Autonomous Mobility: 2021 and Beyond
Attractive autonomous segments, risks, and opportunities for investors and new startups
We all have heard about Tesla Autopilot. Full autonomous driving capability is on the way, and many startups are emerging in this space, some of which are being acquired by large incumbent companies.
In this article, our goal will be to understand whether autonomous mobility is an attractive space for a new startup and which type of startups could appeal to investors in this space. We will also go over some of the risks and emerging verticals within autonomous mobility and determinants of success within each segment.
Autonomous Mobility Market for New Startups
Market Size: Global autonomous market is projected to be 556B$ in 2026 with a 40% CAGR. As this is a large market with various adjacent applications, it has been an attractive segment for startups and larger companies wanting to capture the potential. Due to the stagnation in car sales in previous years, large companies have invested in this market for possible future growth.
Gross margins: Gross margins for companies developing autonomous vehicles are lower than software companies. However, it could be an excellent segment to enter for companies, especially those already developing their vehicles in the automotive / aerospace industries.
Profitability and Growth of Fleet Operators: There has been significant growth in the shared driving industry. Although the growth slowed down in the past years due to the pandemic, it is predicted that it will come back and reach a saturation point. One way to grow their profitability further is eliminating their labor cost through autonomous vehicles.
Enablement of Lidar-type sensors or AI-based vision algorithms: With the developments in software and machine learning, there has been a boom in the accuracy of autonomous driving software through improved vision or machine learning software for Lidar sensors.
In summary, this is an attractive market for new startups in general. However, there are some major risks, which we will take a look at in the next section.
The Major Risks
Regulations: One of the major risks is the regulation risk. The enablement of full self-driving will require new regulations that could take years to establish fully.
Competition: Due to its attractiveness, many players already exist in the arena. The number will continue to increase, which will create high competitive dynamics between the existing large companies and startups.
Achieving full autonomy: There hasn’t been a full level-5 autonomy in the market yet. Achieving full self-driving could require time and a high degree of software innovation.
Driving Safety: Recently, there have been several safety incidents involving autonomous vehicles, which is an inherent risk of fully autonomous cars. Partnerships with regulators and establishing educational programs for public acceptance can mitigate the risk.
Pandemic: The recent pandemic will slow down the shared mobility segment as people might not want to share rides with others. This segment is expected to grow after mass immunity is achieved.
The Attractiveness of Segments in Autonomy
From the discussion above, autonomous mobility is an attractive industry for a new startup if the risks we discussed can be timely eliminated. This section will zoom in to the specific segments within autonomous mobility to determine which is the most attractive from a new startup perspective.
From the Table above, although they have low barriers to entry and medium risk, Guidance, Mapping, and Collision protection software segments can be prone to high competition, possibly larger software companies dominating in the future. Similarly, driving and flying vehicle development companies can have an increased risk due to capital and production capability requirements.
Therefore, Autonomous Hardware + Software (AHS), Autopilot Software and Sensor Development spaces seem to be the most attractive segments for the following reasons:
- AHS segment is relatively new without many players.
- AHS segment has experienced consolidation from large companies such as Google and GM. There could be many more exit opportunities while the whole industry is growing.
- Although Autopilot software has a lower market size, it has a significant growth potential without high barriers of entry.
- The Lidar and Autonomous sensor development segment has existing large companies. However, there could be a considerable innovation potential for startups, especially ones incubated through university research activities.
Although we deem these segments the most attractive, there will most definitely be other companies in the remaining segments that will appeal to investors and be successful. We will go over potential success determinants for each segment in the following sections.
Why Now for These Segments?
Once one company establishes full-autonomy and customers see the benefit, a strong race will develop to expand the application to the entire industry.
Autonomous Hardware + Software (AHS): Larger incumbent companies will all race towards autonomous mobility and electrification. Although some of them, such as Tesla, will develop their technology in-house, many other companies will explore partnerships with existing autonomous package providers.
Lidar and Autonomous Sensor Development: many companies currently use lidar sensors for various purposes and have established providers or develop their sensors in-house. However, with the recent enablement of cheaper and smaller computer hardware, startups that can innovate in the sensor space, especially on the cost side, could potentially gain significant market share.
Autopilot Software: With the computing and technology advancements in big data and AI, there is a considerable potential to accelerate the software to make it more robust and responsive increasing customer experience and safety.
What Could Make These Segments Successful?
This section will take another look at each segment to see how startups could succeed aside from product-market fit.
Software spaces Collision, Mapping, Guidance
- In this segment, the software robustness and innovation to showcase the competitive advantage will be essential for a startup to succeed.
Autopilot software
- Aside from the software robustness, time to market and suitability with various technology types would be other essential elements.
- Companies like Tesla will have a significant ‘network effect’ through the fast acquisition of real-time data from their existing customers. For a new startup, partnerships with existing carmakers will be crucial to obtain real-world datasets and gain full autonomy quickly.
New vehicle development
- The capital intensiveness of this segment will require longer-term investments and seamless execution of production ramp-up. Furthermore, to compete with existing players like Tesla, the development of products with higher competitive strengths and customer satisfaction will be essential.
- An iterative approach such as starting with micro-transit systems could mitigate the risk of not achieving full-autonomy and production ramp-up in time and could bring an early revenue stream.
Autonomous delivery robots
- Innovation and extension of the technology to larger markets will be needed as the initial autonomous delivery market will be small until the necessary regulations are in place.
Lidar and Sensor development
- As discussed in the previous section, a solid competitive strategy through innovation is the key to success in this segment. Cost reduction will be vital for companies using Lidar sensors, especially if the vision-based algorithms can effectively achieve full autonomy.
Conclusion
In this article, we looked at a high-level overview of the autonomous mobility segments and determinants of success for a startup in each segment. We looked at the central elements and determined that autopilot software and software and hardware package segments could be the most attractive from investors’ or new startup’s perspective.
Although many factors affect a startup’s success, such as the team’s quality and the brand, we presented some ideas that could be a starting point for investing in or starting a company in each specific segment.
