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Scarcely a week goes by without another major announcement in the world of autonomous vehicles (AVs).
British transport authorities are pushing for them to be on roads within as little as two years. BMW and Daimler recently unveiled a long-term, strategic cooperation on AVs, and investment into US-based self-driving startups hit as much as $4.5 billion last year.
Yet for every technology optimist dreaming of a utopian transport system that eliminates accidents and congestion at a stroke, there are other commentators pointing out emerging roadblocks: cost and the technological, social and regulatory challenges we need to overcome to ensure AVs do everything they are designed to do safely.
So what does a realistic pathway look like for the development of this ground-breaking technology?
“Most commentators are being a bit too aggressive about when we are likely to see AVs fully adopted on the streets, and also too conservative when it comes to imagining their true transformative potential,” says Rich Parkin, a partner at Strategy&, PwC’s strategy consulting house.
While automotive companies have announced plans to produce “mainstream” vehicles that are fully autonomous in certain applications by 2026/27, the economics of producing them in significant numbers obviously needs to be viable for that to happen. These companies are currently earning returns that are in many cases below their cost of capital – at around 4.5 percent.
Yet AV investments are huge and will continue to demand a great deal of capital.
Under currently announced plans, Strategy& estimates that return on capital will drop to between 1.7 and 3.1 percent for automotive companies between 2025 and 2030. These are not attractive levels for shareholders, being significantly below other sectors, and the cost of capital.
Moreover, the economics of personal AV ownership means that we are unlikely to see any notable adoption of AVs for personal use before the early 2030s. Even then, which is when we anticipate the industry reaching scale, an AV will still cost about £5,000 (US$6,500) on top of what a standard vehicle would cost.
“We expect that – as with the early predictions for electric vehicles – timelines may well slip,” says Parkin. Moreover, many of the investments will not work out as intended.
“This means that different stakeholders - public sector, technology suppliers, and automotive manufacturers - need to have a fundamental rethink of the way forward, with a clearly identified path to achieve their goals, be they profitability or public policy outcomes, and based on a clear-headed view of likely developments.”