Thoughts on the Autonomous Vehicle Industry

16 minute read

These are some rough thoughts I’m having on the current autonomy landscape, having watched the industry develop over the last few years. It’s by no means sourced, definitive, or necessarily always accurate, and represents only my opinion. Nevertheless, as an active researcher in robotics in general and applied machine perception in particular, I enjoy a degree of living in the future that might make my viewpoint interesting to you.

Passenger Autonomy

Passenger Autonomy is the big sexy topic getting most of the media attention, positive and negative. The recent Uber crash has raised questions regarding the safety of autonomy testing programs, while Waymo continues its PR offensive ahead of what will probably be some form of public launch in late 2018 or early 2019. Passenger autonomy is also receiving the majority of regulatory scrutiny, with legislators in various states either licensing passenger autonomy testing on public roads, or else giving autonomy companies free reign.

Cruise, Waymo, Uber and others have been saying a public launch of an autonomous taxi service is “imminent” for quite some time now, and Cruise seems to be closest to delivering at time of writing. Once one company launches, the rest will follow in short order. This is a market with untested business models and huge up-front R&D costs that will need to be recouped. Additionally, there are the untested behavioral factors - will the general public trust autonomous taxis? Will they treat them with care, or trash them because no one is watching? Will other road users interfere with them on purpose?

Technically speaking, many of the problems remaining to be solved are unknown-unknowns which autonomy teams will only encounter with on-road testing in real traffic conditions. Despite Waymo’s marketing materials, very little real testing has gone on so far. Additionally, I don’t believe any company has the clear best autonomy team. Though the consensus is that Waymo is furthest ahead technology-wise, many of the original core members have left to found most of the current crop of autonomy companies, and it’s unclear how much difference having a better technology will have pre-launch.

The Launch

The truth is the launch of robotaxis is going to be underwhelming, and might be the reason we have’t quite seen a first mover yet - the first one in is going to receive much of the PR backlash when the service just kinda sucks. At launch, robotaxi services will be very limited; limited to a geofenced geography, limited to weather and other operational conditions, they will be slow, and if I had to ballpark it, roughly 10% of the time they won’t do what the user wants in some way (rough/scary ride, unexpected stop, weird road user interaction, other technical fault).

The novelty and hype surrounding the launch will get people excited for a few months initially, but ultimately even heavily subsidized (I fully expect the services to be either completely free initially, or with some nominal price so that the user feels they’re getting something of value) they’re not going to be competitive with rideshare services. Companies like Uber have the advantage here in that they can probably just keep their own drivers out of the autonomy geofenced areas, but that invites competitors in.

Who’s going to be first? Either Uber or Cruise. It’s still not clear to me whether Waymo intends to run their own service except in isolated markets as a demo - the actual robotaxi service doesn’t appear to be their core business. Since GM has Cruise, I’m guessing they’ll partner with someone like Ford or a European vehicle OEM to run their robotaxi service under license.

The Hangover

What happens in the landscape after the launch depends on what kind of company you are.

If you’ve got a big external entity funding you (Waymo, Cruise), you settle in for the grind, or else your parent panics and cuts you off. You slowly expand your geofence and your operating conditions, you minimize the PR damage from various big events like fatalities or major crashes or bizarre behaviors (someone is going to have sex in these things, someone is going to get killed by another person in one, someone is going to hack into one, the cops will want to pull one over), and you try to keep people interested enough so that an upstart competitor doesn’t eat your lunch. It will be ~5-10 years before this is a real business.

If you don’t have a big external entity paying your bills, but you’re going for the fully vertically integrated scenario like Zoox, this is the moment where you absolutely need to raise a gigantic amount of money to fund your warchest for the 5-10 years it’s going to take for your service to turn into a real business.Whether or not you can raise that money depends mainly on external market conditions, and at this point you need to bring in really big institutional investors. You probably have the highest risk out of all the passenger autonomy models, and it’s not clear that you’ll be rewarded with an outsize return in the face of e.g. GM Cruise.

