03 Dec 2021

The Great Autonomous Automobile Race

Global Insights
Who’s winning the race in autonomous driving in China? What do automakers need to do to emerge victorious? A new report from Citi Research’s Jeff Chung steers a course through the defining questions of the moment in advanced automobile tech innovation.

The race is on in autonomous driving. And it's a marathon, not a sprint. According to findings by RAND Corporation, autonomous vehicles would need to be test-driven for 275mn miles in order to demonstrate a failure rate of 1.09 fatalities per 100mn miles with 95% confidence. This underlines how important data collection is for autonomous driving.

Failure Rate Per Test Driven Miles

Source: RAND Corporation

Other research by Carnegie Mellon University notes that it will take another 10-20 years until autonomous driving can reach safety levels comparable to airlines, which means it will be a long-time investment (and time-frame for cash burning) for companies to reach safe and mass-adoptable autonomous driving technology.

Given the cumulative test miles and data needed by a single entity (or a partnership that shares the data) to produce safe autonomous driving technology, Citi researchers say it makes more sense for 3-5 big players (or partnerships) to develop this technology until the end (with a 0.000001% failure rate) rather than for many players to investing in the technology (and ending up with a 0.1% failure rate due to inadequate data). Players able to collect more data will have a strong advantage over players that are in an earlier stage of data collection. This could be expected to help:

  • optimize R&D costs without the wastage of start-up costs for each operator in the beginning, helping to save society’s resources;
  • speed up technology development with high volume of data per platform, enhancing global competiveness (both in cost and time);
  • make it easier for governments to manage and control safety on their roads.

Citi researchers have developed two unique theses.

  • Argument 1: R&D efforts in autonomous driving technology will eventually lead to the industry consolidating from many players to just a few, for the following reasons:
    • It is not hard to become a researcher into autonomous driving technology but only a few players will deliver truly safe and fully autonomous driving technology;
    • Weaker macro backdrop will speed up consolidation;
    • The Chinese government will likely promote consolidation for more efficient technological advancement;
    • Higher levels of autonomous driving also require centralized E/E architecture, which is no easy feat; EV makers have advantageous positioning in this industry consolidation;
    • Level 2 success does not guarantee Level 3-5 success.

Autonomous Driving Technology Investment – By Investor Type And Technological Area Of Investment

Source: Alixpartners

  • Argument 2: Amid the industry consolidation, New Energy Vehicle (NEV) makers will eventually emerge as champions with the best Advanced Driver Assistance System technology due to:
    • Sales of NEVs with ADAS configurations will be ubiquitous by 2025E;
    • The upside of driving intensity of NEVs will facilitate ADAS’s penetration;
    • Accumulation of ADAS-enabled driving mileage will provide OEMs with robust test data for algorithmic training for ADAS upgrades;
    • Application of ADAS in robotaxi will become an additional revenue-generating channel;
    • National Incentivizing Policy for NEV Battery in China provides continuing policy and technical support for ADAS-enabled growth;
    • EV manufacturers with FOTA (firmware over the air) capability have a huge advantage in this race;
    • NEV makers have an advantage of the highest ADAS mileage accumulation.

Citi’s key conclusions from this analysis are that autonomous driving R&D will inevitably consolidate the industry into a smaller number of sector leaders (for the reasons listed under Argument 1) and that NEV makers will emerge as the champions in this race due to their numerous competitive edges.

Weaker macro and stricter regulatory backdrop will speed up consolidation

Further, the investment into autonomous driving technology (see the chart below) has slowed from the previous pace on the back of:

  • Covid-19 and related challenges (semiconductor and component shortages, raw material hikes) which have dampened the profitability and resources of auto companies;
  • Persistent regulatory and political uncertainties weighing on the financial capability of tech and internet companies. We expect the muted economic backdrop coupled with escalating uncertainties will force smaller players with inadequate resources to exit the race.

Global Cumulative Autonomous Vehicle Investment Has Slowed Since Covid-19

Source: Alixpartners

Meanwhile, in the U.S. automakers deploy next-gen electrical architectures on both ICE and EV platforms, in order to gain connected data and other advantages, including the ability to rapidly scale L2+ systems. Data advantages in doing this could also come from mapping capabilities, for example, gaining a deep understanding of local driving paths (in relation to specific scenes/scenarios).

Citi’s research and analysis underlines that the race for dominance in autonomous driving is far from over and has several laps to go across the globe. For more information on this subject, please see the China Autos & Tech report published Nov 18th. And for further reading, please see Citi’s Car of the Future GPS.

Citi Global Insights (CGI) is Citi’s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click here.


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