How China will help fuel the revolution in autonomous vehicles

If the driverless-car phenomenon takes off in China, the payoff could be in the trillions of dollars.

Self-driving cars could steer China’s automotive industry into the passing lane. From driverless taxis to automated cargo trucks, autonomous vehicles (AVs) will change the nature of on-road driving and, in the process, revolutionize the automotive and mobility industries. Within this mix of opportunity and uncertainty, we believe AV players (from components vendors to mobility service providers) could earn trillions in revenues in China.

Fundamentally transforming mobility

McKinsey research suggests autonomous vehicles could, at some point, take over most of the automotive market in China. For instance, industry respondents to our survey indicate passenger vehicles used for mobility services such as “robo-taxis” will see a peak adoption rate of 62 percent, followed by private premium vehicles (51 percent) and private mass-market cars (38 percent). Mobility services will lead due to the autonomous vehicle’s expected increased utilization (close to 24/7 operation) and lower labor costs (no drivers). The same rationale puts city buses at 69 percent adoption and commercial vehicles (CVs) at 67 percent.

Autonomous vehicles will likely shift a substantial share of the mobility market value away from products (that is, buying vehicles) and toward services (that is, paying for transportation per mile). This “mobility-as-a-service” (MaaS) transformation suggests dramatic changes ahead for vehicle sales volumes, business models, and the capabilities companies will need to thrive in this new environment. In China, we believe fully autonomous vehicles (SAE Level 4 and above) will see mass deployment in nine or ten years.

These shifts will change the rules of the game across the entire mobility space, as software and databecome fundamental differentiators when building and operating cars. As such, the mobility sector will become ground zero for a convergence of industries that include automotive, transportation, software, hardware, and data services.

Today’s automakers focus on selling new cars, transportation companies on providing services, and technology players on supplying hardware and software to automakers. In the future, new business models might emerge. Technology players could buy vehicles from automakers to provide services direct to consumers. Alternatively, automakers might vertically integrate in services and software development (as leading players are already doing today). Players in these sectors must reconcile their differences in product life cycles (for example, three to four years for automotive, weeks to months for software) and business models (for instance, products versus services) to compete and cooperate effectively with each other.

Clearly, many companies already have active autonomous vehicle strategies, including technology players such as Baidu, Tencent, and Waymo and automakers such as GM, SAIC Motor, and Tesla. However, given the industry’s dynamic, fast-moving nature, players need to refresh their strategies constantly.

Understanding how China fits in

China has the potential to become the world’s largest market for autonomous vehicles. In our base forecast, such vehicles could account for as much as 66 percent of the passenger-kilometers traveled in 2040 (Exhibit 1), generating market revenue of $1.1 trillion from mobility services and $0.9 trillion from sales of autonomous vehicles by that year. In unit terms, that means autonomous vehicles will make up just over 40 percent of new vehicle sales in 2040, and 12 percent of the vehicle installed base.

Exhibit 1
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Autonomous vehicles could solve major infrastructure problems

In 2009, China passed the United States to become the world’s largest and most important automotive market, going on to consume nearly 30 million light vehicles in 2018, almost 70 percent more than the United States. This continued explosive growth is overtaxing the country’s automotive-related infrastructure, driving increased traffic congestion and pollution. Beijingers spend an average of 1.3 hours every day commuting—more than three times as much as the average US commuter. Autonomous vehicles will offer a potential solution to some of these infrastructure challenges. In the realm of shared mobility, they could reduce the number of vehicles on the road and free former drivers to work or relax en route. If powered by green electricity or hydrogen, they could also help reduce local vehicle emissions.

However, a complex environment could slow initial uptake of AVs

In the short term, given China’s complex traffic environment, autonomous vehicles must adapt to road conditions and aggressive driving behaviors, which could slow adoption. However, a review of traffic severity worldwide reveals China’s problem as one of degree, not kind. Western cities from downtown New York to Rome have similarly dense populations and levels of mixed traffic.

Consequently, the technology solution in China for autonomous driving will not differ much from those in other nations. Required computing platforms will likely conform because existing platforms feature enough “buffer” capacity to handle the more complex computing tasks required to analyze objects on Chinese roads. Sensor configurations would probably not change from region to region because current setups can cover all critical directions across very different driving use cases.

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