The path ahead for the auto industry
The Careems and UDrives of the world have disrupted the car market, even in cities and countries designed for owning cars, like the UAE. Public transport, such as metros and trams have done their bit to make commuting easier, greener, more predictable — and in many cases faster during peak hour traffic.
However, with the launch of on-demand cabs and cars-on-hire, there is virtually no need to own a car and be bogged down by EMI commitments, breakdowns, parking charges, fuel costs, repair costs, and insurance fees. They have become so easy to avoid!
The ride-sharing economy has seriously within the segment. Even insurance companies are focusing their auto insurance sectors from individual customers cars to fleets of cars. Competing in the zero sum market of individual car insurance continues to marginalise profits. But the B2B sales of fleet insurance is growing to become a lot more profitable, according to Roland Berger.
B2B sales of fleet insurance is growing to become a lot more profitableRoland Berger
There is no doubt that car commutes are becoming a service. The MENA region’s largest acquisition till date is in this sector, with Careem being bought by Uber for $3.1 billion. Although, its IPO fell beyond expectations as the unicorn is running at a loss. Of course, the trade war and growing market uncertainty did play a role there.
Uber reported an operating loss of $3 billion in 2018 after losing more than $4 billion the prior year. Clearly even these unicorns in the sector are not doing as well as we expect them to after 10 years of setting up. Investors will say a different story, as venture capitalists focus on growth and market share more than profit in the initial years. But when and how could these startups increase revenue, reduce operating costs and turn profits?
One answer is by partnerships. Swvl, Egypt’s largest bus-hailing service, has partnered with Ford, wherein it will only use the US auto giant’s vehicles for transport. A win-win for both parties. We have seen such partnerships, albeit not exclusively, in many other forms with traditional government set-ups. Dubai RTA taxi for example, majorly uses Toyota vehicles.
Looking 10 years into the future, we might be closer to having self-driving cars, but still a long way off to give up controls entirely to cars that are essentially a computer on wheels.
While many expect big tech to make its own vehicles and brand them accordingly, it may not be the case. See, building a car is really hard, and the big manufacturers who have been in the business for a long time, have better expertise in the field. They might not be the ones you’d trust with AI, but that’s where big tech companies come in. Partnerships here are more likely to help bring driverless cars to our streets.
Guess what, it’s really, really difficult to produce a car. What Apple and Google will have to do is either collaborate or hire the greatest minds.Marek Reichman, Chief Creative Officer of Aston Martin
Even if we do see some self-driving cars, it will take them years to build stable smart cars that have a long life. Think about how often do you need to replace your phone or laptop. Now imagine a machine as big as your car, with more delicate parts. How long will that last?
In its initial years, most often they’ll tend to malfunction, have hacking, battery, speed, safety and a number of other issues—simply because it will have more delicate parts that can easily malfunction. It will be at least 10 to 20 years before we have stable driverless cars. Expertise from older car manufacturers will certainly be essential to make these safer.
Having said that, it would help to remember that tech advances exponentially with time. That means, we will see more disruption in the auto industry in the coming 10 years, than we have seen in the past 50. Car manufacturers that rely on individual customers could see their focus majorly shifting towards B2B partnerships with tech companies and startups.
This disruption will be driven by four key factors: autonomous, connectivity, electrification, and ride-sharing. That latter bit is a big one, at least currently; which is why Uber still has the investors’ trust, that’s why Careem’s received the biggest acquisition amount Middle East startups have seen to date, and the reason why UDrive and Ekar in the UAE are doing so well.
It would be safe to assume the future of cars is electric and autonomous, where AI will play a huge role. The industry sister products will evolve with it as well; we could see usage-based insurance, intelligent traffic signals, and AI supported parking space reservation and management.
In either case, more B2B car and tech partnerships are on the horizon. And when the day comes where driverless cars form the majority of the ones on the street, we could even think about sending the cars to perform errands or drive children to school.
What is now only an imagination spurring fear of safety, could very well be satisfied as tech provides us with enough evidence over time to trust it with our lives. The traditional auto industry, however, needs to be open to change, even in the light of doubts, fears, and uncertainty. Only then will it be able to move with the times, and stay ahead of the tech curve of disruption.