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Source: Econsult Solutions (ESI) & ANBOUND
Friday, May 31, 2019

We asked our experts at ESI and our think tank partners at ANBOUND, located in Beijing, China, to give their thoughts on the future of technology from both a US and Chinese perspective. They focused on four major topics: smart cities, jobs of the future, autonomous vehicles, and tourism-related apps. Look out for a blog post each Friday for the next month related to these topics to get key insights from both a U.S. and Chinese viewpoint.

This week, ANBOUND staff and ESI staff including Daniel Miles, Gina Lavery, and Alison Shott give us their thoughts on the future of autonomous vehicles (AV) in the US and China, and what AVs mean for the future of real estate and development.

How are governments responding to the regulatory challenges of AVs?

ESI – Daniel Miles: AV developments present new regulatory challenges. Government reactions vary from all-out bans on AVs like in India, to clear regulations that support the development of the AV industry and place few restrictions on the when, where, and how testing may occur. Australia, Finland, Singapore, and the Netherlands have shown leadership in adopting AV regulations that allow for the technology to grow.

Singapore first announced the establishment of the Singapore Autonomous Vehicle Initiative (SAVI) in 2014 and public road testing began in 2014. In 2018, Australia introduced the Safety Assurance for Automated Driving Systems Consultation Regulation Impact. This follows the release of national guidelines for trials of automated vehicles on Australian roads in 2017. The guidelines set out how autonomous vehicles can be tested on public roads in the country. Australia has also enabled state and territory governments to enact AV regulations, with South Australia first allowing legal tests of AVs on public roads in 2015. Finland and the Netherlands have also granted road traffic permits for AVs to be tested on public roads.

The majority of countries included in the Autonomous Vehicle Readiness Index (AVRI) have some regulations, indicating that there is a worldwide shift towards recognizing AVs as a future component of transportation. Some countries, including China, do not yet allow AVs on public roads, but have announced that they are working on regulations. The notable exception is India which, as noted, has banned AVs.

How are consumers responding to developments in AVs? Are they willing to ride in them?

ESI – Alison Shott: As part of its 2019 AVRI, KPMG along with ESI ThoughtLab undertook a 25-country consumer survey on AV acceptance. The survey found wide disparities in consumer acceptance of AVs, with the highest acceptance in non-Western countries and the lowest levels of acceptance in English-speaking Western countries. India, Mexico, and Russia ranked highest for AV acceptance and China ranked 5th of the 25 countries. Conversely, the United States ranked 24th for consumer acceptance, with Canada ranking 23rd and the United Kingdom ranking 25th.

The likelihood of consumers adapting to the technology depends not only on their acceptance of AVs in concept, but their adoption of technological changes and ridesharing. In order to account for the factors that will enable consumer access and openness to AVs, the AVRI also included technology readiness and ridesharing market penetration. China led the 25 countries in ridesharing market penetration, but lagged in the KPMG change readiness technology use sub index and the World Economic Forum technology readiness index.

ANBOUND: In addition to KPMG's survey, Continental AG also conducted a survey on automated driving in 2018. The survey revealed that 62% of German, 77% of American, and 56% of Japanese respondents were afraid of automated driving. In China, only 28% of respondents were afraid of automated driving. Moreover, up to 72% of respondents in China look forward to automated driving, compared with 17% in Germany, 27% in the United States and 47% in Japan. Compared with the European, American and Japanese markets, China has a higher degree of AV acceptance. We expect that with technology improvements and an increase in the level of AVs, consumer awareness will be further enhanced. However, despite China having the greatest potential in the driverless car market, China is still lagging far behind that of Europe, U.S., and Japan markets in terms of generating patents for driverless technology.

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Are countries ready for the technology that will be required to use AVs?

ESI – Alison Shott: AVs will require extensive high-speed mobile internet coverage. They require significant amounts of data to be shared with entities outside the vehicle and therefore need widespread high-speed coverage in areas where AVs seek to travel. All of the 25 countries included in the AVRI are in the process of developing 5G networks, but most are still several years away from achieving that milestone. In the interim, countries can use 4G coverage as a proxy for the high-speed internet coverage that will be required. Among the 25 AVRI countries, coverage ranges from 55% of the population in Brazil to 96% in South Korea.

