The automotive industry is facing the abyss – soon it will be one step further.

What the photography industry was in the first decade of this millennium, the music industry in the second decade, the automotive industry will be in the next decade. The driver behind this disruptive development is not electromobility, but autonomous vehicles. These will become a reality in the next few years, completely disrupting the automotive industry. A bit of a visual lesson in new business models.

(Reading time: 6 minutes)

Electromobility? Um, no.

The few articles on electromobility have attracted a lot of people who want to talk to me about the car of the future. More and more people who work in the automotive industry. In these conversations, I keep noticing how little awareness there is of the extent to which new technology will also give rise to new business models.

It is all too easy to think in the same patterns – in previous business models. However, it is quite unlikely that this is exactly what will happen, i.e. a fundamental change in technology while the business model remains the same.

And so many manufacturers, suppliers, dealers and service partners are focusing their thoughts on the fact that we will probably be driving electric vehicles in the foreseeable future. Despite all the joy and fanboyism for Tesla, electric technology is not the key technology of the future automotive industry. It is the autonomous vehicle.

Why do we need autonomous vehicles?

Ask your colleagues. The answer from both sides is: “No, we don’t need that”. We like driving, at least most of the time. That’s because today’s drivers imagine autonomous driving as if their current car could be driven completely without them having to do anything. We are all trapped in our own familiar analogies.

Apart from that, most people think that autonomous or semi-autonomous vehicles will reduce accident rates. So far, that’s easy to follow.

But why we really need autonomous vehicles is so that we can continue to guarantee individual mobility at all. A quick look at the registration statistics shows that we will not be able to put another 30 years of growth on the road in the proverbial sense. There are simply not enough roads.

Autonomy enables cars in the pay-per-use/to-go model

You are probably familiar with the traditional Car-Sharing companies. A few have grown to a considerable size and work well. The killer disadvantage of such models is that you usually have to book the car in advance and then return it to the place where you picked it up after use. The whole process is doable. But quite tedious.

If the vehicles are now autonomous, ordering a car is as easy as ordering a cab via MyTaxi or Uber. Simply open the app and the vehicle is available a few minutes later. This is the future of individual transportation.

The reason why this model will prevail is quite simple: it will simply be fundamentally cheaper than owning a car. And it will also have many advantages over the ownership model.

Reducing the overall costs of private transportation

To understand why costs are being massively reduced, you need to know the current situation in private transportation. Here is a small brush-up:

Around 43 million cars were registered in Germany in 2014. These cars covered a total of 611 billion kilometers. That’s just over 14k kilometers per car per year.

If we now assume an average speed of 60 km/h, the average car is in use for 40 minutes per day. If we look at this as a percentage of the day, this means that the average car is in use 5.4% of the time in an imputed day of 12 hours (deliberately set low). Conversely, this also means that the car is just standing around 94% of the time.

The main activity of a car today is not driving, but parking. It’s a parking tool.

So, in macroeconomic terms, we have tied up a huge amount of capital and costs for something that we only use marginally. As consumers, we only accept this because we don’t know anything else.

So when the first providers start to offer mileage to-go, so to speak, and keep a fleet of vehicles permanently on the move, they will be able to operate at prices that the ownership model cannot even come close to matching.

Massive reduction in the number of registered vehicles

I will first show you just how blatant this cost reduction is using the example of an electric car (just for the sake of good order here and for the sake of good order here on a Tesla):

If we could operate a current Model S, which, mind you, does not yet include autonomy, as an autonomous vehicle, we would keep it in operation for around 18.5 hours per day. Another 1.5 hours per day would be needed for cleaning and maintenance and around 4 hours to charge the daily mileage of 1110 kilometers (18.5 hours x 60 km) (assumption: charging speed at SuperCharger level, around 280 km per hour).

This would achieve an annual mileage of around 400k kilometers. If we now put this in relation to the 611 billion used kilometers driven in Germany, this results in a calculated reduction in vehicles from 43 million to around 1.5 million. Now we also include availability margins and double this number of vehicles and we get a vehicle requirement of around 3 million.

This change in our business model will enable us to reduce costs by around 90 %. Whereas previously 43 million cars were required, now only 4 million are needed.

That will never happen!

You might think that will never happen. People always want to have their own car. Give it a try and ask your friends and acquaintances whether they still want to have their own car at 90% lower costs. Instead of 5,600 euros per year (lower middle class), pay only 560 euros. You’ll be amazed that even hardened car fans will reconsider.

However, the advantages of a to-go model for the consumer go beyond the cost:

1. No maintenance times
2. No cleaning effort
3. Choice of vehicle depending on the situation and mood (Fiat Ducato for gardening on Saturday, Porsche for a trip on Sunday)
4. No refueling or charging required
5. No financial risk
6. Greater security

Two other developments also speak in favor of such a model:

• – Reduction of the ecological footprint
• – Trend towards an “I don’t want a car culture” among younger urban/agglomeration dwellers

Considering the advantages of such a model for consumers, it seems inevitable that this business model will dominate the automotive industry.

Automotive industry in the sweet sleep of success

In the twilight of such a fundamental change, the automotive industry is practically doing nothing. Of course, it’s a little unfair for me to just say that, because they do exist, the innovative, committed car dealerships. But I am always amazed at how little even serious people in the automotive industry know about such scenarios. In fact, I’m more amazed that they are only very slightly interested in them. I think that’s the really negligent thing.

Yet it is the car dealerships, service points and garages that will be swept away by future developments. We have seen in other sectors how quickly such a change can take place when the new offerings provide fundamental advantages for customers.

No one will then be able to say that everyone was unprepared. This development is as foreseeable as the sun rising again tomorrow. A milquetoast calculation. Everyone will cry anyway. Apparently, it’s just part of the game to keep going until it’s no longer possible rather than to bring about change cautiously and in small steps.

Electric? Um, yes.

The electric car and autonomous vehicles are married, so to speak. Why this is the case is also down to the costs. Energy costs and maintenance are physically much lower for electric cars and will only fall in the future. This is mainly due to the fact that electricity will become radically cheaper in the medium term. Solar technology has been spreading exponentially for years and will lead to a significant overproduction. This will also result in a change in the business model. The change will probably be much slower than we would like. But it will prevail.

In terms of figures, let’s compare our Tesla from earlier with its combustion engine equivalent, the four-door BMW 6 Series (5.0 l gasoline engine). At today’s costs, the BMW is around 18% more expensive. This effect is much more significant if we use a cheaper car. For example, a Model 3 and a comparable petrol car cost around 35k euros. The difference in price per kilometer is then already a whopping 36%. And not in 10 years, but already today.

Car-to-go providers will therefore certainly rely on electric cars. If only because of the costs. Apart from the other advantages.

Wave or tide

I see a very high probability that this development will come as described. The question is how quickly it will come. Uber is only alive because they are sitting in pole position to become the first comprehensive car-to-go provider. I think we will see a market share of rides from car-to-go providers greater than 30% 5 years after the first commercially available autonomous vehicles. Logically, the development will start in the cities and swallow the cab business first. But it makes no sense that development should stop there.

As a car manufacturer, autonomous driving technology is the ticket to the new market. The most obvious strategic option is to become a car-to-go provider. And the brand and its image could help some traditional manufacturers do this quite well. But it will be difficult.

Because Uber is just waiting for it and already has many customers on the hook. And some car manufacturer, who will then find themselves in a tight spot, will sell Uber the self-driving cars. Or they will simply build their own vehicle. Just like Deutsche Post is already doing with electric cars.