Revolution in the Driver’s Seat: The Road to Autonomous Vehicles

Revolution in the Driver’s Seat: The Road to Autonomous Vehicles

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Revolution in the Driver’s Seat: The Road to Autonomous Vehicles

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  • How the Market for AVs Will Develop

    AVs will probably emerge in the premium segment of the market first, given the level of interest expressed by current owners of premium nameplates and their ability to pay. The price of autonomy will be fairly high at first, as Ford executives pointed out at the 2015 Consumer Electronics show. The first partially autonomous features expected to be offered to consumers will carry a price tag of around $4,000, equal to a markup of roughly 50 percent over OEMs’ estimated cost. These features, which most likely will include single-lane highway autopilot and traffic jam autopilot, will help OEMs build the scale needed to make future features commercially viable, because many sensors are common across different autonomous features. For example, the sensors for long-range radar, as well as for stereo and mono video cameras—which in combination enable single-lane highway autopilot—are also components of other autonomous features. Those future, higher-priced features include highway autopilot with lane-changing and urban autopilot. We expect that when they are introduced—in roughly 2018 and 2022, respectively—they will be priced from $5,000 to $6,000.

    A 20-Year Adoption Curve

    As a result of our consumer survey, which indicated high interest and willingness to pay, we anticipate that OEMs will succeed in penetrating the market with AV features, initially by targeting the consumers who indicated that they would be willing to pay more than $5,000 for them. These consumers represent as much as 20 percent of the addressable market. Extrapolating from our consumer price estimates and consumers’ expressed willingness to pay—as well as from the economies of scale for partially autonomous features and historical adoption rates for new technology—we conclude that the combined market for partially and fully autonomous vehicles will develop gradually until it reaches roughly 25 percent of new-vehicle sales. ADAS features, in the meantime, will continue their growth in parallel. The penetration of partially and fully autonomous vehicles will also be influenced by several other factors, including their impact on insurance premiums and safety regulations. (See Exhibit 8.)


    As mentioned above, the penetration of these autonomous features over the coming years will allow for the introduction of fully autonomous vehicles by around 2025. And we expect that they will be offered to consumers at a price that is around $10,000 higher than the price of the same model of car without fully autonomous features.

    It will take a generation—15 to 20 years after the introduction of the first autonomous features—to reach a global market-penetration rate of 25 percent. (See Exhibit 9.) This rate of penetration aligns with the historical penetration rate of earlier technological innovations, such as cruise control and adaptive cruise control (ACC). Cruise control, introduced in the U.S. in 1967, only slowly won market acceptance in the first five to eight years after its introduction and took an additional ten years to achieve 25 percent adoption. ACC, introduced in 2006, has achieved about 6 percent penetration both in the U.S. and globally after nine years on the market.

    High Initial Prices Will Slow Adoption

    Although we expect that consumers will be significantly more eager to acquire autonomous features than they have been to acquire ACC in recent years, higher prices are likely to keep the speed of adoption in line with these past innovations. Similarly, the initial $10,000 cost to consumers of full autonomous capability will probably slow the adoption of fully autonomous vehicles in their first years of availability. Overlapping consumer interest in a wide range of features will also create competition among option packages and lead to the cannibalization of partially autonomous vehicles by fully autonomous vehicles as they reach the market.

    On the basis of these market economics, we estimate that penetration of vehicles with autonomous features—nearly all of them partial—will reach 12 to 13 percent of global vehicle sales by 2025. That represents a market for those features of roughly $42 billion (excluding the base price of the cars), with total annual volumes of about 14.5 million vehicles, including the first 600,000 fully autonomous units. (See Exhibit 10.) By 2035, the penetration of vehicles with autonomous features could reach 25 percent. About 10 percent—or 12 million—of those vehicles would be fully autonomous; the remaining 15 percent—or 18 million—would be partially autonomous. Together they would combine to constitute a market worth roughly $77 billion.


    In terms of regional market performance, we expect that consumers in Western Europe and Japan will be among the fastest adopters of these autonomous features. We base this expectation on their history with ACC, which has penetrated about 11 percent of those markets—or roughly twice the global rate of adoption—during the past nine years. The adoption rate in the U.S. has remained in line with overall global adoption throughout this same period, which suggests that BCG’s estimate of consumer demand for autonomous features in the U.S. serves as an accurate proxy for the global market-penetration potential of autonomous features. Counteracting the faster adopters of Western Europe and Japan will be the large percentage of vehicles in China and other markets, which, at 5 percent and 4 percent respectively, slightly trail ACC’s 6 percent global penetration rate.