What kind of market changes are already happening on account of the impending acceptance of autonomous vehicles?

ANBOUND: Driverless cars are having a strong and subversive impact on the traditional automotive industry, which hasn't seen major changes in the past 100 years. We anticipate that some emerging internet technology companies and those with the flexibility to pivot their strategies will become new giants in the industry. By then, the concentration of the automotive industry may increase significantly. In this unprecedented technological shake up, a large number of traditional automakers could face many challenges in transforming and adapting to this change. In the long run (about 15-20 years), it is possible that many conventional automakers and their upstream and downstream suppliers may gradually close down, and countless workers will lose their jobs. Hence, automakers need to innovate to remain competitive, and the same goes to traditional supply chain companies.

What changes can countries or regions adopting AVs anticipate in terms of supply chain and logistics?

ANBOUND: With the rise of AV and improved conveniences, fewer drivers will be needed for the trucking industry which will reduce supply chain costs, because the process of transporting goods from manufacturers to consumers will have a lower overhead cost. This will likely impact where logistics properties are located. It will also increase the competitiveness between e-commerce and storefront retail locations.

ESI – Gina Lavery: Traditional retail is already blending the online/storefront model (so catching up to e-commerce), but AVs offer e-commerce companies the opportunity to further reduce their cost—another competitive advantage for e-commerce. Companies that continue to adapt new models and meet the evolving expectations of consumers will continue to thrive.

Digging in deeper to how AVs will impact consumers, what changes can we anticipate to people's travel habits and commuting patterns?

ESI—Daniel Miles: AVs have the ability to revolutionize the way people travel as well as completely change the way goods are shipped from their manufacturers to consumers. It has been hypothesized that AVs will transform the entire driving experience, allowing a driver to go from spending his or her morning stuck in traffic to sitting back, being able to do everything from getting a jump on work for the day, to watching a movie, or even catching up on sleep. If the hours spent commuting can be put to good use it could lead to productivity gains. It could also mean that preferences may change in where people live and work.

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Related to commuting patterns, how can we anticipate land use patterns changing as a result of AV adoption?

ANBOUND: Preference changes for where people live and work as a result of AVs are not obvious. One could argue that denser land patterns might emerge, as parking garages and on-street parking would no longer be in demand, and therefore cities can get even more compact than they are. On the other hand, some would argue that without the need to physically drive, there could be less emphasis on the value of living near transit or near a city (since one could work in the comfort of their vehicle during the morning commute).

ESI – Gina Lavery: I agree that we'll see more dense cities and suburbs—with AVs' able to self-park or be in use by others rather than stowed away in garages, less space in cities and the suburbs will be needed for parking infrastructure. It may not do away with garages in the short term, but there are real implications for infill opportunities both in cities but also suburban areas with large surface lots. Smart developers would start thinking of how to flex their garage spaces for a mix of uses. The demand for residential houses with garages will also shift as AVs gain wide acceptance and there will be less demand for houses with garages.

ANBOUND is a multinational independent think tank that focuses on information research and analysis in the areas of public policy, finance, and risk. ANBOUND has provided strategic assessment, policy analysis, economic analysis, and other research and information services to governments, top 500 companies, and financial institutions in Mainland China.

Dr. Daniel Miles, Vice President & Associate Principal, leads economic analysis across a variety of sectors and industries. Additionally, Dr. Miles is the Chief Economist of ESI Thoughtlab. Prior to joining ESI, Dr. Miles was a Senior Economist at Oxford Economics where he led a multinational team of economists based in New York, Belfast, and London.

Gina Lavery is a director at ESI. Her practice areas include economic and fiscal impact assessments, economic development and market studies, as well as transportation. Prior to joining ESI, Gina was a research analyst for Jones Lang LaSalle in Philadelphia where she was responsible for market research and analysis.

Alison Shott, Ph.D. was a director at ESI. Alison's dissertation examined the role of municipal associations in inter-municipal cooperation and collective intergovernmental lobbying. She continues to actively publish in these areas.

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