Innovation steers the industry

Autonomous automotive automation

Autonomous vehicles will be a vital source of information in the future. They have the potential to be used for crowdsourcing information, like locating road defects to improve surfaces, and informing drivers about available parking spaces along their way. These cars will also make their own decisions based on information like air quality and the weather, information that they receive from the connected world in which they operate.

Such capabilities require a combination of high-level expertise in sensing and localisation to enable fully autonomous driving, as well as the processing power to handle the complex workloads required of AVs. The BMW, Intel and Mobileye partnership, for example, was formed with the intention of leveraging each firm’s capabilities to develop the necessary solutions and innovative systems to make fully automated driving possible. Following the formation of this partnership, Mobileye was acquired by Intel, allowing the microchip maker to strengthen its foothold in the tech-automotive space. As more automobile manufacturers move into the AV market as level 3, level 4 and level 5 vehicles increasingly become a reality, we expect to see a rise in M&A activity between automakers and manufacturers of technology components that make AV possible.

The vehicles of the future

‘Insuring’ success…

With as many as 23 million autonomous vehicles (AVs) expected to be on the roads of the U.S. alone by 2035, insurance companies have had to adapt accordingly. In order to align the pricing of premiums with individual risk, insurance companies are developing usage-based insurance (UBI) policies. Telematics or black-box policies work by allowing insurers to track how their policy holders drive, with the ‚AVUBI‘ collecting data such as mileage, speed, location, time, total duration of trip and G-force.

However, with General Motors and Volvo announcing autonomous vehicle partnerships with Lyft and Uber respectively, and Google’s Waymo transitioning to be a taxi service, most fully autonomous cars will not be owned by individuals, but by automotive manufacturers themselves. As private vehicle insurance is the largest profit generator for insurers, there is a need to find new sources of revenue as the transition to fully autonomous vehicles gains momentum. Subsequently, a key driver for another surge in M&A activity.

Meanwhile, the biggest opportunity for insurers is the AV makers. While automation can significantly reduce the risk of road accidents occurring relative to a human operator, the hubs and algorithms that control these vehicles are susceptible to hacking, cyber theft and ransomware. Therefore, it is imperative that telematics insurance companies consider expanding their product lines to insure AV automakers against such threats. They will need to consider making a gradual shift of resources towards developing UBI mechanisms that can test the integrity of driverless transportation systems.

This does, however, require insurers to build watertight ‚Big Data‘ acumen.

This need fuelled:

  • Zurich Insurance’s acquisition of Bright Box HK, a Hong-Kong based telematics company
  • Bright Box’s capabilities in connected cars will enable Zurich Insurance to extend a more customer-centric experience to its users, enhanced by digital interactions with car drivers and closer collaboration with car dealers and OEMs

We anticipate similar pairings becoming widespread as traditional insurers look to gain new AV-driven surveillance technologies.

Driving ‘Big Data’

But how are other automotive sector operators tackling ‚Big Data‘? We’ve seen companies approaching the issues surrounding data in two major ways:

  1. Investing significantly into research and development

a) One of the key driving factors for M&A in recent years is answering the demand for collecting, monitoring and safe storage of ‚Big Data‘

b) This has seen large corporations collaborating with software and digital platforms where they are able to generate valuable insights that transform operations

c) This transformation not only benefits the corporation, as they are able to collect detailed data on the customers and their products, but also give the consumer access to the data produced by their own vehicle and equipment

2. Embedding software in products such as sensors, actuators and control units that collect the data and then convert it into added-value services

a) The efficiency of autonomous vehicles is predicated on how well they are able to communicate with each other

b) Vehicle-to-Vehicle (V2V) technology that relies on vehicles communicating with one another require a dynamic wireless exchange of data. This data enables driverless cars to sense threats and hazards, calculate risk or take pre-emptive actions to avoid and mitigate crashes

c) Problems arise when vehicles transfer communications to infrastructure, servers or other users, as AVs could transmit personal or sensitive data, such as the present location of a user, that person’s past travel patterns or future travel plans

d) To prevent privacy invasion, privacy protection must be incorporated at the design stage for autonomous cars

Consolidation is key

The path to get to a fully autonomous world is complex and will require end-to-end solutions that integrate intelligence across the network. Transportation providers of the future must harness rapidly evolving technologies, collaborate with new partners or acquire assets and technical know-how, and prepare for disruptive opportunities. In short, consolidation is key.

Suppliers and OEMs need to develop the skillset and capabilities to adapt to the exciting future of the undefined automotive ecosystem. Though deals have been rapidly rising in the last 10 years, they are beginning to slow. Traditional issues such as capacity, fixed costs and OEM and suppliers maintaining vehicle volumes still remain, while incorporating large technology companies and start-ups in the industry.

Breaking up is never easy….

In order to continue to meet the demand from the current market and future proof their businesses, there have been a number of large suppliers announcing plans for spin-off legacy technologies. They are doing this by placing the part of their business that focuses on supplying internal combustion engines and transmissions in one silo, and the piece of the business agnostic to this separately. On a macro level, we have also seen a number of governments—China and more recently the UK and France—announce plans to potentially phase out the internal combustion engine. These types of macro trends will have a profound impact on strategic choices for a number of suppliers and the shape of their future businesses.

Conclusion

Businesses are creating new opportunities not only for themselves but for other industries too. The traditional conventions are being challenged as suppliers are having to focus on electronics, software and services to meet the demand for intelligent and flexible vehicles. New industries that didn’t exist when the traditional car was on the production line have now carved their own section in the industry: connected services, cyber security, data analytics. The necessity for this space is being recognised as not only new members of the industry are seen to partner with these innovative companies but also traditional suppliers and OEMs themselves, reshaping the supply chain and the content platform ownership models. Activity that we predict will increase in coming years.

The future of driving promises to change lives and societies for the better as companies harness ‚Big Data‘ and new and exciting technology to keep up with the rapidly changing face of the automotive and telematics industry.

Michael Mariaz
Managing Director, DC UK
T: +44 (0) 20 7856 0969
E: Michael.Mariaz@dcadvisory.com

David Dolan
Managing Director, DCS Advisory
T: +1 (571) 612-2204
E: David.Dolan@dcsadvisory.com

Ben Thompson
Executive Director, DC UK
T: +44 16 1362 6787
E: Ben.Thompson@dcadvisory.com

Endong Zhai
Executive Director, DC UK
T: +44 20 7856 0945
E: Endong.Zhai@dcadvisory.com