Volkswagen cars are stored at the CarTowers in the theme park, Autostadt, next to the Volkswagen plant in Wolfsburg, March 12, 2009.
Christian Charisius / Reuters

When Sadayuki Tsugawa, a now-retired Japanese engineer, began working on so-called intelligent vehicles back in the 1970s, only a few researchers around the world were interested in developing the technology. Even the Japanese government, which funded his labors, was initially skeptical of such pie-in-the-sky pursuits, particularly at a time when domestic automakers like Toyota and Nissan were still playing catch-up against U.S. and European competitors.

Tsugawa, however, was drawn to the idea of being on the cutting edge. “It was the frontier of engineering at that time,” he explained to me in June. In 1977, several years after joining the Mechanical Engineering Laboratory under Japan’s Ministry of International Trade and Industry, Tsugawa and his small team of researchers turned a black Toyota sedan into what some experts now credit as the “world’s first autonomous car.” Equipped with two analog cameras, the vehicle could “see” and process images as it traveled up to 20 miles per hour down a test track.

Tsugawa went on to win awards for his research, including one from the Japanese government in 1999, but in many ways, it’s only now that his decades of work on intelligent vehicles is getting the wider affirmation it deserves. 

THE DRIVERLESS BOOM

Today, rarely a day goes by without a headline about autonomous vehicles and the powerful companies racing to develop them. And it’s not hard to see why. In the United States alone, the country with the most registered vehicles, people travel more than four trillion miles each year, the vast majority by car. The average American family spends more money on transportation each year than on anything else except their home.

The competition to develop self-driving cars is all the more fierce as manufacturing behemoths like Ford, Toyota, and Daimler square off against auto industry upstarts like Tesla and tech heavyweights like Alphabet, Uber, and Baidu. New entrants seem to be joining the fray every day. Scores of companies around the world, including many startups, are working on self-driving cars and related technologies such as digital mapping, artificial intelligence, and liDAR, which uses lasers to measure distance. In the state of California alone, which is a hub for the technology, three dozen firms are currently testing their creations.

The entrepreneurial boom has set off a wave of corporate acquisitions, alliances, and strategic investments as incumbents weigh how much of this engineering mountain they are prepared to climb alone. Major deals in the last six months include Ford’s $1 billion investment in Argo AI, a Pittsburgh-based self-driving startup; Intel’s $15 billion acquisition of MobileEye, an Israeli vision system maker; and Google Waymo’s partnership with the ride-hailing firm Lyft.

nuTonomy

In converting the drivers of today into the passengers of tomorrow, autonomous vehicles hold the potential to transform civilization on a scale not seen since the automobile supplanted the horse as the primary mode of human transport. Everything from where people live and work and what they eat to where they vacation and how they go to war could change dramatically as driverless technology emerges. The disruption will touch nearly every individual, industry, and nation, but there will be winners and losers. 

Automakers have for years been introducing what the industry calls advanced driver assistance systems (ADAS), which can detect blind spots, provide emergency braking, and assist with parking, among other things. But most are now planning to market vehicles by the early 2020s that can drive without any human intervention in limited conditions, like on highways. Highly autonomous vehicles, which require even less human touch, are expected to arrive shortly thereafter.

Despite the hype, the rollout of highly autonomous vehicles will proceed gradually and depend on more than just overcoming some difficult engineering challenges. Even if the technology is proven to be safe, effective, and affordable at some point in the near term, it will likely be many more years, perhaps a decade or two, before it breaks through to the wider marketplace. Moreover, recent research indicates that it may be a good while before the public is comfortable with driverless vehicles zooming through their neighborhoods. A study by Deloitte earlier this year found that consumers in some of the largest economies remain wary of fully autonomous vehicles, with three-quarters of those in the United States saying that they “will not be safe.”

Industry leaders expect the public to hold autonomous vehicles to a higher safety standard than human drivers, although how much higher is unclear. “We simply don’t know how much safer autonomous driving needs to be for the public to accept it,” said Gill Pratt, who leads Toyota’s development of self-driving vehicles, at an industry symposium in July.