This is also the peril that Uber faces - they have other businesses, but it’s unclear if they’re profitable enough to sustain an autonomy effort, nor whether the markets will bear giving Uber more money to set on fire. A possible outcome is that companies in this category significantly scale down their ambitions and focus on a niche aspect of autonomy, fade into irrelevance while hemorrhaging money, or are acquired by (most likely) a German OEM who can’t do Autonomy themselves.

The outcome for companies like Aurora which exist to license their technology, and other ‘Tier 1 autonomy suppliers’ with similar models, depends on the appetite of vehicle OEM’s to continue to pursue passenger autonomy in the wake of the lackluster launches. The OEM’s have considerably more markets they can attempt the service in, and have profitable businesses that can subsidize repeated small-scale roll-outs. How long companies in this category last as independent entities is going to depend on how panicked the OEM’s feel and how Aurora can spin the capabilities they can deliver.

These companies are significantly less capital intensive than their fully vertically integrated cousins, which forms part of their competitive advantage. It’s worth noting that there are a lot of traditional Tier-1 suppliers like Continental and Bosch working on various autonomy products, but from what I’ve seen first-hand, it’s unlikely that they have the internal expertise to deliver a complete system; they are experts on sensors and control loops, and have virtually no experience in modern machine perception.

The timeline looks something like:

  • Launch, tons of hype, lasting ~2 months. Lots of companies announce a launch at once, including at least one OEM running Waymo technology.
  • Users enjoy the novelty for ~4-5 months.
  • Usage starts to drop, companies compensate by launching in more regions.
  • More launches increases the likelihood of a negative PR incident, and regulators coming down hard on the whole industry.
  • The music stops, and those caught without a backer or funding either collapse or are acquired.

Look for a big wave of consolidation about a year after launch. My bets: Waymo survives, learns, and keeps going. Cruise survives unless GM has a really bad quarter for some other reason and spins them out, then they die. Uber botches the launch and focuses on other autonomy verticals thereafter less dependent on PR. About a thousand minor companies launch with incomplete products, fail to get any traction, and are then acquired or collapse. Zoox is late to the party.

One exceptional company to watch in this space is Voyage. Voyage has faced the reality of steep capital investments required to deliver a vertically integrated autonomy product, and has instead chosen to focus on the user first. This will allow them to continue to act as a nimble start-up, reaping the rewards of core autonomy technologies developed elsewhere while executing on a strategy of constrained roll-outs. Rolling out their robotaxis in retirement communities first was a masterful move on CEO Oliver Cameron’s part.

This approach should allow them to remain capital efficient, always at the edge but never exceeding the capabilities of the main-line of autonomy technology development. By not focusing on the core technology development, Voyage can think about the overall user experience, and since behavioral change is so important in this market, this should lead to a sustainable moat. They will need to raise more funds in the future, but I hope they can go the distance and last the 5-10 years necessary to become a general autonomous taxi company.

Autonomous Logistics

Full disclosure: I’m totally enamored with logistics as a business and as a technology. I firmly believe that the multimodal shipping container is the most significant invention of the 20th century, and that everyone should read ‘The Box’ by Marc Levinson.

Logistics autonomy is getting relatively little coverage, though there were a rash of autonomous truck announcements from Starsky, Uber, and Waymo in recent months, possibly in response to Tesla’s electric semi tractor. The structure of this space is rather different to passenger autonomy; logistics is a commodity business, defined by the costs to move a given weight and volume of goods from point A to point B in a reasonable time. It is a wholly numbers defined business. Margins for overland shippers (companies who sell freight capacity and run the trucks) are extremely tight, around 5% if you’re operating close to peak efficiency. The value add for autonomy in trucking is in either reducing the need for drivers, or else making each driver more efficient.

