Roadblocks ahead for AD valuation outlook

Cruise San Francisco collision illuminates challenges for the public acceptance key to building profitable business models

Roadblocks ahead for AD valuation outlook
Cruise accident raises question marks over the pace of AD rollout and monetisation

A traffic collision involving a Cruise ‘robotaxi’ has shone light again on the barriers to building out —and unlocking value from — the autonomous driving (AD) sector, just a week after California regulators approved an expansion of AD robotaxi services in San Francisco.

Autonomous vehicles have been the focus of predictions of significant value growth. But the outlook for full AD technology is often collated together with revenue expectations for more limited advanced driver assistance systems (ADAS).

Engineering heavyweight Siemens, for example, in a recent whitepaper said that “the growth of the autonomous vehicle market is forecast to be worth $7tn of new economic activity by 2050”. Consultancy McKinsey forecasted recently that AD and ADAS could generate $300-400bn in revenue by 2035.

But it is important to note that McKinsey’s outlook includes revenue generated by Level 1 and 2 ADAS, as well as Levels 3, 4 and 5 AD. Levels 1 and 2 refer to advanced cruise control systems such as those offered by many OEMs, including US rivals GM and Ford with their Super Cruise and Bluecruise products.

Level 3 refers to cases when a vehicle drives automatically, except for certain dynamic manoeuvres, for which it may ask the user to take control. Levels 4 and 5 refers to fully automated self-driving in which the user will never be asked to take control.

Level above

Level 4 and 5 are into the realm of the robotaxi, such as the driverless cars deployed in a ridehailing business by Cruise, which GM acquired in 2016, in San Francisco. The non-AD incumbents in this field, Uber and Lyft, generated $72bn in gross bookings in 2022 — revenue into which driverless rides will aim to eat.

“The ridesharing market in the US has experienced significant growth in the past five years, approximately doubling. It is projected to continue growing rapidly. Automated ridehailing services (ARS) will increasingly cannibalise this market and expand the combined ARS market even more as prices decline substantially,” says autonomous vehicle analyst Michael McGrath.

But radically new tech like driverless taxis will doubtless take time to be normalised in consumers’ minds. Especially with respect to the safety of these vehicles.

On Thursday, a Cruise robotaxi collided with an emergency vehicle, injuring a passenger. The Californian Department of Motor Vehicles immediately ordered a recall of half of the Cruise fleet until an investigation is concluded. Cruise stresses, however, that the robotaxi involved was working as intended.

“The AV positively identified the emergency vehicle almost immediately as it came into view, which is consistent with our underlying safety design and expectation,” says Cruise general manager for San Fransisco, Greg Dieterich. “The confines of this specific intersection make visual identification more challenging — for humans and AVs alike,” he adds.

Dieterich’s comment highlights that, no matter how much safer an AD vehicle is compared to a human-driven one — Cruise claims an overall 54pc reduction in collisions — there will always be some collisions. A safer system will reduce the number of collisions but is unlikely to eradicate them. Furthermore, any collision involving a driverless car is likely to set back any reduction in scepticism or even fear of AD in general, even if there are significantly fewer incidents overall.

Regulators and company legal departments are also mired in lengthy discussions about liability for damages or injury in any incident involving an AD vehicle. Firms like Cruise and Waymo, the AD subsidiary of tech giant Google, could face valuation headwinds if any incident is found to be caused by a non-compliant AD vehicle.


McKinsey’s report points to the need for fresh sales and marketing strategies to capitalise on the revenue opportunity of AD, which do not solely focus on safety. But Cruise has thus far largely focused on safety statistics in comparison to human drivers, including an advertisement in several major newspapers reading, “humans are terrible drivers; 42,795 Americans were killed in car crashes last year”.

As well as its 54pc fewer total collisions statistic, Cruise also touts 92pc fewer collisions in which its AV was the primary contributor. Cruise’s safety data also suggests that 94pc of collisions involving its cars “were caused by the other party”.

Similarly, Waymo’s marketing cites worldwide and US road deaths, saying that its AI trained “world’s most experienced driver” is the answer.

Changing attitudes

According to data published by McKinsey last month, consumers are becoming more interested in Level 4 or 5 features for shared mobility. Nearly 50pc would give up their private cars entirely if shared AV services were available in their hometowns, and 81 percent are open to sharing an autonomous shuttle, it found.

But there is perhaps less enthusiasm among those who still want to own their own vehicle. Another McKinsey survey in January found 51pc of car buyers open to switching to “some version of a fully autonomous vehicle” in the future, referring to a Level 3 vehicle. But only 19pc were open to switching, for a vehicle of their own, to a full AD with no manual drive option whatsoever, i.e. Levels 4 and 5.

And consumer confidence in AD as a whole may be volatile amid media coverage of collisions involving driverless vehicles, such the Cruise incident in San Francisco this week.

OEM ambition

Outside of GM’s investment in Cruise, the wider OEM industry appears less excited at this stage about Level 3 and 4 AD capabilities and is focused more on Level 1 and 2 ADAS. Exceptions are Germany’s Mercedes, which has licenses for Level 3 AD for German motorways and in Nevada, and, arguably, US OEM Tesla — although there is significant industry debate on whether its CEO Elon Musk’s talk of what he calls “full self-driving” (FSD) will ever be genuinely AD in its current form and on current Tesla models, or just very good ADAS, sometimes called L2+.

According to a January report by smart mobility encryption services provider Autocrypt, “most major automotive OEMs have mastered their technologies for L2 autonomy”. “As of the beginning of 2023, L2 driver support systems include Tesla’s Autopilot with FSD, Audi’s Traffic Jam Assist, GM’s Super Cruise, BMW’s Extended Traffic Jam Assistant, Ford’s Bluecruise, Hyundai’s autonomous driving package, and many more,” the firm says.

“Although the technology for Level 3 AD might be ready, many OEMs are not yet prepared to officially claim L3 for legal reasons. This explains why Tesla uses the name FSD to market its L2 driver support systems without mentioning L3 autonomy.

“Some OEMs use the term ‘L2+’ to show that their technological capabilities have surpassed L2, yet do not claim L3,” the report continues. “We definitely see the Level 2+ product as revenue-generating and profit-generating,” GM CEO Mary Barra told analysts at her firm’s Q2 results.

For now, most OEM value expectations are built around Level 2 ADAS, although, again, Musk’s rhetoric is around the value of peer-to-peer robotaxi sharing. After material investments into the technology — GM, for example, plunged $2bn into Cruise in 2022— for Level 4 robotaxis to become proftibale, experts say there must be greater emphasis on rethinking how the vehicles will generate revenue.

“The real change happens when robotaxis offer what was never possible in both private cars and taxis, including prices no taxi can beat, entirely different styles of pricing and previously impractical modes of service,” says AD expert Brad Templeton.

The optimism of Cruise’s own outlook, which guide towards $1bn in revenue by 2025 and $50bn in 2030, will also rely on gaining licensing to expand into other cities, as well as expanding the licenses for its other ongoing pilot schemes in Austin, Dallas and Houston in Texas, Phoenix, AZ, Miami, FL, Nashville, TN and Los Angeles, CA. But “the long-term goal for the robotaxi is not just to be a clone of Uber, or even a modestly cheaper Uber”, says Templeton.

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