The year 2023 has been a turning point for the autonomous vehicle industry. While leading companies have successfully launched their first commercial operations, been able to scale up and raise more funding, others have experienced major setbacks and either ceased or scaled back operations or exited the market altogether. With this in mind, there is still a lot of work to be done before the autonomous vehicle industry is fully mature, but how long will it be?
This summer, the McKinsey Center for Future Mobility conducted a follow-up to its 2021 survey of industry decision makers (see sidebar, “Research Methodology”). The 2023 survey revealed that this dynamic sector has changed significantly over the past two years: regional expectations have shifted, autonomous vehicle development timelines have been extended, and required investments have increased. Other findings revealed new opportunities for autonomous vehicle manufacturers, including a more diversified market and technology with profit margins of 17% or more.
This article shares the latest insights from industry leaders across key categories including geography and market diversification, projected timelines, expected bottlenecks, scale of investment required, profitability of autonomous vehicle components, monetization models, etc. These findings shed light on how the autonomous vehicle industry is likely to shape in the coming years and decades.
Players expect geographic and market diversification
The majority of survey respondents expect three or fewer companies to dominate the market. The North American market is expected to be the most fragmented, with only 15% of respondents expecting the market to be dominated by one or two companies. In contrast, 38% of respondents expect the European market to be dominated by two or fewer companies. Predictions regarding the race to full autonomy are also shifting. While 58% of 2021 survey participants thought North America would be the first to deploy a Level 4 (L4) highway pilot, in 2023 respondents were evenly split on whether China or North America will be first. This is evidence that China is making progress in the autonomous vehicle race, driven by factors such as strong government support, increased investment in research and data availability, and a receptive consumer attitude toward adopting new technology.
Self-driving car development timelines are being extended
The timeline for autonomous vehicle adoption is delayed by an average of 2-3 years across all levels of autonomy compared to the 2021 survey (see sidebar “Autonomous Vehicle Development Stages”). This year’s survey predicts that Level 4 robotaxis are expected to be commercially available at scale by 2030, while fully autonomous trucks are expected to be feasible between 2028 and 2031. This is likely due to ongoing technological hurdles and capital availability challenges. Additionally, regulatory challenges remain, as regulations for autonomous vehicles are still being developed and implemented. Despite these predictions, well-funded pioneers are forging ahead and looking to expand deployment across regions.
Regulatory, technical and consumer safety are key bottlenecks and considerations in development.
About 60% of respondents still believe that regulation is the biggest bottleneck in the adoption of autonomous vehicles. This is the same relative importance as in the 2021 survey. However, this year’s respondents report increased attention to the technology, rising from an average of 26% in 2021 to an average of 32% in 2023. While experts do not believe consumer demand will be the biggest obstacle to adoption, there are still important considerations that autonomous vehicle players need to take into account to ensure consumer adoption. Two-thirds of respondents believe that improved safety is an important consideration for consumers. Productivity (ability to multitask while driving) and comfort are expected to be secondary considerations in customers’ willingness to pay.
Full autonomy requires increased investment in software
To achieve Level 4 and above autonomy, respondents estimate that significant investments will need to be accumulated before the first commercialization. Depending on the autonomous use case, the estimated amounts have increased by 30% to 100% compared to 2021. Fully autonomous trucks are expected to require more than $4 billion, while investments in Level 3 highway use cases ($2 billion+) and Level 4/5 robotaxis ($5 billion+) are expected to double from estimates in the previous survey. Software development is expected to be the main driver of this necessary investment. Alongside validation costs, software development is essential to advance the technology and demonstrate its safety. Among the software needed, respondents ranked predictive algorithms and perception software as the most important.
Software is expected to have high profit margins
Software will require significant investment but is expected to be the most profitable element of the autonomous vehicle technology stack, with an average profit margin of over 15 percent. Margins for autonomous vehicle services are similarly high, with an average margin of 14 percent. Hardware profit margins are expected to average 10 percent. However, all of these components will need to be developed to enable all autonomous driving use cases.
Players are expected to try new monetization models
As more advanced forms of autonomous vehicles are deployed, over 70% of respondents believe that new go-to-market models are likely to prevail in the market. Existing autonomous vehicle players believe primarily in pay-per-use models, while startups and other companies believe in subscription models. This year’s survey revealed larger regional differences compared to the 2021 survey: North American players were most bearish on pay-per-use models, while European players were focused on pay-per-ride models. Across regions and company types, models that combine pay-per-mile and pay-per-ride systems were popular, indicating that monetization models are likely to be experimental overall.
The road to a self-driving car future
Now, industry leaders are shifting to scale and optimizing their business models to ultimately achieve profitability. In this evolving mobility environment, strategic partnerships are key. Nearly all respondents (96%) recognize that strategic partnerships are essential to the development of autonomous vehicles, and more than half (56%) believe that the relationship between OEMs and end users (e.g. logistics providers) is already changing.
These partnerships help players address multiple issues and prepare for future growth. Cross-industry collaboration is key to mitigating investment risks and building the infrastructure required to build, operate, and maintain autonomous vehicles at scale. Intra-industry collaboration also helps companies continue to innovate new products.
In addition to intra-industry partnerships, industry players can educate consumers about the benefits, responsibilities, etc. of autonomous vehicles. Autonomous vehicle players will need to keep up with new regulations at local, state, and national levels to deploy on time and with full compliance.
Above all, industry players can build trust among stakeholders by delivering on the promise of autonomy – greater safety, productivity, accessibility and equity for all.