And then there are prickly questions about legal liability. Who’s responsible in the case of an accident involving an autonomous or semi-autonomous vehicle? The driver? The automaker? Or the supplier of the vehicle’s guidance systems? Many legal experts believe that liability will ultimately shift from drivers to manufacturers—another reason for these companies to proceed with caution.

Yet despite these headwinds, a new era of transportation is on the horizon. Many auto executives believe the industry stands at an inflection point akin to when Henry Ford introduced mass production at his factories a century ago. “Volkswagen must change,” CEO Matthias Müller said at a conference in May, “because our industry is going to change more deeply in the coming ten years than in the 100 years before.”

Alongside advances in autonomous driving, other disruptive trends are coming of age, such as ride sharing, vehicle Internet connectivity, and electrification. Electric cars still represent a tiny fraction of the market, but they are gaining ground against the internal combustion engine because they run more efficiently, are easier to manufacture, and are more compatible with the software-driven future of the industry. Many major manufacturers are now moving to ramp up production of electric vehicles. This summer, Volvo became the first legacy automaker to fully commit to the electric motor, announcing that it will produce only electric and hybrid cars beginning in 2019. Meanwhile, Tesla has started production of the Model 3, its first e-vehicle for the mass market.

As these technologies converge, a new business model is rising—“mobility as a service”—that many believe will eclipse the vehicle ownership model that has for generations undergirded the auto sector and its galaxy of suppliers, dealers, and service providers. The future of transport, particularly for urban and suburban commuters, will be on-demand, shared, electric, and autonomous.

Rather than spend tens of thousands of dollars on a car and let it sit idle more than 90 percent of the time, which the average car does, most will opt to order up a ride on a mobile app when they need one—and be grateful they don’t have to bother with insurance or maintenance or parking. A small portion of consumers is still expected to buy vehicles in the driverless future, but many will also share ownership or loan their vehicles out to generate income.

THE WINNERS AND LOSERS

It is still unclear just when and how big of a disruption self-driving cars will be, but it’s easy to see, even at this early stage, that there will be winners and losers. In the former camp, hundreds of millions of ordinary drivers will benefit from time and money saved. The elderly and those with disabilities will regain some autonomy, particularly those in suburban or rural areas without access to public transport. The autonomous vehicles of the future promise to be much safer and more efficient than those piloted by humans today, which means fewer traffic deaths, less congestion, and less energy consumption. Given the prevalence of cars and trucks, even small improvements will have major effects. Globally, more than one million people die every year in traffic accidents, close to 90 percent of which are caused by human error. In the United States, transportation accounts for about 70 percent of total petroleum burned and produces about one-third of carbon emissions.

Those in the latter camp include those working as professional drivers who may lose their jobs. Indeed, autonomous taxis, trucks, and buses are expected to penetrate markets first, with some analysts projecting that half of commercial fleet vehicles will be driverless by the end of the next decade. Freightliner has already executed an experimental driverless cross-country voyage of an 18-wheeler, while companies like Uber, Waymo, and nuTonomy are already testing autonomous taxi services in select cities.

In the United States, this means that some four million jobs will gradually disappear. Roughly three-quarters of those drivers are behind the wheels of trucks, and economists note that trucking has long been one of the best-paying jobs for those without a college education. Additionally, taking these drivers off the streets will likely threaten the various businesses and communities that support them along their routes, such as truck stops, motels, and roadside diners.

nuTonomy

The driverless disruption will ripple across most industries, from energy to real estate, but it’s difficult to say which sectors—and which companies within them—will rise or fall. For the incumbent automakers, fear of the future is palpable. They must not only navigate a potential decline in vehicle sales if people buy fewer cars in the shift to driverless cars but also a fundamental shift in their revenue model. There will simply be less money in assembling the autonomous, electric vehicles of the future than in supplying their components or in providing travel-related services to passengers, many analysts say.

