China may be first in large-scale autonomous vehicle adoption

The promise of driving has been looming over the transportation industry for the better part of this decade, but full-scale commercial adoption of the technology is still a topic of contention. This is because there are simply too many factors that play a role in deciding the roadmap to adoption, with technology development being the lowest rung on the ladder.

For instance, government regulation/intervention would play a crucial role in the deployment of autonomous vehicles. In the initial stages, autonomous vehicles would likely be allowed to operate on highways rather than on urban streets, because on highways the vehicles would encounter less traffic and less demanding driving conditions when compared to densely trafficked and often-clogged urban road networks. Just as with vehicles driven by people, there also is a degree of risk to human life and property, which might be lower on the highways.

Passenger or goods hauling could be another differentiator, with cargo movement likely to be the first to be approved. All this being said, fully autonomous vehicles are still at least a decade away, with Society of Automotive Engineers (SAE) Level 4 being the highest possible autonomy that we can anticipate in the near future. SAE Level 4 is defined as “no human interaction required.”

Global management consulting firm McKinsey & Company released a report suggesting that China would be among the frontrunners in adopting autonomous vehicles, trumping even the West in its quest for autonomy. A survey across industry respondents in China indicated that mobility services like autonomous taxis would witness a peak adoption rate of 62 percent, followed by private premium vehicles at 51 percent, and private mass-market cars at 38 percent.

China, the most populous country in the world, urgently seeks a solution for its urban traffic woes. This is further exacerbated by the speed at which China is converting its economy, which has caused millions of its citizens to migrate to the highly developed coastal cities. The country anticipates a heavy burden on its urban roads over the coming decade due to this migration, and adopting autonomous vehicles and mobility as a service (MaaS) could remove a large percentage of vehicles from the streets.

In a world with commonplace autonomous vehicles, the need to own private vehicles would drastically decline, as the attachment people feel to vehicles would also likely decline – a perspective shift that China’s leadership is counting on to happen.

McKinsey’s report is extremely positive about the future of autonomous vehicles in China, stating that fully autonomous vehicles (SAE Level 4 and above) would be deployed en masse in China within a decade.

“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, generating market revenue of $1.1 trillion from mobility services and $0.9 trillion from sales of autonomous vehicles by that year,” the McKinsey report states. “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.”

Coexistence between the autonomous vehicles and those driven by people could be one of the problems that arise during the early adoption phase. Nonetheless, this is inevitable, and every country that looks to have autonomous vehicles on its roads would have to contend with this phase. A bigger problem that is unique to developing countries like China is the highly complicated signage and unpredictable traffic movement. This will require manufacturers to gather enough data to understand those factors, create the necessary algorithms and code and then “train” the computers guiding the autonomous vehicles on those factors before the vehicles are sent out on the streets.

McKinsey developed a sizing model to forecast China’s market for autonomous vehicles and found that the adoption inflection point would occur when the cost of the autonomous vehicle system – that includes sensors, computing platform and software – decreases to around $8,000. This, McKinsey believes, will happen by around 2025. Once autonomous vehicles reach this crossover point, adoption will accelerate as the costs associated with self-driven transport would be on par with that of human-driven transport.

“The advent of autonomous vehicles will expand the mobility profit pool in the Chinese autonomous vehicle industry by at least $60 billion compared with today’s value. Car sales will remain a large share of the profit pool in the overall value chain, at $50 billion to $60 billion,” said the report. “However, mobility services profits will grow to become 25 to 30 percent of the total profit pool and could exceed those of car sales, especially if the MaaS market were less competitive (for example, if government cooperated with mobility players). On the other hand, AV technology and system integration will produce $15 billion to $20 billion in profits, representing 50 to 60 percent of the total auto-components profit pool.”