Automaker Alliances Spread Risk as Autonomous Driving Future Remains Foggy

Self-driving cars may not be the profit boon automakers were promised—and, as a result, incumbent manufacturers are forging alliances with suppliers to hedge their bets.

According to a report from Reuters, carmakers like BMW and Daimler are chasing partnerships not just to accelerate technological advancement, but also to spread the risk.

A Reuters quote reads:

Carmakers are increasingly looking to forego outright ownership of future autonomous driving systems in favor of spreading the investment burden and risk. The trend represents a clear shift in strategy from little more than a year ago when most automakers were pursuing standalone strategies focused on tackling the engineering challenge of developing a self-driving car, rather than on the business case.

“It’s impossible for me to believe there will be 50 successful autonomous vehicle software producers,” John Hoffecker, global vice chairman of consulting firm AlixPartners, told the news site.

Silicon Valley giants such as Google and Apple, traditional car companies like Ford and Volvo, and unicorns such as Lyft and Uber are all developing technologies for autonomous driving. Yet the market is incredibly small and, while expected to grow, will not likely be as big as the conventional car market for an extremely long time. Such a competitive and saturated market is already squeezing potential profit margins, industry experts say.

“Although it is a substantial market, it may not be worth the scale of investments currently being sunk into it,” an anonymous board member of a German carmaker informed Reuters.

BMW has already admitted that it expects to lose money on its first fully autonomous vehicles. But it also lost money on its first electric cars, which have since turned a profit. It’s also too significant a move to skip—an automaker can quickly devolve into irrelevancy if it does not constantly innovate its offerings to keep up with other brands.

Beyond the technological and financial challenges of implementing autonomous cars lies regulatory concerns, which are far from being resolved. Without knowing what these regulations are or how they may vary by region makes it difficult for companies to accurately predict their potential slice of the pie and thus unsure of how many resources they should pour into their autonomous driving efforts.