Automakers Scramble to Respond to the Threat of Self-Driving Cars

At times, this year's Consumer Electronics Show (CES) looked more like the Detroit Auto Show than an annual consumer electronics outing in Las Vegas. Fiat Chrysler unveiled a prototype electric vehicle that looked more like it had been designed by a Silicon Valley startup than Pininfarina, Microsoft was talking up its Connected Vehicle Platform and German carmaker BMW announced a three-way deal with camera-maker Mobileye and chipmaker Intel.

What's going on? The world's automakers are scrambling to secure a place in the autonomous vehicle market, and they're competing against upstarts like Google's self-driving auto subsidiary, Waymo, which has a deal with Fiat Chrysler and Honda. Underlying this push is an even bigger worry: When self-driving cars become commonplace, who's going to even buy cars? An unmanned Uber will be able to take you everywhere without having to pay for parking or a car loan.

In short, Silicon Valley startups are unbundling the automobile business just as airbnb took on the hospitality business.

Major Auto Manufacturers Are Partnering with High Tech Startups

At this year's CES, multiple car manufacturers announced partnerships with high tech startups, highlighting a distinct trend of everyone wanting a piece of the self-driving car action.

Mobileye, a maker of lasers, cameras and computer algorithms optimized for collision avoidance, announced a partnership with BMW and Intel, and said they would bring fully self-driving cars to the roads in three years. A short two months later, Intel — which largely missed the mobile revolution — announced that it had swooped in to buy Mobileye for $15 billion, seeing cars as "data centers on wheels."

As a sign of the race to make strategic alliances, Mobileye also reached an agreement to work with HERE, the world leader in mapping, which is a key ingredient for self-driving cars. A coalition of German carmakers — BMW, Daimler and Audi — bought the map company from Nokia for $3 billion last year.

At the same time, Audi announced a partnership with NVIDIA, a California–based startup that makes chips for video games, to use machine learning and AI in self-driving Audis that will come to market by 2020.

Microsoft announced that it was rolling out its Connected Vehicle Platform to help carmakers and startups cooperate on five different priorities: predictive maintenance, improved in-car productivity, advanced navigation, customer insights and assistance with developing autonomous driving capabilities.

Renault-Nissan, the French-Japanese carmaker, announced that it would start incorporating Microsoft's Connected Vehicle Platform in new models for navigation, predictive maintenance and remote car monitoring.

Not to be outdone, Ford announced in February that it's investing $1 billion in Argo AI, a Pittsburgh-based startup founded by engineers from Google and Uber, over the next five years as part of its drive to achieve an autonomous vehicle.

Your Current Car Could Become Self-Driving

The age of self-cars may come sooner rather than later after Delphi, the giant car parts manufacturer spun off from GM, announced that it was going to start making kits to convert regular cars to autonomous driving vehicles by the end of 2017. By 2019, Delphi, which also did a deal with Mobileye, expects to sell the kits to OEM car manufacturers.

This comes on the heels of GM's decision to buy Cruise Automation for $1 billion. The sale of Cruise, which made kits to convert Audis into self-driving cars, was the largest exit ever for a startup from Y Combinator, the Silicon Valley incubator. GM says the company will make software for integration in GM cars.

Could Self-Driving Cars Disrupt the Entire Automotive Industry?

It's not just self-driving cars that are fueling the shakeup of the auto industry. It's how self-driving cars may incorporated into the marketplace that has car makers concerned. Uber is already trying out self-driving Volvos in select locations like San Francisco. If such a system really takes off, the disruptive potential is huge.

The concern: Most cars sit unused 90 percent of the time, so self-driving cars owned by a ride-share service could be hugely appealing to consumers. These cars could drop people off at work or home or wherever else they needed to go, without needing to be parked — or even owned by an individual. This could lead to a vastly shrinking car market.

This helps explain why GM last year invested $500 million in ride-sharing company Lyft, a Silicon Valley rival to Uber, and Daimler, maker of the Mercedes, increased its investment in Blackland, a Berlin-based Uber rival.

“We think our business and personal mobility will change more in the next five years than the last 50," said GM President Dan Ammann.