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Will Buyers Pay For Autonomous Cars?

This article is more than 6 years old.

By Hans Joachim Heider, Michael Schallehn, Christoph Schlegel and Klaus Stricker

Look around in traffic at the number of other drivers focused on their phones, and you begin to understand why so many are ready to let autonomous vehicles take control. But although many drivers can’t wait to release the wheel, there’s just one major hitch: Most aren’t willing to pay for it.

That’s the finding of recent research from Bain & Company: Buyers weren’t willing to spend much more on advanced autonomous features (like fully automated highway driving) than they spend today on basic ones like adaptive cruise control or rear-view cameras.

This disconnect presents a real challenge for automakers and their top suppliers, because today cars with the technology to drive themselves while the driver takes his or her eyes off the road are much more expensive than traditional cars, even those with advanced driver assistance systems (ADAS). For automakers and top-tier suppliers, the path to success will require close attention not only to building up their capabilities to deliver these advanced technologies, but also to containing costs. In short, they’ll have to do much more, but won’t be able to charge much more for it.

The prize is certainly worth pursuing. Bain estimates that the business-to-business (B2B) market for advanced automotive technologies, including the software, hardware and services that will make assisted- and self-driving vehicles possible, will amount to between $22 billion and $26 billion annually by 2025, with yearly growth between 12% and 14%. Most of this market will remain in assistive technologies, things like adaptive cruise control, automatic emergency braking and parking assistance. Autonomous cars are likely to remain a niche market for some time, making up no more than 10% of the market by 2025.

The growth of that niche market is likely to happen faster in some places than others. Dense urban centers are likely to become hotspots, spurred by regulations and incentives that discourage individual car ownership. Cities like London, Shanghai, Singapore and Stockholm are already beginning to limit easy access to their densely populated centers, through tolls or other measures. When combined with better economics for taxi use, these areas could see large autonomous fleets, and any carmaker or supplier that does not have a competitive autonomous offer will find itself locked out of these markets.

Of course, some technologies will gain acceptance more rapidly than others. To get a better idea of what car buyers are willing to pay for, Bain surveyed more than 4,200 consumers in eight main automotive markets about the features they want most, from fully autonomous vehicles to simple ADAS technologies like parking assistance or rear-view cameras. About 80% of buyers said they were likely to use assistive features. Only about half of buyers expressed interest in using vehicles that are fully autonomous today, although, as noted, two-thirds thought they might at some point in the future. Buyers chose safer driving and lower fuel and insurance costs as the leading benefits from these technologies. At the same time, some worry the cars will be too expensive or not reliable enough to trust in every situation.

Automakers and suppliers will need to monitor the market closely, and two uncertainties are likely to shape their strategic decisions. First is the speed of adoption. It will take some time for municipalities to change rules that require a human driver behind the wheel. On the other hand, drivers are likely to become comfortable quickly with technologies that make driving safer and easier, like adaptive cruise control and automatic emergency braking. Safety agencies will hasten adoption as they push to make such features standard. Second, new players will enter the market, not only from emerging automobile centers like South Korea and China, but also from the technology industry where companies like Apple, Google and Tesla have entered the field promising to rewrite the rules.

Related: Defining The Battlegrounds Of The Internet Of Things

Finally, in order to thrive in this increasingly competitive environment, top-tier suppliers will need to move from the reactive stance of a component maker to a more proactive position based on a unique perspective on the market and customer preferences. Accomplishing such a significant shift will require a fundamental reassessment of the operating model in order to compete in the more dynamic environment of ADAS and autonomous markets, which differ greatly from traditional top-tier supplier markets. This environment will also include new opportunities that take advantage of the connectivity of ADAS and autonomous cars and the data they record.

As automakers come to rely on suppliers to deliver complete, integrated systems, the makers of those systems will need to develop their own understanding of customers, what they want and what they’re willing to pay for today and in the future. Suppliers that can deliver these solutions will make themselves indispensable to automakers.

Read more: An Autonomous Car Roadmap For Suppliers

Hans Joachim Heider is a partner with Bain & Company in Munich. Michael Schallehn is a partner with Bain in Silicon Valley. Christoph Schlegel and Klaus Stricker are partners in Bain’s Frankfurt office. Hans Joachim leads Bain’s Technology practice in Europe, the Middle East and Africa, and Klaus leads Bain’s Global Automotive practice.