A Trillion Dollar Prize – Who will be the winners and losers in the new mobility paradigm?

Business models in the transportation sector have stayed largely consistent over the past century, but today we are seeing a paradigm shift that is challenging the established order. Incumbents, both the old guard of auto OEMs and the nouveau riche TNCs, are facing a confluence of new systemic models and technologies challenging their core offerings. One of the key drivers of these systemic changes are autonomous and self-driving technologies.

The brains of a vehicle, in the form of either radar or LiDAR hardware and the accompanying software stack, are of paramount importance to the emerging mobility paradigm. There’s significant financial reward for getting the self-driving stack right – Intel believes autonomous vehicle technologies could generate $800 billion a year by 2030, and $7 trillion a year by 2050.

As such, there have been big battles fought, and been big money being spent by large corporate players looking to get a larger slice of the pie. Perhaps the biggest and most high profile of these battles is the Uber vs. Waymo lawsuit, which finally drew to a conclusion recently. The settlement reached between the companies decreed that Waymo will acquire a 0.34% equity position in Uber, worth more than $245 million – a deal seen by many as a coup for Uber’s new CEO, Dara Khosrowshahi.

To address the shifting industry dynamics, mergers & acquisitions have played an important role in the corporate strategy of many incumbents, seen in Delphi’s acquisition of nuTonomy and Intel’s of Mobileye. An array of partnerships has also proliferated – for example, Volkswagen partnering with autonomous startup Aurora, as well as Tier 1 auto supplier Magna teaming up with Lyft to co-develop autonomous vehicle software and IP.

Meanwhile, in China there is a clear lead developing in AI and autonomous technologies, facilitated by a strong innovation-focused thrust from both central government and the private sector. This synergy is highlighted by Pony.ai’s dominance, and in Baidu’s Apollo Program facilitating open autonomous datasets being shared widely. This is also within the context of an emerging wave of well-funded Chinese players, such as WM Motor, who is poised to challenge established auto OEMs in the West.

Projection is based on actual Q1 figure, multiplied by 4 (Q1 actual deal count = 4). Source: i3.

This new sensor and software-focused paradigm is difficult for automotive manufacturers to negotiate, as they have traditionally focused solely upon design and assembly processes as their core competencies. Due to this deficiency, emerging auto OEMs like Tesla have benefited from vertically integrated offerings, and tech companies such as Google’s Waymo and Apple have looked to integrate themselves downstream in the increasingly crowded transportation value chain.

While expertise in established processes such as manufacturing and supply-chain management remain key components to success in the transportation sector, incumbents are facing a growing array of challenges to negotiate in the coming years. We expect to see continued battling between incumbents, acquisitions and partnerships between auto OEMs and innovators, and an increasingly apparent challenge from Chinese markets to Western auto hegemony.