automotive value chain unbound, Sep 2014
2. Strategy& and PWC, In the fast lane: The bright future of connected cars, 2014
3. Thomson Reuters, The 2016 State of self-driving automotive innovation, Jan 2016
4. Capgemini, Tesla Motors: A Silicon Valley Version of the Automotive Business Model, 2014
5. News Sources: Fortune | Forbes | WSJ | Telematics News | Detroit News | Autoblog | Economy | ExtremeTech | Technology, and automaker company websites