The worry for some of these automakers is that they will go the way of legacy mobile phone makers like Nokia and Motorola. With the advent of the iPhone in 2007, these companies failed to shift their focus quickly enough from hardware to software and went from market dominance to irrelevance in a matter of years.

Auto industry stalwarts have made a rhetorical shift in an attempt to prepare for what’s coming, referring to their brands in terms of “mobility services,” but making the risky investments and deep structural changes needed to compete in a shifting market will be a much heavier lift. Most incumbents, however, have at least committed to some bold experiments with new products and services, such as BMW’s ReachNow car-sharing and rental service. They are also scrambling for strategic partners, as noted above, and prioritizing research and development. Last year, Toyota opened one of the largest research facilities in Silicon Valley, where the Japanese automaker is focusing on robotics and artificial intelligence, among other things.

Some analysts say that, taken as a whole, the auto industry stands to benefit as a result of the driverless disruption, noting that manufacturers should expect to sell more vehicles over time because of higher utilization arising from the growing ease and decreasing cost of road transport. “Those who are well-positioned and can benefit from these trends will be better off than they would be under the status quo,” said Andrew Horrocks, an automotive industry expert. “There will be winners among the auto industry. The question is: who will they be?”

A cloud of uncertainty also hangs over relative industry newcomers like Tesla and tech-oriented firms like Uber, Apple, Baidu, and Samsung. Although Tesla remains a darling on Wall Street, briefly topping General Motors to become the most valued US carmaker this past April, Elon Musk’s company has yet to turn a profit and has a long hill to climb before it can come close to matching the manufacturing scale of its competitors. Tesla produced less than 100,000 vehicles last year, while Toyota and VW delivered more than 10 million.

What’s more, Tesla will have to master global supply chains, lean production methods, and complex regulatory regimes, which does not happen overnight. These and other formidable challenges associated with making and marketing a product with thousands of parts will keep a number of would-be competitors at bay. Even some of the most powerful Silicon Valley companies will decide that actually manufacturing their own vehicles is a bridge too far.

AN UNEVEN DISRUPTION

The driverless disruption will not affect each nation in the same way. All states that embrace autonomous vehicles will reap rewards in terms of lives saved from both traffic- and pollution-related deaths. China, the world’s largest and fastest-growing automobile market, stands to benefit most in this regard.

Not all will come out ahead in the shift to mobility as a service, however. The risks are especially high for countries where motor vehicles are a leading export, including Germany, Japan, South Korea, and the United States. Automaking has for decades provided these states with a reliable stream of foreign income, manufacturing jobs, and national pride. Any slide in the numbers would likely have both economic and political consequences.

Moreover, as the electric motor supplants the internal combustion engine, petrostates like Nigeria, Russia, and Saudi Arabia stand to suffer economic decline and political unrest unless they can diversify. Some energy executives predict that “peak demand” for oil may be only a decade away. The United Kingdom and France plan to prohibit sales of gasoline and diesel engines by 2040.

Given the stakes, a growing number of national and local governments are moving to embrace autonomous vehicles. Policymakers from Pittsburgh to Singapore are opening their public roads for testing, while others are constructing entirely new spaces for research and development. This fall, South Korea is set to open the “world’s largest test bed for self-driving cars,” where the likes of Hyundai and Kia can work out their technology.

Few governments are throwing more energy into autonomous vehicles than Japan, which is planning to showcase its cutting-edge transport systems at the Tokyo Olympic and Paralympic Games in 2020. Japan’s government ministries plan to test the technology in 30 cities throughout the country in the lead-up to the event.

Looking at the state of the technology today, Tsugawa is somewhat less than impressed. He expected the industry to be much further along in developing intelligent vehicles than it is. “Of course the performance has improved,” he said, “but the principle is well known and not essentially new.” Still, the engineer says he doesn’t expect fully autonomous vehicles to come within his lifetime. “For vehicles to operate under any conditions, it will be far in the future, after 2050.”

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