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Analysis & News on the Future of Public Finance

CSG: News on Autonomous Vehicles

Uber to End Self-Driving Car Testing in Arizona

The dawn of the era of self-driving cars may be a little farther off than was thought. Uber announced that it would end its self-driving car testing in Arizona. The company told its roughly 200 Arizona workers involved in the self-driving program that they would be let go. The move follows an accident in which one of its cars struck and killed a pedestrian.

Uber said that the step does not signify any diminution of its commitment to the technology. “We’re committed to self-driving technology, and we look forward to returning to public roads in the near future. In the meantime, we remain focused on our top-to-bottom safety review, having brought on former NTSB Chair Christopher Hart to advise us on our overall safety culture.”

 

Uber does plan to restart its testing in other cities, including Pittsburgh and San Francisco.

S&P Weighs in on Autonomous Vehicles

Coincidently with the Uber announcement, Standard and Poor's offered its view of the outlook for general use of autonomous vehicles. The dawn of that era will carry with it many implications for the development and finance of transportation infrastructure going forward.

S&P made some primary points: Growth of fully autonomous vehicles will be influenced by and significantly lag the market growth of electric vehicles, which could approach a 10% share of U.S. light vehicle sales by 2025 (compared to 1.1% today), behind our forecast 25% share in Europe and 20% share in China. Under its low disruption scenario advanced autonomous vehicles requiring minimal to no driver intervention could reach a 2% share of light vehicle sales by 2030 rising to 10% by 2040.

 

The trajectory of autonomous vehicle growth is complex and unpredictable as it faces hurdles beyond technology and cost. If autonomous vehicles and related technology mobility advances develop incrementally and linearly with current industry participants leading the way, S&P anticipates fewer positive or negative credit implications. However, newer entrants into mobility technology could disrupt a gradual, evolutionary scenario and negatively affect credit quality across various sectors involving transportation infrastructure and supporting funding mechanisms.

 

Right now the greatest source of uncertainty is not whether change will occur but, at what rate that change will occur. Much of that debate is skewed by where one stands when observing the landscape. Those in the center of technology-based industries unsurprisingly believe that the changes will occur more rapidly. Those with a different vantage point see a slower impact. Only time will tell which view is correct.

 

Standard and Poor's takes the view that AV penetration will significantly lag that of electric vehicles (EVs). Assuming a slower pace, it foresees advanced AVs with a 2% share of light vehicle sales by 2030 rising to 10% by 2040. At the high end, AVs make up a 30% share of light vehicle sales by 2030 and 50% by 2040.

 

On what are these views based? EVs have inherent advantages due to lower maintenance costs (i.e. fewer moving parts), zero emissions and lower operating cost per mile, which is crucial for fleet operators that will target mass deployment in geo-fenced urban areas. EVs could be 10% of the U.S. light vehicle market by 2025, and higher overseas. This reflects, in part, a lack of political consensus in Washington on climate change.

 

S&P cites a variety of hurdles for AV growth. Specific laws will be required as well as regulation around interaction between conventional cars, pedestrians, and AVs.  The initial growth phase of AVs is likely to lead to more congestion, as conventional cars will need to interact with AVs, which also likely will be regulated in a conservative manner. This new dynamic could increase the number of vehicles miles traveled (VMT), and the use of ride-sharing services. There may also be calls for dedicated lanes or roadways to separate AVs and driver-operated vehicles.  How insurance companies will adapt the policies they write to take account of driverless cars is presently an unknown. As AVs become connected to and, ultimately, controlled by automated systems, designing cyber-security measures to protect against potential hacking of crash prevention systems causing them to fail will be an important factor in customer acceptance and critical in assuring public safety. The role of the insurance industry is not to be underestimated.

AVs will also necessitate a new infrastructure-funding model and new revenues for some governments to replace diminishing sources derived from gas and sales taxes, car registration fees, fines, parking, and property taxes.

We see much of the anticipated impact on government funding but there has been less said about the capital investment which will be required to facilitate full electric vehicle implementation. The need to make access to recharging as ubiquitous and timely as the current fuel-based infrastructure will be a key to full electric vehicle acceptance.

According to a October 2017 report by Goldman Sachs, the broader utility industry itself will require more low-voltage distribution including new transformers to prevent overloads, electrification of parking bays, grid digitalization to allow for smart charging, and grid upgrades to support higher loads to occur between 2025 and 2050 (or when electric vehicle penetration reaches between 5% and 25%).