Overland logistics is an industry that has operated under the same model for decades, but systemic global pressures are now forcing change. First, technology such as electronic logging is being mandated by regulators for safety. Second, there is an increasingly acute labor shortage. Fewer young people are entering the industry and many are aging out. The labor shortage is already resulting in reduced capacity for shippers, which has the potential to push many out of business as they simply cannot move the volumes they need to to cover fixed operating costs. Under these conditions, the industry is ripe for new entrants and for new technology-enabled processes.

Because there are direct economic advantages in a large industry, regulation is likely to proceed in a measured way. Being able to demonstrate concrete numbers in terms of economic gains tends to look good when arguing your case. Long-haul trucking is also a relatively nice environment for autonomy in comparison to busy urban centers, and logistics vehicle access is already legislated according to class.

Ironically the heavy regulation of the trucking industry provides an existing legal framework where none exists yet for passenger autonomy. The same is true for insurance and liability issues. There are already proposals in the U.S in Europe for autonomous and semi-autonomous trucking corridors and lanes on existing highways, that will act as proving grounds for the industry in general.

It’s unclear who the leader in logistics autonomy is, and whether there is one. Several startups are tackling the space, as well as larger companies like Uber and Waymo, as well as Tier 1 suppliers and OEM’s like MAN, Volvo and Daimler. I don’t have first hand experience of what these teams look like in practice, but I suspect a heavy bias toward electromechanical engineering approaches to autonomy. It’s likely that these companies can get along with this technical basis for quite some time to come, as the highway autonomy problem can be adequately tackled for many conditions with traditional automotive sensors including radar, and appropriate control and limited-horizon planning algorithms.

Full Autonomy from day 1?

Embark, Uber, Waymo, MAN, Volvo and others are all working on a fully autonomous solution for highway driving. This is ambitious and risky for many of the same reasons as passenger autonomy, but does have the advantage of a clearer business case, in terms of reducing labor costs and improving operating efficiency. Labor costs represent roughly 50% of on-road operating costs for long-haul trucking, and reducing these would allow logistics companies to expand their margins.

That said, many trucking operations, including loading, parking, refueling and others, are currently performed by the driver - it’s unclear where the labor and efficiency savings would come from. Some of these operations can be simplified by building out autonomy infrastructure such a semi-automatic distribution and fueling centers, this would be a significant departure for most shippers, and require massive capital investment before real economic gains could be realized, negating some of the reasons for entering this space in the first place. That said, as autonomy makes its impact felt in logistics over time, it’s likely that operations will be restructured to take advantage.

The dark horse player is the Chinese TuSimple. It’s likely that the Chinese government has identified autonomous logistics as a strategic capability of national importance, and, like Baidu, DiDi and other companies, will bring implicit state subsidies their way. Whether they can deliver a viable system is yet to be seen, but I will be watching them closely.

Interestingly, unlike the passenger autonomy space, it does not appear that any company is taking the fully vertical full-autonomy approach, i.e. building their own trucks - all are presently modifying various truck makes, with or without OEM cooperation. Truck development cycles are usually approximately 6-8 years long, and must anticipate the future economics of the business as well as fleet depreciation and replacement rates, but with changing business models this may accelerate and we may see a fully autonomous, purpose-built truck arrive in the near future as the business case is further proved out.

Staged Autonomy

Other companies are aiming at a staged approach. Unlike the passenger car market, advanced driver assistance systems have made little impact in trucking - even basic lane-keeping is absent from most models, as driver comfort rarely factors into the commodity pricing for overland goods transportation, and shippers try to maximize efficiency over their fleets. However, Platooning, where one truck follows another very closely to create beneficial aerodynamics for the pair, has emerged as a technology where the semi-automated ‘driver assistance’ approach can translate into economic benefits for shippers.

Platooning saves roughly 6-8% on fuel over the paired trucks, and requires superhuman reaction speeds coupled with safe engagement of the platooning system. 6-8% may not seem like much, but fuel represents a further 40% of on-road operating costs - Platooning is therefore an instance where autonomy technologies contribute directly to the bottom line of shippers without requiring full autonomy or extensive new infrastructure.

