In recent years, the dream of fleets of autonomous cars that efficiently transport people to their destinations has captured consumers’ imaginations. This has led to billions of investment. Even after some setbacks, which have delayed the launch of autonomous vehicles (AVs) and customer adoption, the mobility industry still agrees that automated driving (AD) has the potential to transform transportation and consumer behavior.
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McKinsey’s research indicates that AD could generate hundreds of billions in value before the end of this decade. In order to realize the commercial and consumer benefits of autonomous driving, however, auto OEMs may have to adopt new business and sales strategies, develop new technologies, and address safety concerns.
This report, which focuses on the private-passenger-car segment of the AD market, examines the potential for autonomous technologies to disrupt the passenger car market. The report also highlights critical success factors for auto OEMs, suppliers, and tech providers to be successful in the AD passenger vehicle market. Other McKinsey reports explore the potential for shared AVs, such as robot taxis and roboshuttles, as well as automated trucks and auto last-mile delivery.
The auto industry and society could benefit from autonomous driving.
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AD may revolutionize how consumers experience mobility. Systems could make driving more convenient and enjoyable. The time spent on the road could be used for video calls, funny movies, or work. Driving an AV could increase productivity and shorten workdays for employees who have long commutes. Workers could move further away from their offices if they could do their jobs in an autonomous vehicle. This could lead to more people moving to the suburbs and rural areas. AD could also provide elderly drivers with more mobility options than public transportation and car-sharing. One study showed that the adoption of advanced driver assistance systems (ADAS) could increase safety.
AD can also add value to the automotive industry. ADAS is a basic feature in most cars today, but the future holds major improvements. The vehicles will eventually achieve Society of Automotive Engineers Level 4 (L4), or driverless control, under certain conditions. According to a McKinsey survey, consumers want to access AD features, and they are willing to pay. A growing demand for AD systems may generate billions in revenue. The cost of a vehicle with lidar-based level 2+ (L2+) and cars with optional Level 3 (L3) or L4 capabilities is approximately $1,500 – $2,000, with even higher costs for vehicles with L3 and L4 features. According to McKinsey’s analysis 3, ADAS/AD could generate $300-400 billion by 2035 in the passenger vehicle market, based on consumer interest and commercial solutions currently available.
Exhibit 1.
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Autonomous cars could have a significant impact on other industries. For example, by reducing car accidents, AD technology may reduce the need for roadside assistance. This could put pressure on these businesses as the adoption of AD increases. In addition, customers with self-driving vehicles may not have to pay high insurance premiums because, by handing control over to AD systems, individual drivers might no longer be held responsible for car accidents. In turn, this could lead to new insurance models for business-to-business travel.
A number of automakers have already begun testing new insurance products. These companies use autonomous technology to gain insights into driving behavior and make personalized offers to consumers. Automakers can tailor insurance policies for their customers precisely because they control the AD system and its performance. They also have access to the data it generates, such as real-time driving performance.
How AD can transform the passenger vehicle market
In light of the high level of uncertainty that exists today in the automotive industry, McKinsey has developed three scenarios based on varying levels of technology availability, consumer adoption, and regulatory approval (Exhibit 2) for autonomous passenger car sales. In our delayed plan, automakers continue to push back AV launch dates while consumer adoption remains low. In this scenario, it is projected that only 4 percent (of new passenger cars) will be equipped with L3+ AD features in 2030. This figure will increase to 17 percent by 2035.
Exhibit 2.
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In our base scenario, we assume that OEMs will be able to meet their timelines for AV launch and maintain a moderate level of customer acceptance despite the high cost of AD systems. By 2030, 12 percent of new passenger vehicles will be sold with L3+ autonomous technologies, and 37 percent, in 2035, with advanced AD technologies.
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In our accelerated scenario (finally), OEMs launch new AVs rapidly, generating significant revenues through new business models. In this scenario, most premium automakers install hardware to enable fully autonomous driving when software upgrades are available. This scenario has 20 percent of cars sold in 2030 with advanced AD technology and 57 percent by 2035.
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There is a huge potential for growth among automakers who are focused on developing vehicles with higher levels of automation. Customers who want to drive hands-free may prefer cars with advanced autonomous features (such as L2+, L3, and L4) that give the independent system more control over going tasks. The cost of sensors and high-performance computers is decreasing while safety standards are improving. The criteria for traffic jam pilots that allow autonomous vehicles to navigate stop-and-go traffic while maintaining a safe distance from other cars could be extended to other advanced AD features. These factors, when combined, could allow the auto industry to introduce more advanced autonomous functions in a wide range of vehicles.
Based on McKinsey’s sales scenarios, L3 and L4 systems for driving on highways will likely be more commonly available in the private-passenger-car segment by around 2025 in Europe and North America, even though the first applications are just now coming into the market. One luxury European brand has a self-driving L3 system, but it is restricted to well-marked highways at lower speeds.
McKinsey Center for Future Mobility
The steep upfront costs of developing L3- and L4-based driving systems suggest that automakers’ efforts to market more advanced AD systems will likely be restricted to premium vehicle segments. During the early phase of rollout, additional licensing costs for hardware and software per vehicle could be $5,000 or higher. Development and validation costs are likely to exceed $1 billion. L2+ systems may have greater commercial potential because the sticker prices of these vehicles are reasonable to be higher. These systems blur the line between standard ADAS and automated driving. They allow drivers to remove their hands from the wheel in certain areas that are permitted by law.
Several OEMs already offer L2+ systems, and many more vehicle launches are planned in the coming years. The technology developed for L2+ could contribute to L3 systems if it is equipped with enough sensors and computing power. This is the strategy adopted by several Chinese OEM disruptors. These companies launch vehicles with pre-installed lidar sensors for L2+ systems. These vehicles will likely reach L3 functionality in the near future as the companies use their fleets of L2+ enhanced cars to collect data and learn how to deal with rare edge cases or run the L3 system on shadow mode.
Developers may also combine L2+ with L3 features in cases where true L3 systems do not exist. It may be possible to connect an L2+ function for automated driving in cities and on highways with an L3 function for traffic jams.
AD features are highly sought after by car buyers.
The benefits of using AD systems are many, including increased safety, ease of parking, merging, and other maneuvers, additional fuel savings due to the ability of the autonomous system to maintain optimal speed, and more time with family. According to our research, consumers are aware of these benefits and remain highly open to using AD features.
AD systems offer many benefits to consumers, including increased safety. Some are even willing to use them.
McKinsey’s survey of more than 25,000 respondents about their mobility preferences in 2021, “Autonomous driving, connectivity and electrification (ACES) 4,” found that a quarter said they were very likely to select an advanced AD feature for their next vehicle. Two-thirds of the highly interested customers are willing to pay $10,000 as a one-time payment or a subscription fee equivalent to an L4 highway test, which allows hands-free highway driving under certain conditions. This price and willingness to pay are in line with the top-of-the-range AD vehicles that have been launched over the last few years, as well as our value-based pricing.
