Carlos Ghosn draws roadmap for driverless cars

The world’s biggest carmaker will jump-start mass sales of driverless vehicles within five years. China is a key destination along that road.

Renault, Nissan Motor, and Mitsubishi Motors will put fleets of driverless cars on the roads in the near future, said Carlos Ghosn, boss of the car alliance. This, he says, will help governments tackle pollution and reformat cities.

Industries such as e-commerce and ride-hailing startups could slash costs while truck, bus and taxi drivers face mass unemployment.  

Many executives have been cautious about predicting when cars will hit Level 5 – the technical jargon for full automation – especially after an Uber self-driving SUV killed Elaine Herzberg on March 18 in Arizona.

In contrast, Ghosn (rhymes with ‘phone’) confidently predicted mass marketing of driverless cars by 2022 or 2023.

While he acknowledged that these autonomous vehicles would have to pass strict safety requirements before they hit the road, he said progress was unstoppable.

“The technology of autonomous driving is so important for societies that accidents won’t jeopardise it,” said Ghosn, who has welded together the world’s largest vehicle group by sales, as of January.

Widely considered science fiction just a decade ago, driverless cars hit the road in 2009 when Google began beta-testing the world’s first model, Waymo.

But it's only more recently, as major car manufacturers like Nissan, Tesla, and Ford have joined the race to develop fully self-driving cars, that the excitement and investment has really switched into overdrive.

Ghosn’s prediction carries plenty of weight given he is chairman of all three carmakers, as well as of the alliance itself, the most prolific maker of electric vehicles in the world.

Given computers find it easier to direct electric vehicles, the technology is intertwined with autonomus vehicles. Over the years, the alliance has sold more than 577,000 electric vehicles, including models such as the Nissan Leaf and the Renault Zoe.

The Leaf: Failed in China

Ghosn said the alliance was testing driverless cars in Palo Alto and Yokohama.

Investors in the alliance partners, listed on bourses from Tokyo to Paris, may well fret about the costs of such an ambitious research and development programme.

Ghosn’s answer has been to drive deeper integration and push the partners to pool resources. The original Renault-Nissan alliance generated synergies of €5 billion ($6.1 billion) in 2016, a 16% increase from €4.3 billion in 2015. Including Mitsubishi Motors, which joined the grouping in 2016, the partners aim to bump up synergies to over €10 billion by 2022 by melding together engineering, manufacturing, purchasing, customer relations, aftersales and business development operations.

The alliance will use a shared electric car platform, with one set of batteries and motors, from 2020/21. However, they will still come up with their own designs and keep their own branding.

As the alliance draws closer together analysts have speculated about Nissan building on its 15% stake in Renault, by buying shares in the Boulogne-Billancourt-headquartered carmaker owned by the French government.

“We are seeing states getting out of it [the car sector] because it is a competitive market and it is nothing strategic,” Ghosn said. “I don’t think you will have national champions anymore.”

However Ghosn, who is hailed as a management guru in Japan and was depicted as the saviour of Nissan in a manga comic book serialising his life story in 2001, appeared to throw cold water on a swift change to the balance of power within the alliance.

“The model of the alliance, autonomous companies motivated by their by identity and by their brand, are much more powerful and much more engaged than a merged company [where one partner would be secondary to another],” Ghosn told a small gathering of journalists in Hong Kong in April.

ELECTRIFYING CHINA

Key to the future of the electric car will be developments in China, which, under pressure from the US, is slowly opening up its markets to foreign players.

China’s government said in April said it would abolish its cap on foreign ownership of car companies in the world’s biggest market for electric vehicles. The country has a larger electric vehicle market than Europe and the US combined, according to a study by consultancy McKinsey released on Saturday.

Ghosn said US President Donald Trump’s fight to reduce the US’s trade deficit with China was understandable and a gradual rebalancing of the relationship could make trade more sustainable.

China is already crucial for global mass market carmakers and the alliance sees the country as its key source of growth in its six-year business plan unveiled in October. 

To avoid punitive fluctuations in foreign exchange markets, foreign carmakers are increasingly building car plants in China, the world’s second-largest economy.

“The logic of carmakers today is localise, localise, localise,” Ghosn said.

The Chinese ownership limit for foreign carmakers and investors had been in place for over 20 years, but will be gradually removed by 2022 for most automotive sectors and by the end of 2018 for electric vehicles. After 2022 foreigners will no longer have to form 50:50 joint ventures with local players, meaning investors will be better able to discern which partnerships are working and which are not.

“This is going to put more pressure on the partnership to be productive – to show that they are bringing something to the table,” Ghosn said. The alliance sold about 1.7 million cars in China last year, he said.

The alliance – which currently has partnerships in place with Brilliance China Automotive, Dongfeng Motor, and Guangzhou Automobile – will continue to lean towards working with local partners, he said.

He also expects other carmakers to remain with their partners, which is a widely held view within the industry.

Foreign car companies have generally provided technology, expertise, and brand reputation, but they have also benefitted from their Chinese partners’ ability to address regulatory hurdles, deal with local issues, and manage distribution.

“Disrupting those relationships would create complications,” said credit analyst Yee Man Chin at credit ratings agency Fitch.

Where foreign car manufacturers could go it alone in China is in the bringing to market of a new product or technology, according to car analysts.

