What self-driving vehicle technology means for FDI

At software company SAP’s global headquarters in Walldorf, Germany, there are shuttles to ferry employees between the 21 buildings that make up the complex. The software conglomerate is considering replacing these vehicles with autonomous, or self-driving, vans, according to Uli Muench, global vice-president of the company’s Industry Business Unit for Automotive.

The volume of people that these autonomous cars would be moving – there are about 5000 employees at SAP’s headquarters – is not enough for the idea to be a game-changer in terms of efficiency or monetary savings, according to Mr Muench. Rather, the point would be to showcase SAP’s own connected vehicle Internet of Things (IoT) technology.

SAP is preparing for autonomous cars being an integral part of the global economy in the short to medium term, and, along with other forward-looking companies, it is planning for their arrival today. SAP is devoting significant resources to the development and deployment of the technology. “Autonomous cars and trucks will remake or have an effect on just about every industry in the economy,” says Mr Muench.

A brave new world

Such technology could have serious consequences for site selection. Self-driving cars and trucks could literally redraw the map for these decisions.

For example, a headquarters would no longer have to be located close to a talent pool because long commutes would not be the burden they are today. The same would apply for factories or distribution centres, or any investment in which nearby talent is a factor in site selection. “There are a lot of places around the world where getting to work is a problem because of traffic or unpredictable infrastructure,” says Aaron Steinfeld, associate professor at the Carnegie Mellon School of Computer Science. “Autonomous vehicles will provide more predictability around arrival and departure times.”

He adds that people will be less likely to object to longer commutes if they can do other things – read, check email, talk on the phone – instead of driving.

Keep on trucking

Autonomous vehicles will also change the dynamic between manufacturing facilities and suppliers – especially with the IoT as part of the mix – because materials will be able to move back and forth on an automated basis. “Creative applications of autonomous vehicles, especially for short-range distances, could change the way people think about real estate, sourcing and manufacturing operations,” says Mr Steinfeld.

The transportation of goods over long distances would also see major changes with this technology, bringing time and efficiency savings that could translate into cheaper and faster distribution services for companies. One example is the vehicle-to-vehicle communication truck manufacturers are experimenting with to learn more about drag and wind resistance, which has implications for fuel consumption.

“Imagine 10 trucks on a highway,” says Mr Muench. “The first one is in the wind with the remaining nine following in the draught of that first truck, which has been equipped with sensors and radar to monitor the conditions and report back to the other trucks, which then modify their driving accordingly. That would allow them to drive within, say, two feet of one another, which has huge implications in terms of profitability for transportation companies.”

Bringing it together

Much of this research is being carried out in the Netherlands, which decided years ago that it would not only be the world’s destination for self-driving vehicle test beds but also the integrator of the various parts that make up this technology, according to Bram Hendrix, manager of smart mobility at AutomotiveNL, the cluster organisation for the Dutch automotive industry.

One recent project tested intelligent traffic lights that kept the lights green for oncoming  trucks to help them save on fuel. “This technology is not just about the vehicles, but also the communication among the vehicles and with the infrastructure,” says Mr Hendrix.

The changes brought about by self-driving vehicles will have ripple effects that are hard to imagine today, according to Ben Pickett, transportation partner with law firm Moore & Van Allen. These will range from a greater availability of clean energy – most of these vehicles will be electric – to how these assets will be accounted for on a company’s books, he says.

He adds that companies that will use or be affected by autonomous cars should waste no time in engaging with the vendors active in this space, such as Ford, General Motors, Daimler and Volkswagen. In addition to that, they need to be making decisions about where they locate and how they will distribute based on the assumption that autonomous cars and trucks will be part of the future. “When you build a massive building to make goods, you’re deploying assets that will last for 40 to 50 years,” says Mr Pickett.

Companies also need to be pressuring their local and national governments to deliver standards and regulations as soon as possible. Lagging regulations pose a real risk to autonomous vehicle manufacturers and their clients, according to Mr Pickett. “Once a company makes an investment in this technology, it needs to be able to put the assets to work right away. Because they will be on the books and you don’t want a balance sheet to reflect that level of investment with no way to use it,” he says.

Who will go first?

Despite the clear benefits of the technology, experts anticipate a reluctance among companies to be the first to fully embrace the use of autonomous vehicles in a business operation. “If you are the first company to use autonomous trucks and one of those trucks hits a school bus, there is a reputational impact on the company because it was a first mover,” says Thomas Regan, chair of product liability and transportation practice area at law firm LeClairRyan. “The narrative will become: ‘You rushed the process and that’s why this accident occurred.’”

There are perhaps a handful of companies in the world positioned to be first movers, however. “They are the ones with the highest market cap, with all the cash, that are self-insured, that can invest in the process more quickly than anyone else and can take a liability hit if there is an accident,” says Mr Regan.

And if all goes well with that first deployment of autonomous vehicles, there will be no stopping those first adopters – or the technology.