Self-Driving Cars: It's a New World

June 27, 2016

The unveiling of the LeSEE concept car is not only the latest in a string of fast-moving technology advances, but a signal that the battle for a share of the multi-billion dollar autonomous marketplace has gone truly global.

Autonomous, or self-driving cars, threaten to have an even greater impact on the auto industry than the electric car. In fact, according to Mizuho analysts, a ramp-up towards full automation could take place within the next 10 years. That’s exciting and a much more rapid adoption than has been the case for battery-operated cars, which have been in production for nearly two decades. There are many reasons for this, including the ability for the market to evolve without a seismic disruption to the current operating model.

As a result, the race to automation is international and open. New market entrants – such as Google, Uber, Apple, Tesla, LeEco/Faraday Future and Baidu – are facing off against the old guard, while a growing role is emerging for automotive suppliers, particularly in the U.S. and Japan. Mizuho analysts believe that this is positive for stocks such as NXPI, CY, TXN, ON, QCOM, and INTC, as well as sub-system suppliers such as Continental, Autoliv, and Magna. The same is true for suppliers in Japan, according to a detailed report from Mizuho, one of the largest global financial institutions, released in April 2016.

At the heart of the move towards autonomous – or self-driving cars – is the convergence of technology and manufacturing expertise, providing a goldmine of opportunity for Big Data, artificial intelligence, 3D-mapping, and other specialist skillets. It is indeed a new dawn for the automobile.

Why now?

The current drivers of the advanced driving assist systems (ADAS) are detection and braking tools; and they are in high demand. According to the Mizuho Global ADAS Primer, global auto sales grew by 4-5% in 2015, while ADAS units grew 13% year-on-year. These active safety devices are now becoming widely available in all models, down to even budget-level cars, trucks, and utility vehicles. Take the Nissan Quashqai, a popular small utility vehicle sold in the UK, for example. For less than £500 (~$750 USD), owners can add traffic signal recognition, lane departure warning, forward emergency braking, and high beam assist. These levels of technology are fast becoming as ubiquitous as Wifi, and will soon be expected by most new car buyers. 

The gas being poured on this furnace of activity are the needs to reduce accidents and control environmental emissions. This is for good reason. Astonishingly, it is expected that road traffic accidents will be the leading cause for loss of healthy lives by 2030, according to the European CAFE commission. As disturbing, 97% of accidents today are caused by human error. To add fuel to the fire, 50% of pollution by 2020 is expected to come from mobile sources. 

But while the demand is there, the push towards safer, more active safety systems still has a few years to go before it can compare with the universality of autopilot on a modern commercial jet, for example. 

The road to automation

At this stage, automation is in its early-stage growth phase, and with a wide range of industry participants seeking a role in this drive towards full automation, most countries have established a framework to oversee its introduction. In the U.S., the National Highway Traffic Safety Administration (NHTSA) defines the five stages as:

US Automation Benchmarks
Level 0 No assist Driver only. No vehicle autonomy warnings
Level 1 Foot-free Assisted. Vehicle provides driver info, warnings, longitudinal guiding
Level 2 Hands-free Partial automation. Vehicle integrates detection, responses, lateral giving
Level 3 Eyes-free Conditional automation. Vehicle monitors, driver takes control in emergency
Level 4 Mind-free High automation. Vehicle handles all tasks in specific situations
Level 5 Driver-less Full automation, connected vehicles

Source: NHTSA, Autoliv

While most cars are in the Level 0/1 stage, the Mizuho analysts expect the majority of new automobiles to be partially automated by 2020, operating in the Level 2/3 range. Full automation is not expected until around 2040 or so, largely due to the need for deep-rooted regulatory reform, as the driver is currently responsible for the legal behavior of the vehicle.

How Electronics Suppliers Benefit

But the opportunity for suppliers is immediate. Mizuho expects ADAS to be an almost $6bn market by 2019, up from ~$2bn today, a compound annual growth rate of 23%. This translates into a huge shift in the role of electronics in the price of a car. According to PWC, as recently as 1980, electronics only represented around 10% of the manufacturing cost of a car; by 2030 that is expected to be 50%. This opportunity is going to drive electronic and semiconductor business in the future, ushering in a new era of safety and environmental innovation.

While ADAS is a multi-year global trend, according to ABI Research, Western Europe represents the largest market for ADAS. It is estimated that Mercedes-Benz, Volvo, and BMW accounted for over 50% of consumer vehicles sold with at least one ADAS in Western Europe in 2014.

The end-game

There is no doubt that we are headed towards fully-autonomous driving. Consumers are embracing the new technologies that are arriving at a rapid pace, which is fueling the research and development at major parts suppliers, eager for a slice of the multi-billion dollar pie. Meanwhile, as the industry becomes more automated and Big Data allows more sophisticated analytics and connectivity, firms like Google are succeeding in addressing many of the technological and logistical barriers that have prevented driver-less vehicles. When the regulatory barriers begin to crumble, the revolution will truly be in full swing.

To learn more about the move to autonomous cars and the opportunities this is creating for electronics and semiconductor suppliers, see the full Mizuho Global ADAS Primer. Login to the US Equity Research Portal

Simon Hylson-Smith is a former financial industry editor and currently CEO of Paragon.

Simon Hylson-Smith

CEO, Paragon

Simon Hylson-Smith is a former financial industry Editor and currently CEO of Paragon.

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