In that respect, Ghosn said the alliance is planning to bring 12 new electric cars to market in the next five years and that a lot of them would be launched in China. “Now we have a choice,” he said.

MASSIVE POTENTIAL

While electric vehicles account for only a tiny share of Chinese auto sales – less than 2.5% in 2017 – and a lack of charging facilities is a persistent road block, there is potential for long-term growth in this segment.

Analysts at Bank of America expect electric vehicles to account for half of total sales in China by 2030.

Ghosn has advice for carmakers looking to crack the China market, based on bitter experience.

Careful pricing is essential: the alliance won approval to sell the Leaf in China back in 2011, but Ghosn said the model failed to gain traction because it was too expensive.

“When you look at what other Chinese electric cars are selling, they are very, very affordable cars, so the price point of the Leaf is not adequate today for the Chinese market so we need to review,” Ghosn said.

Undeterred, he said the alliance will launch the Kwid electric car in China during 2019, a mini-SUV that is much more affordable than the Leaf.

 

He also advised carmakers to keep a close eye on government policy, which will strongly influence consumer behaviour.

Last year China set a goal to build a globally competitive auto industry within a decade, led by new energy vehicles and smart cars. 

China, the world’s second-biggest polluter after the United States, has already set production quotas for more environmentally friendly cars. The country's national and local subsidies for electric vehicles are among the world’s highest, reducing consumer concerns about the comparatively high up-front cost.

As a result Chinese citizens, with one eye assuredly on the resale value of their cars, will follow the government’s push towards more electric cars.

“Consumers don’t care about the technology, they care about the functionality and the total cost of ownership,” Ghosn said.

In terms of functionality, the range of the electric car is also important as the infrastructure for charging up the cars in China, or anywhere else for that matter, is patchy. Ghosn’s lesson here is to guarantee a range of more than 300 km.

“You could not guess this through studies,” said Ghosn.

He said on average car owners drive just 50 km a day and less than 1% travel more than 200 km a day, so while 300 km is not a rational demand this is consumers’ preference.

RIDE HAILING

Apart from China and other emerging markets, Ghosn highlighted shared car services as a major growth area.

“Carmakers are preparing themselves for a kind of à la carte demand, which is facilitated by the connectivity and better knowledge of your customer,” Ghosn said.

Many of the world’s ride-hailing startups, such as San Francisco-headquartered Uber, Singapore-headquartered Grab, and China’s Didi Chuxing are also rushing to develop driverless car technology.

Ghosn said the race is fuelled by the desire to cut costs and fear of a knockout competitive blow. For these ride-hailing firms, employing drivers is around 90% of the cost, dwarfing electricity bills and the price of leasing cars.

“That’s why the Uber and Didi are running to be the first one to have this because [they think] if the competition gets it I’m dead,” Ghosn said.

When asked if he foresaw competition for the alliance from ride-hailing upstarts he thought it would be limited.

 

 

“They don’t want to be car companies … The profitability and return on investment doesn’t match what they have in their own activities,” Ghosn said.

Instead, they are more interested in developing applications with carmakers on mobility services, he said.

Didi said on April 24 that it was teaming up with 31 of its auto industry partners, including Renault-Nissan-Mitsubishi, to promote new energy vehicles.

To be sure, there will be competition between carmakers and hide-hailing firms in some cities.

The Renault-Nissan-Mitsubishi alliance is working with city governments to help limit emissions, including by providing robo-taxis. In Paris, for example, Mayor Anne Hidalgo is working with Renault on her plan to phase out the internal combustion engine by 2030.

REGULATION

In the meantime, investors in listed carmakers and startups should not overlook the development risks and the potential for a regulatory backlash over the safety of driverless cars.

“The restrictions and specification that are going to be put on these technologies are going to be very strict,” Ghosn said.

Ghosn emphasised that the vast majority of road accidents are caused by human error, so autonomous vehicles are ultimately safer and will have a benefial impact on society.

Driverless cars could yield up to 400 billion hours of extra free time per year, which could translate into enormous business opportunities for e-commerce, music, and games, as well as other forms of entertainment that can be enjoyed while travelling, according to analysts at investment bank Morgan Stanley.

“The commercial benefit of the driverless car is huge. You can imagine the Amazon, pizza delivery, the Alibaba delivery of goods by driverless cars would be a huge breakthrough,” Ghosn said.

To be sure, that assumes the societies and economies of tomorrow adjust effectively to the new technology, by employing people in new ways to fuel consumer spending as millions of driving-related jobs are lost.

 

 

When autonomous vehicle adoption peaks by 2042, the new technology will put US drivers out of work at a rate of 300,000 a year, according to a report from investment bank Goldman Sachs.

Another potential brake on driverless cars is that governments will want to control politically sensitive activities, such as the data they collect.

To work effectively, self-driving applications will need to analyse a huge amount of technical data just to “see” the world around a vehicle.

Automobile experts estimate that a fully autonomous car will generate 4,000 gigabytes of data each day – equivalent to about 1,000 high-definition movies – and that it will take more than an hour to transfer all the data even at the fastest speed on a 4G network.

Governments will also want to check that a car’s cybersecurity is robust enough to stop hackers from deviating a car from its course.

“Only the government can say we checked the car [and] what is in the car, [and it] is for me acceptable and is cyber safe,” said Ghosn.

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