Why America’s Next Automotive Revolution is Coming from Silicon Valley

Posted on December 12, 2012

The cars we dream of travelling in are far from our reality today. Indeed, our automotive fleet is little changed from when they started gracing our roads about 100 years ago. They still involve a human being operating the controls.

Yes, our cars are more comfortable, more reliable and more efficient. But are they the best way to carry us around and are they an efficient way for us to use our money? Not to mention, for an environmental point of view, can we sustain growth in the use of the internal combustion engine?

Silicon Valley will Revolutionize Cars

There are two companies in the Valley today that are pointing the way to the revolution of the automobile: Tesla and Google. Tesla is innovating in vehicle powertrains, making the electric car a reality, and Google in removing the human from the controls.

As Tesla makes electric cars more reliable and more affordable, they will become increasingly the vehicle of choice for a larger public. The new Tesla S is already only about $15,000 from being competitive in the luxury segment. In 10-15 years, the price point may well get low enough to be competitive in the family sedan segment. So electric powertrains are not far from being adopted by a larger public. And this innovation did not come out of Detroit, it came out of the Valley.

The second company, that will have undeniably the larger impact is Google. Their self-driving car technology is slowly but steadily being tested on the roads of America and is getting closer and closer to primetime. Remarkably, Google’s cars have not been involved in one single accident since their introduction onto the nation’s roads.

As the technology is proven, how many people will decide that they prefer to be driven than to drive? Who will not prefer to check their facebook account during their morning commute than to take the controls of a car?

Once the technology become available, it will be adopted en masse and rapidly because the benefits to drivers is overwhelming. Mobile technology enables people to be much more entertained and efficient in their cars than ever before. Is driving really good use of your time? For most people the obvious answer to that question is no.

What Will be the Impact of Self-Driving Cars on Public Transport?

If you no longer need to drive your car, do you really need to own it? Why not just summon a car when you need it? A car can just appear at your request. You no longer need to park it, change its tires for the winter or maintain it.

Shared car pools are also economically much more efficient than car ownership, so for many people there will be huge benefits to selling their own car and subscribing to a community pool.

Small self-driving buses can also make public transport more cost effective and can allow neighbourhoods to be served that otherwise would be left without a valid option. For public transport to work, it needs to be comfortable, rapid, convenient and cost effective. Self-driving solutions make this more possible.

What will the car of the future look like?

This is a good question, and difficult to answer. If you no longer need to drive a car, will you sit in the front or the back? Will there still be a front or a back?

A few things seem obvious: most cars will be electric and self-driving. Some cars will have an option to be driven and some cars will still use petroleum products to run.

Households will gradually reduce the cars they own, going from two to one; and an increasing number will have no cars at all. This trend may be accelerated in the high-density cities of Asia where space is a premium.

Who Will Gain the Economic Value from the Car of the Future?

In the title of this post I suggested that the car of the future would come from Silicon Valley. And that is the emphasis of this entire post. Of course, that doesn’t mean that the cars themselves will necessarily be built there.

Tesla is making cars in the Valley, but today it’s a small player and in many ways is likely to remain so. Detroit, Canada and some places in the American South, Mexico and Japan are all sources of American cars. There is no fundamental reason that these manufacturing regions will change. It takes a whole ecosystem to manufacture a car, and those ecosystems are well embedded.

What will change is that the intellectual property for the most valuable parts of the cars of the future will be held in Silicon Valley. Hence the lions’ share of the profits will end up there too.

Maybe Google’s next billion dollar business will be automobiles.

What do you think cars of the future will look like?