There are remarkably few competitors in this space with Peloton Technologies the front runner. Daimler and some other OEM’s are working on this direction with some demos in the wild, but Peloton should have a system on the market by Q2 2018. Executing on Platooning creates a lot of the organizational technical knowledge that will be required in other highway trucking autonomy technologies; planning, control, perception, vehicle-vehicle communication and overall fleet management.

Additionally, as an aftermarket solution it should be an easier sell than requiring shippers to automate their entire fleet. There are also some very interesting platform effects that are possible; if the technology provider keeps a hold of the platform for e.g. matching trucks from different shippers into platooning pairs on the road, these relationships could provide for other opportunities. Think AWS for shipping.

Platooning requires one driver per truck. The next logical step is to have a single driver per several trucks, automatically ‘herding’ behind the human-crewed lead. Once you’ve removed all but one driver, the next step would be to operate the entire convoy remotely. Starsky’s approach, semi-autonomous teleoperated trucks, is intriguing but likely a little too early. The connectivity isn’t available yet over sufficient routes, which will require more infrastructure buildout (though with access to low earth orbit getting cheaper year on year, space based telecoms will likely be able to provide much of the needed bandwidth if not latency). However, air-traffic control style fleet management over highway zones between large freight-port style logistics hubs on the outskirts of major cities seems like a plausible future for trucking.

Important to note that at each stage of technology development, economic value is being created in terms of reduced costs and expanded capacity.

Here’s how I see the future of truck automation playing out:

  • Platooning hits the road in late 2018, alongside limited autonomous trucks on some toy runs.
  • More routes open up, the industry advances conservatively and avoids too much hype
  • As benefits become clearer, more investment into required infrastructure is made over time, business models start to change
  • Legacy shippers are challenge by upstart tech-first shippers pushing autonomy and novel freight consolidation models
  • More advanced technologies (‘herding’, teleoperations, and finally full autonomy) appear in time

Patience is probably the name of the game, but the economic realities of trucking make a hype-to-bust cycle as we are about to experience in passenger autonomy unlikely. It should be possible to build a durable, capital efficient, technologically advanced business in this space. Going straight to full autonomy isn’t likely to work (at least in Europe and the U.S), but there is the slim chance that the immediate economic benefits of even limited-area limited-condition full autonomy would be so great that at least some regulators and shippers would move quickly to capitalize.

The last mile

Last mile logistics is mainly about bringing small packages to individuals, with speed and convenience being the key differentiator, both being a key pillar of e-commerce strategies.

Sidewalk robots and aerial drones delivering pizza are likely to be non-starters in this generation, for the same reasons that passenger autonomy isn’t likely to be a real business within 5 years. The initial service will be of limited deployment and poor quality, and it’s unlikely that the economics will beat paying gig-economy workers on bikes enough to pay back up-front R&D, especially given the deep venture capital subsidies these delivery companies enjoy. I expect a contracted version of the passenger autonomy timeline, but without any major company backing a serious team, the entire domain may just fade away without fanfare or much consolidation.

Another class of last-mile vehicle is more interesting; package delivery of the sort performed by UPS and FedEx in Grumman Long Life Vehicles (the doorless, boxy vans you see driving around your neighborhood if you live in the U.S). I am not as up-to date on the economics of this space as I’d like to be, but it seems like exactly the sort of niche where autonomy could make a strong economic case and provide a better user experience, while mitigating the issue of limited service areas and conditions.

One fundamental problem with automated last mile is it’s still not possible for a robot to come to your door (especially if you live in an apartment complex) and drop off your package. That’s an advantage the Postmates guy on a bike is going to enjoy for a while yet.

Closing remarks

The autonomy industry is in for a wild ride over the next few years. An analogy I’ve been using is we are in the Altair / Apple I era of development. The technical advances are real, and made up of incremental advances in sensing, compute, and batteries coming together at the right time. It’s likely that autonomous vehicle will be a transformative economic force over the next decade. But it’s too early to buy into the passenger hype, and the benefits will take a while to come. Strap in.

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