The electric and autonomous disruption
The combination of electrification and automation added to new business models will deeply disrupt transportation and shipping markets, says Seba
One of the more adventurous speaker choices at this year’s Nor-Shipping exhibition and conference was serial entrepreneur and transportation futurist Tony Seba. Here we present an edited version of his discussion on the nature of disruption and how electric and automated vehicles will bring radical change to markets both on land and at sea.
From 1900, it took just thirteen years for traffic in New York to move entirely from horses to cars. That is a disruption: when technologies and business model innovations make it possible for companies to create new products that both make new markets and radically transform or destroy existing markets. Today disruptions are happening more and more quickly, and more deeply.
In 1985, the then largest telecoms company on earth AT&T asked McKinsey & Co for a 15-year forecast on the US mobile phone market. McKinsey came back predicting 900,000 phones by 2000. In fact, the number of mobile phones in the US was 109 million. That is not a small mistake. AT&T was disrupted and missed out on the largest, multi-trillion dollar new opportunities of the twenty-first century: If you look at just the top five internet and mobile technology companies today, that is more than US$2 trillion in market valuation.
It’s usually the insiders, the mainstream analysts who dismiss disruptive opportunities. Much of my work is spent trying to explain why smart people at smart companies fail to anticipate, let alone lead disruption.
Disruptions are not caused by single technologies. It is usually a combination of technologies that converge to make those technologies economically and functionally viable for that market, at that point of time. We all know Moore’s Law, that computing power doubles for the same dollar every two years, and we’ve had that process occurring for decades. If you compound that 40% plus improvement each year, in 20 years you improve by 1,000 times for the same money. Over 40 years it is a million-fold improvement.
This does not just apply to computing power. If you look at lithium-ion batteries, for about 15 years they improved at around 14% a year in terms of cost per kilowatt-hour. Over the last six years they have been improving at around 20% a year. That improvement is going to keep on accelerating.
Sources of disruption
Business model innovation is every bit as disruptive if not more than technology. Uber is a business model disruption. They took advantage of the cloud and smartphone infrastructure to disintermediate and become a broker. That business model was not possible before the cloud and smartphone. For those who think that a disruption cannot change a market within a decade: Uber did not even exist in 2008. Today their bookings were higher than for the whole US taxi industry.
There are at least three reasons why electrical vehicles will be disruptive. One is that a traditional car has 2,000-plus moving parts. The electric car has just 20, so maintenance is about 10 times cheaper. Second, electrical vehicles are about 10 times cheaper on an energy cost per kilometre basis. Third, an electric vehicle has a lifetime driving distance of two and a half times that of an internal combustion engine vehicle. They can go 800,000km, and one Is being built that will manage 1.6 million miles. In the US we drive around 16,000km each in a year, so a vehicle would last 50 years. Who needs that? Today, nobody - but as we will see, that may change.
If all you look at is the electric vehicle compared to the traditional engine-powered vehicle, it is clear that the market will be disrupted within the next few years. If you look at the cost curve of electronics and batteries, by 2025 every new vehicle will be electric. This has nothing to with the climate, it is about the economics of the technology.
But that is not going to happen, because of another disruption – the self-driving car. This is not something on the fringe: there are 33 companies that are already investing billions in autonomous technology. Tesla says that by the end of this year every car that they produce will be self-driving, and just a step away from fully autonomous.
What about the cost of autonomy? One technology, lidar, was US$70,000 in 2012 according to Google. Within a couple of years, it was US$10,000 and within another couple of years US$1,000. A Silicon Valley company has recently announced a US$250 lidar that is solid-state, meaning it lasts longer as well.
Where is the disruption in self-driving cars? You can work, text and email while driving, but that is not such a disruption. Today we pay a lot of money to own and maintain cars – in the US on average US$10,000 a year. But we only use them 4% of the time. The remaining 96% of the time they are parked outside our houses, which is such a waste. The real disruption is in ‘transportation as a service’ (TAAS) – a similar business model to Uber but with electric, autonomous vehicles.
If you merge electric vehicle technology with self-driving technology and the TAAS business model, the efficiency of vehicles goes up from 4% to 40%, maybe more - the car is used for 100,000 miles per year instead of 10,000. What this means is that on the day that autonomous vehicles are approved, the cost of TAAS will be ten times cheaper than car ownership – that’s without subsidies. Every time there has been a ten times difference in cost, there has been a disruption. From that day, it won’t make sense to buy a new car because you can get the same service for ten times cheaper. TAAS will even be four times cheaper than running a car you already own.
We’ve gone from ownership to on-demand access in many industries over the past decades. Technology adoption is not linear but happens in S-curves – once you hit that tipping point it happens very quickly. Our numbers estimate that by 2030, 95% of passenger kilometres will be in autonomous electric vehicles. This means we will need 80% fewer cars on the road to cover the same number of miles. Annual demand for new cars will go down by 70% as soon as autonomous cars are approved.
Global demand for oil will peak at 100 million barrels per day in 2020 and drop by 30% to 2030. Up to 70% of the world’s deep-water oil, shale oil and oil sands will become uneconomical, because while demand will tail off over 10 years, prices will drop immediately. Imagine the impact that those changes in oil demand and automobile sales will have on shipping companies.
But it’s not just shipping that will face disruption. Ships themselves will also be disrupted because the same technologies are starting to be applied in this market, although shipping is probably around a decade behind. Electrification makes sense because of the cost of fuel, the lifetime of powertrains and better efficiency. Again, it is the economic arguments, not the climate, that will drive the disruption. And the same logic applies to the automation of shipping.
We are here in this world of horses and someone is telling you that horses are going to disappear in the next few years. These technologies are not the future, they are here already, and we are on the cusp on one of the deepest, fastest disruptions of transportation in history.
Tony Seba was not the only speaker at Nor Shipping’s opening conference to consider the impact of technological disruption.
Nikolas Tsakos, chairman, Intertanko and president, Tsakos Energy Navigation
“We are trying to urge our tanker members not to order ships today. I think the market is overbuilt, and I think disruption will come. We need to change how ships are ordered - we are still ordering ships for 20 to 25 years, so I order and my son pays the debt.”
Thomas Wilhelmsen, CEO, Wilhelmsen Group
“With new technology we cannot afford to spend years developing a solution as we have in the past. For example, our boiler dosing app took just 12 weeks from the idea to a proper onboard test. We will sell much less dosing chemicals as a result, but we will have a much closer connection to our customers.
Rasphal Singh Bhatti, vice president freight, BHP Billiton
“The driver for us is first and foremost safety. We put our e-auction system together to validate and pre-vet vessels and owners [carrying iron ore from western Australia to China], and today we have 25 strategic partners, having disintermediated the market. We have four auctions for up to a million tonnes each week. We will extend this to other more complex markets very soon.”