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The race to develop and capitalize on self-driving, autonomous cars and trucks has been intensifying over the past couple of years as significant innovations and milestones have been announced by automakers. But what is the true destination in the market? Today, automakers, suppliers, and tech startups are pushing the development of these highly autonomous vehicles harder than ever, but what exactly is the market destination so that companies can make money? In order to answer this question, we first need to explain the industry’s technology roadmap.

The Six Levels of Driving Automation

The Society of Automotive Engineers (SAE) defines six levels of driving automation ranging from zero (fully manual) to five (fully autonomous). These levels have been adopted by the U.S. Department of Transportation. For the purpose of this review, we will focus on levels two through four, as they are the key areas of development over the next 10 years. I’ve included a list of the entire range below for context.

  • Level 0 (No driving automation) – Most vehicles on the road today are Level 0: manually controlled. The human provides what is called the “dynamic driving task.”
  • Level 1 (Driver Assistance) – This is the lowest level of automation. The vehicle features a single automated system for driver assistance. Adaptive cruise control, for example, qualifies as Level 1 because the human driver must still monitor and manage other aspects of driving, such as steering and braking.
  • Level 2 (Partial Automation) – Vehicles at Level 2 contain technologies that are better known as Advanced Driver Assistance Systems (ADAS). The vehicle can control both steering and accelerating/decelerating, but ultimately a human driver may take control at any point. Tesla Autopilot and General Motors Super Cruise systems both qualify as Level 2. The Super Cruise system is hands-off, where as other OEMs like Ford, Hyundai, Toyota and Subaru are planning hands-on systems to be launched in the next few years.
  • Level 3 (Conditional Automation) – Level 3 vehicles can make informed decisions for themselves, such as accelerating past a slow-moving vehicle, but they still require human override. The driver must remain alert and ready to take control if the system is unable to execute the task. This technology is segmented into four main use cases: parking, traffic jams, highway driving and urban conditions. The low speeds required for parking and traffic jam systems and the consistency of highway driving will lead to the first three use cases being the first to market. Urban driving, however, offers far more complex driving scenarios and challenges for autonomous driving and its development. Audi launched a Level 3 system in their 2019 model year, and Mercedes is planning a 2020 launch of its own. In fact, more than half a dozen other prominent automakers are planning Level 3 launches in the next six years.
  • Level 4 (High Automation) – The key difference between Level 3 and Level 4 automation is that Level 4 vehicles can intervene if something goes wrong, either outside or within the system itself. These automobiles do not require human interaction, but a human still has the option to manually override. These vehicles can operate in full self-driving mode, but until legislation and infrastructure evolves, they can only do so within a limited area (usually an urban environment where top speeds reach an average of 30mph). As such, most Level 4 vehicles in existence have been designed for ridesharing. This is where organizations like Waymo, Baidu, Cruise Automation (GM), ARGO (Ford), Uber, Lyft, Zoox Aptiv, Navya, May Mobility, Tesla and several others are focusing their efforts. Most automakers have plans for Level 4 vehicles, but the earliest Level 4 systems will come to the market in the next couple of years from automakers like Volvo, Mercedes, Tesla and General Motors.
  • Level 5 (Full Automation) – These vehicles require no driver, and they do not include a steering wheel, brakes, or an accelerator. Presently, the development of these vehicles is limited due to cost and technical challenges.

How will Companies Make Money?

The big automaker push for higher-level automation systems stems from the strategic need to make sure that technology companies like Waymo, Apple, Lyft and Uber don’t completely disrupt the automaker business model. Being early to market is critical. However, as one OEM executive explained to me, they don’t see mass adoption of these systems as likely due to the high costs of development and weak business case. Another executive put it this way, “In the urban setting, this adds a lot of costs to the typical vehicle. Could be as many as 100 sensors to urban pilot systems – not to mention, redundant systems such as braking, steering, etc.”  

So where does the market settle on making money? Industry experts are talking more and more about Level 2+ or advanced Level 2 systems that offer a hands-off feature, like BMW is planning for the US market, or Cadillac is using with Super Cruise. We see that a large volume of OEMs (like GM, Toyota, Ford, Hyundai and Renault-Nissan) will be focused on Level 2+ or advanced Level 2 systems, with the human driver as the supervisor. These systems don’t require full redundancy in braking and steering but will include map features and predictive adaptive cruise control (ACC), which observes the curvature of the road. This will be part of the level 2+ or advanced functionality. These systems will increasingly feel like one is in a fully automated vehicle – but at a fraction of the cost of Level 3 or 4 systems.

I predict that this will be the destination of a large percentage of the market over the course of the next 10 years.

Key Takeaway: Develop Scenarios for Market Development

As these markets are developing at a high speed, automotive companies of every size need to develop scenarios for market development and manage their precious resources diligently. This diligence is critical for long-term success and survival — making sound, responsible strategic moves may be the single biggest thing these organizations can do to keep themselves afloat in the new automotive market. Without this diligence, they will undoubtedly be left in the dust of their more intrepid peers.

Paul Eichenberg
Paul Eichenberg has had 25 years working with Fortune 500 automotive suppliers, most notably eight years as the global VP of Corporate Development and Strategy for Magna Powertrain & Magna Electronics. As the Chief Strategist, Paul oversaw all strategic planning, product management and merger and acquisition activities. During his tenure at Magna, Paul successfully repositioned the business to focus on technologies for the optimization of the internal combustion engine, EV/Hybrid technologies, ADAS, and autonomous vehicles. Paul manages his own automotive consulting firm called Paul Eichenberg Strategic Consulting. Paul’s clients include hedge funds, investment banks, private equity investors and automotive suppliers.

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