    Multiple Factors May Affect Adoption Rates

    Several factors could have an impact on the timing and degree of market penetration that we have forecast on the basis of market economics. These include the following:

    • Adjustments to how OEMs update their base-car models and option packages
    • The timing and extent of regulatory involvement, especially if AVs are proved to deliver substantial safety benefits
    • Insurers’ pricing and marketing strategies
    • The intensity and speed with which communities integrate AVs—especially potential “robo-taxis” operated by mobility providers—into the local transportation grid
    Several Adoption Scenarios

    To understand how these factors in various combinations could determine how many AVs, especially fully autonomous vehicles, will be on the road in the years ahead, we have developed a series of several adoption scenarios. The first is the base case, which maps the adoption path on the basis of market economics alone. The remaining we call No Frills, Payback, Droogle, Regulation, and Backlash. (See Exhibit 11.)


    No Frills. Under this scenario, consumers interested in purchasing an autonomous vehicle—but only at a fixed price point below the added cost of autonomous features—would be willing to downgrade other features, such as car or engine size and interior appointments, to gain the options they desire. OEMs would begin offering autonomous features and corresponding trade-offs within five years. They would then be able to increase the penetration of fully autonomous vehicles to roughly 15 percent by 2035. The development would have a significant impact on the market landscape as priorities in car design evolve.

    Payback. This scenario assumes that more consumers could be persuaded to buy fully autonomous vehicles if the consequent reduction in their fuel and insurance costs would enable them to recoup the price premium they had paid for the vehicle. Our analysis shows that autonomous features could generate at least $2,300 in cost-of-ownership savings over four years, given annual fuel savings of 15 percent through increased efficiency and a reduction in insurance premiums of 30 percent per vehicle as a result of fewer accidents and improvements in overall safety. After three to four years of demonstrated benefits, such savings could help persuade cost-conscious consumers to adopt fully autonomous vehicles at an accelerated rate, amounting to 14 percent of the overall automotive market by 2035, compared with the 10 percent penetration rate suggested by market economics.

    Droogle. A third scenario examines how fully autonomous vehicles could impact urban transportation methods. Here, the economics of sharing robo-taxis in cities becomes more attractive than the economics of conventional taxis and even of personal-vehicle ownership. This so-called Droogle scenario (we created the term by combining the words “drone” and “Google”) is an aggressive projection: it assumes that the favorable economics of robo-taxis will lead many of the world’s largest cities to encourage or even mandate the use of AVs for personal transportation. Under this scenario, drivers in urban and near-suburban settings would either choose to give up their personal vehicles or be compelled to do so. This would greatly reduce the total number of vehicles on the road and would spur the adoption of AVs for most personal-transportation needs. The Droogle scenario represents a partial solution to traffic congestion and parking scarcity.

    Such a drastic change in many cities across the globe would increase the penetration of fully autonomous vehicles from 12 percent in 2035 to around 23 percent by 2040. (See “Robo-Taxis and the New Mobility.”)

    Regulation. The single strongest influence on the growth of the market for autonomous vehicles is likely to be the imposition of regulations mandating autonomy in new vehicles. Such regulations would be spurred by significant potential benefits to society, including reductions in accidents and increased workforce productivity as traffic congestion decreases. Given the historical data on the adoption of front-airbag technology in the U.S. after federal regulators mandated their use, we posit that similar mandates for AV features would drive rapid and almost full adoption of AV technology.

    We expect lawmakers to require many years—at least five—of demonstrated safety and economic benefits before they would institute such regulations. They would also allow the OEMs and suppliers a five- to ten-year window to meet those new standards. In estimating the impact of such regulations in this scenario, we have anticipated that the developed markets of Japan, the U.S., and Western Europe could act within roughly eight years after the introduction of the first autonomous features and give OEMs eight years to comply—slightly longer than the six-year window for front airbags in the U.S. Should such regulations be implemented along this time frame, fully autonomous vehicles could reach about 19 percent of the total automotive market by 2035.

    Backlash. Our final scenario takes into account the effect that a catastrophic, well-publicized failure of autonomous-driving technology would have on consumers’ and lawmakers’ attitudes and on adoption rates. In such circumstances, it is likely that attitudes toward AVs would turn sharply negative and harden, setting back mass adoption of AVs by several years, if not decades. The impact of such an occurrence on the industry would be severe and widespread, and that possibility underscores the need for rigorous testing and quality control in every aspect of AV design and manufacturing, especially in developing and refining the software that actuates and controls autonomous capabilities.