The Geopolitics of Connected and Autonomous Vehicles
After a bumpy start we're finally seeing small fleets of fully-autonomous vehicles appearing on the roads. And although expectations for self-driving cars have changed a lot since the heady days before the pandemic, the combination of Artificial Intelligence, machine learning and Cloud-based communications that has emerged from the massive investment in research surrounding these vehicles has already changed the future of transportation, the auto industry - and geopolitics - forever. How so?
With manufacturing, sourcing, assembly and sales in nearly every country in the world, a decade ago auto makers were thriving in a world of fossil-fuel-based engines, championing global integration and just-in-time production. China was the biggest supplier of auto parts, the biggest target for overseas manufacturing, and the largest (and most profitable) market for future sales. Vehicles had marginal connection to the Internet or the Cloud, and though often well-engineered, were essentially a world apart from the rapidly expanding digital economy. Electric vehicle take-up in the US was still below 1%. For the most part cars and trucks were just updated versions of those our grandparents had driven 50 years before.
But that world has been largely turned upside down.
It began with the software platforms-come-ride-sharing groups - Uber and Lyft – providing a viable alternative to vehicle ownership, taxis and rental cars. Then Tesla appeared with its electric cars, powerful batteries, high-tech components and cloud-based connectivity - a technology company pushing a self-driving computer on wheels (with a luxury branding).
On the back foot, the auto industry began to adopt ADAS (Advanced Driver and Safety) features, which led to massive investment in connectivity and research and testing of Autonomous Vehicles by groups like Uber, Waymo, GM Cruise and Argo AI. Climate change legislation from around the world soon made it obvious that the oil-based economy – and the internal combustion engine that had created it – were under threat, and combined with the new power demands of ADAS and AVs, the industry began to shift away from the petroleum-based internal combustion engine production honed for a hundred years, and turned rapidly toward electric vehicles.
But intelligent electric vehicles require powerful batteries and microchips, and the auto industry soon found itself in the middle of a global struggle over control of rare earth minerals, battery and chip production - forced to reassess their just-in-time efficiencies, and move toward a defensive strategy of resilience and "friend-sourcing". Fears of industrial espionage and cyber security hacking lead the US to ban Hauwei; the Chinese recently banned US chipmaker Micron Technology. By 2019 the US had put a 25% tariff on Chinese-produced auto parts and 27.5% on automobiles themselves; China retaliated with a tariff of 40% on U.S. automobiles.
High-tech Chinese domestic automakers (BYD, Great Wall, SAIC, Aito, Lixiang) have had to put on hold plans to sell into the US market, and China – which only a few years ago sold nearly $34 bn in auto parts to the world and accounted for nearly half of the auto industry’s sales and manufacturing opportunities – suddenly seems to have shifted from reliable partner to potential adversary.
But China controls 76% of global battery cell production, and their Belt-and-Road program assures them prioritized access to the raw materials used to make them. They have now begun to place restrictions on the sale of those chip metals to the U.S. And with 85% of semi-conductors today being manufactured in Taiwan (perpetually under threat of invasion by China), control over the design and manufacturing of microchips has suddenly become an issue of national economic security for America and western auto manufacturers - helping to garner support for the passage of the massive $400 billion US Inflation Reduction Act and the CHIPS and Science Act, which provide huge subsidies and tax credits to companies investing in renewable energy and semi-conductor technologies – as long as the products and the components used are made in America.
All of this moves us toward a new world of connected and autonomous electric vehicles featuring advanced ADAS and AI and tied through the Cloud to smart city applications and the beginnings of a digitally-integrated transportation ecosystem. But all of that comes with a cost: enormous disruption in global supply chains, growing competition on chip and battery manufacturing with China, and a new sense of urgency around cyber security at all levels.
In total, it represents the beginnings of a revolutionary transformation for transportation - and a colossal geopolitical struggle for the auto industry and the world.
Join Dale Neef for a 1-hour exploration of the role the auto industry is playing in this new economic Cold War.