Most people would agree that the autonomous driving technology is still in its early stage. After examining a bunch of autonomous vehicles (AV) technology companies, I come to some conclusions about the strategies of these companies. Most strategies discussed here are for autonomous truck companies, while some of the suggestions may also apply to autonomous car companies.
Stage 1: Early Development (Before market validation)
Strategy: Entering the market early and gaining first-mover advantages
Business Model: Providing pilot service by building a small-size fleet
Market Barrier: Commercial readiness — the first to commercialize the technology and provide stable regular operation.
1. No OEM would take the risk to integrate your system into their vehicles;
2. There are interest conflicts between AV companies and OEMs that are developing their own systems;
3. Few partner will exclusively collaborate with you. The partnerships are usually loose and weak;
4. Few financial institution would lend to you before you can generate revenue;
5. Little fleet operation experience;
6. High upfront investment into the pilot fleet.
1. Funding for building a pilot fleet;
2. Collaboration with OEMs;
3. Operation experience.
1. Build the fleet with your own money;
2. Provide pilot service to the end users (e.g. car rentals, logistics companies, shippers, passengers, etc.);
3. Build/keep close relationships with other stakeholders (e.g. chip suppliers, sensor suppliers, regulators, etc.);
4. Educate the partners (e.g. show the logistics companies how much cost they can save by using your technology) ;
5. Educate the public.
1. Sell a licensing idea — remember the technology is still to be validated;
2. Expect partners to purchase/provide the cars/trucks for the pilot fleet — this is not impossible but very hard.
Stage 2: Monopoly / Oligopoly (After market validation)
Strategy: Keeping the leader position (R&D, marketing, and service, etc.)
Business Model: Licensing hardware design to OEMs + Selling a service contract (e.g. autonomous driving system maintenance service) to customers (e.g. shippers, logistics companies)
1. Safety level of AV system;
2. Cost-saving efficiency of AV system;
3. AV-related service price;
4. AV-related service quality;
5. Scale of business.
1. Difficult to keep the leading position;
2. Difficult to protect IP in some markets.
Resource Bottleneck: Talents
1. License to and customize for different OEMs;
2. Provide AV-related service to users;
3. Keep the product and the service competitive on the market;
4. Keep/increase R&D investment;
5. Keep good record on safety to protect the down side;
6. Outsource low-margin parts of the business;
7. Prepare for technology saturation.
1. Lose the talents due to internal problems (e.g. company culture);
2. Have severe accidents caused by the system.
Stage 3: Saturated
Strategy: Increasing the barrier or leaving the industry
Business Model: Integration — better/cheaper/new products/services
- Downstream Integration: Providing transportation/mobility service with own fleets (competing by better transportation/mobility service or lower price)
- Upstream Integration: Selling autonomous cars/trucks (competing by better product or lower price)
1. Fleet management efficiency;
2. Transportation service price;
3. Transportation service quality/value-adding features.
1. Shrinking business;
2. Difficulties in integrating organizations (Software company + Hardware company; small company + big company);
3. High upfront investment with a potential low margin.
Resource Bottleneck: Integration target
1. Leave/transit early;
2. Find the best company to merge/acquire early;
3. Gain manufacturing/operation experience as early as possible;
4. Seek to be acquired early;
5. Secure necessary capital early.
1. Keep investing in the shrinking business;
2. Compete through pricing war (not a good choice if the technology has become a commodity);
3. Ignore new opportunities.
Stakeholders’ interests in the development stage (before market validation)
Medium to high. Large OEMs want to secure a leading position in the AV competition through a wide collaboration with different developers. However, it is not easy to build a close collaboration with OEMs because (1) some OEMs are developing their own AV system (2) OEMs usually have a corporate culture, which slows down the collaboration-building process.Moreover, different interest groups within OEMs, and therefore the collaboration-building process can be very vulnerable once it receives opposition from one of the OEM’s internal departments.
Medium to high. Only large shippers (e.g. Amazon, Walmart) have interests in adopting the technology. At the early stage, they care more about the “firstness” rather than the cost-saving benefits or the minor technology advancement. It is reasonable since they might benefit more from the stock market for being the first adopters than from the technology itself.Unlike OEMs, shippers will have low costs and low risks when trying the AV technology, as they can just use the AV fleets as regular 3PLs. The collaboration process will not cause much extra changes/coordination for shippers. Therefore, it is generally not difficult to sign trial delivery contracts with shippers.
- Logistics companies
Medium. The logistics companies have rich knowledge about the trucks. They understand trucks well and care most about the potential cost-saving benefits (e.g. saving fuel and tires). As these companies know they will eventually use the technology, they are primarily interested in learning about the details of the technology and evaluating the exact potential cost-savings.However, the collaboration model between AV companies and logistics companies is still unclear. It is possible that logistics companies outsource some loads to the AV companies’ pilot fleet to test the technology. It is also possible that logistics companies’ leasing department will help financing/leasing trucks to the AV companies.
Medium. The tier-1s also view adopting the AV technology as a good chance to increase their market share and to expand their business (e.g. supplying the AV system as another “auto part” to OEMs). At the early stage, the tier-1s will not benefit from the AV technology directly except for learning more about the details and making a better preparation for the futureLike OEMs, tier-1s will primarily focus on building partnerships for co-R&D, and the process will be very slow as tier-1s are also usually large corporations with different interest groups and with a slow internal process.
High. Since there are more and more companies developing autonomous driving systems, the regulators need to carry out the new regulations that will guide the AV companies. For example, USDOT and NHTSA are hosting public listenings for their AV 3.0. Moreover, due to the high demand of AV testing and the accidents from the previous testing, the public are highly concerned about the regulations, forcing the regulators to facilitate the law-making process.
High. Since the AV technology is relatively more commercial-ready than the other disruptive technologies such as blockchain, investors have been actively keeping a close eye on the AV industry for a long time. Investors are primarily caring about the time to go to market. Real contracts (clients)/trial operation hours or miles/recurring revenues are the proof of the readiness to market.
Recommendations on AV companies
1. Allocate resources strategically
At this stage, stakeholders such as shippers and investors still care about being the first adopter over any other potential benefits of the AV technology. Therefore, it might not be a good strategy for an AV company to primarily market its technology as the most cost-saving or the safest or the cheapest to make. Similarly, companies should also not address too much on some non-crucial technology advantages such as super-long-range perception.
Instead, the AV companies might want to finish developing a full workable system (MVP) first and gain as much as possible operation experience. To achieve this goal, the AV companies need to allocate resources strategically — allocate the limited resources to develop the crucial missing components rather than improving the non-crucial performance.
2. Solve the right bottleneck
Though contracts from shippers can make investors excited, signing these contracts is not the real bottleneck. The real bottleneck for the AV companies will come from the financing for the pilot fleet. On one hand, banks will only lend you when you generate revenues. On the other hand, to keep the liquidity of the limited funding, AV companies might not want to put a large portion of its money into fixed assets.
Therefore, to solve the bottleneck, AV companies need to find other funding sources/vehicle sources to build the pilot fleet, or they can consider starting with a small fleet with five to ten trucks.
3. Get ready for business
Some AV startups are founded by some techie people who are really passionate about inventing the best AV technology in the world. However, solving the most complicated math problems does not necessarily mean building a good business. As the market is getting more and more crowded and the differences in technology are not fundamentally huge, how to transform the disruptive technology into a good business is becoming a crucial challenge for the techie founders. If the first and the second recommendations are about the strategies, this recommendation is about the mindset.