May 20, 2024

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 roll-out, 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 ADAS standards and automated driving. They allow drivers to remove their hands from the wheel in certain areas, as permitted by law.

Several OEMs have already launched L2+ systems, and many more 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 an equivalent monthly subscription for an L4 highway pilot that 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.

Over-aged car stocks have a higher environmental impact because older cars are less efficient and are technologically outdated. Depreciation data and patterns in developing countries are increasingly important to effective ecological policies, given the rapid increase of over-aged cars in many poor countries. This paper uses used automobile prices to generate depreciation rates for 54 car models in 30 countries. The following results were found:(1) In general, geometric depreciation is a good estimate of real depreciation. (2) Depreciation is significantly lower in developing than in industrialized countries. Depreciation rates are significantly higher when corrected prices are used. In OECD nations, the average depreciation is 31%. Non-OECD countries have a depreciation rate of about 15%. The economic life of cars is largely dependent on income, not just the price of new vehicles. A $1000 increase in revenue will likely increase the depreciation by 2.7% for OECD nations and 3.6% for non-OECD.

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