A US$4bil (RM16.72bil) joint venture between Hyundai Motor Group and Aptiv Plc to develop autonomous cars might look like evidence that the promised land of self-driving vehicles is closer than we thought. In fact, it’s just the opposite.
The deal is certainly more than just fine words. Hyundai will be contributing US$1.6bil (RM6.69bil) in cash and US$400mil (RM1.67bil) in services, R&D and intellectual property for its 50% share. Aptiv will hand over intellectual property and 700 employees, and the two promise they’ll have an autonomous-driving platform by 2022.
Yet for all of Aptiv’s reputation as a leader in advanced autonomous cars – the sort that may eventually dispense with drivers altogether – it’s worth remembering how marginal that target is to the company’s existing business.
Don’t get too excited by that 2022 deadline either. It’s easy to miss that it’s not a promise to have fully self-driving cars in widespread use by that date, but merely the first major step down a road of testing and refinement that will only reach its destination nearly a decade later, as the new venture’s head Karl Iagnemma told an investor briefing in June.
At first, vehicles will only be able to navigate tightly defined areas of cities in the best driving conditions, and systems will be based on off-the-shelf components, Iagnemma forecast. Areas of deployment will increase in the second half of the 2020s and bespoke components will result in better hardware, he said, but the point when self-driving cars capable of handling most driving situations start coming out of factories will be further off. "2030 is an interesting period, this is when we see it all coming together,” Iagnemma said.
So why commit all this money now? For Hyundai, it’s a decent use of the funds sitting around doing nothing on the balance sheets of group companies. Parts-maker Hyundai Mobis Co alone had 7.88tril won (RM27.58bil) in net cash at the end of June while Kia Motors Corp had 1.23tri won (RM4.30bil). (Hyundai Motor Co, on the other hand, has 49.55tril won (RM173.40bil) in net debt; and Hyundai didn’t specify how the funding for the venture would be split among those three companies.) With the yield on 10-year Korean government bonds slipping to a record-low 1.18% last month, the hurdle rate for improving the return on those funds is remarkably low.
For Aptiv, it allows the company to hive off its moonshot plans and focus on the places where it actually makes money. Much of that is in surprisingly mundane businesses like cable harnesses for cars’ internal wiring, as well as more future-oriented activities like sensors and data systems. Only about US$943mil (RM3.94bil) of its US$14.4bil (RM60.21bil) revenue last year was in "active safety”, and even that category includes technologies that are relatively routine these days, such as automated collision-avoidance braking and sensors to monitor a driver’s alertness. Those 700 employees being transferred over to the new autonomous unit doesn’t sound quite so impressive when compared with Aptiv’s total workforce of 143,000, of which 25,000 are salaried staff.
Considering the fervent excitement of a few years ago – when Tesla Inc was promising full autonomy by, er, 2018, and a conservative industry stalwart like Ford Motor Co had a target date of 2021 – the current prospects for self-driving cars look bleak. (Ford is still sticking to the 2021 date but says any vehicles produced by that date will be "geo-fenced” – a fancy way of saying they’ll hardly be able to go anywhere.)
That might push the pendulum too far, though. What Hyundai and Aptiv are planning is a foot in the door of developing a software and hardware platform for whatever autonomous-driving technologies eventually emerge.
With capital and R&D expenditures over the next five years likely to amount to US$50bil (RM209.07bil) or so at the three Hyundai Motor companies alone, this investment is a relatively modest option on becoming the market leader in that category.
The hype has gone out of the driverless car business. Now engineers and designers can get to work on the long task of making vehicles truly autonomous. – Bloomberg
(David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.)