Giant auto-industry supplier Delphi Automotive (NYSE:DLPH) and driver-assistance technology specialist Mobileye (NYSE:MBLY) announced on Tuesday that they will team up to make a "turnkey" self-driving system available to nearly all automakers starting in 2019.
The details of the deal involve a lot of obscure-sounding technology and auto-industry inside-baseball, but here's the big takeaway: Every automaker will have access to stable, reliable, ready-to-go self-driving technology in just three years. Every automaker.
This is a very big deal. The race to develop self-driving technology isn't quite over, but it may have just become irrelevant. That should change a lot of investors' assumptions about the impending "disruption" of the auto business by tech companies.
The details of the deal
The deal involves a new system called the "Central Sensing Localization and Planning" platform, or CSLP. CSLP will essentially be a specialized computer that can act as the brain of a car with a self-driving system. It'll use the input from various kinds of sensors (radar, cameras, and LiDAR) to drive the car in a way that seems human.
"Seeming human" may sound silly, but it's an important safety consideration for a self-driving car that will share roads with human-driven cars. It'll help the self-driving car give the human drivers recognizable cues when it does things like change lanes or merge onto a highway.
Last year, Delphi acquired a start-up called Ottomatika that had developed expertise in "driver behavior modeling," creating software algorithms that will allow a self-driving car to act in ways a human driver would. That expertise will be folded into the CSLP system along with Delphi's existing sensor technology and controllers and Mobileye's image-processing and deep-learning capabilities.
This isn't a new relationship. Delphi and Mobileye have been working together on driver-assist systems for roughly 15 years. Between the two, they've accumulated hundreds of millions of miles of real-world testing and huge amounts of data. They're exceptionally well-positioned to bring a safe, trustworthy Level 4 self-driving system to the industry.
The partners plan to demonstrate the CSLP system at the Consumer Electronics Show in January. It'll be ready for production in 2019.
Does that mean all automakers will be selling self-driving cars in 2019?
Not quite. It means the technology will be available to automakers in 2019. It could take another year or two before it starts to appear on vehicles that you can buy at a dealership.
In practice, it could take several years more before it's available on all cars. The CSLP system is expected to cost $3,000 or more per car. It'll almost certainly start out as an option on higher-end vehicles, making its way to mass-market rides as costs come down over time. It does mean any automaker will be able to offer self-driving technology if and when the market demands it.
What does this mean for automakers who are spending big to develop their own self-driving systems?
Several automakers already have self-driving research and development efforts in advanced stages. This deal doesn't undermine those efforts.
First, they may still beat many or most of their competitors to market. More importantly, over the longer term, they may have much more favorable cost structures (and better-integrated systems) than rivals who choose to purchase the CSLP system.
Who benefits most from this deal, aside from the participants?
First, it helps automakers like Fiat Chrysler Automobiles that haven't been willing or able to commit major resources to a self-driving development program. Second, in the sense that self-driving technology will almost certainly turn out to be a huge advance in safety, it helps out everyone by allowing more automakers to bring it to market -- soon.
For investors: Silicon Valley's car efforts just got counter-disrupted
As I said above, it means that the idea of a "race" to self-driving technology may have just become irrelevant.
Investors who have been thinking in terms of Silicon Valley actors "disrupting" incumbent automakers with self-driving technology now need to think again. Incumbent auto-industry suppliers are turning self-driving technology into a commodity that will soon be available to any automaker.
The deal calls into question a popular idea in tech circles, that cars from incumbent automakers will follow the path of smartphones, becoming low-margin "platforms" for operating systems from Apple (NASDAQ:AAPL) or Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google Self-Driving Car Project. (Or alternatively, that the "dumb" cars from the incumbents would be eclipsed and eventually out-sold by "smart" cars from the likes of Tesla Motors (NASDAQ:TSLA).)
A key to that idea has been the assumption that the Silicon Valley companies would develop self-driving capabilities long before the automakers could. That's out the window now: Even if Tesla beats Delphi and Mobileye by a year, it won't matter.
Where Silicon Valley might beat CSLP is on up-front costs. One could imagine the tech giants making their systems available for "free" in exchange for controlling the data gathered. But I don't see that cost advantage helping them much: The automakers are very mindful of the smartphone example, and in any event, most will favor a solution that comes from proven industry suppliers that understand their needs.