The prospect of autonomous vehicles whisking passengers and goods to their final destinations has dazzled the public’s imagination and driven billions of dollars in investment into the development of advanced driver-assistance systems (ADAS) over the last decade. By 2035, market analysists project that ADAS technologies could yield $300 billion to $400 billion in revenue for legacy automakers and systems manufacturers.
Despite certain setbacks that have delayed the broad implementation of autonomous vehicles, leading mobility stakeholders remain committed to ADAS technology development and its potential to transform the future of transportation, from reducing the number of on-road accidents to increasing transportation logistics and supply chain efficiencies.
The ADAS technology investment strategy has shifted and appears likely to continue to do so. As legacy automakers undergo extensive restructuring to allow for the mass production of electric vehicles (EVs), ADAS technologies has become more focused on systems that can generate value for manufacturers in the next five years. In 2021, investors poured a record $9.7 billion into the development of ADAS technologies. In 2022, those investments dropped by almost 60% to $4.1 billion.
These smaller, more targeted investments are indicative that ADAS systems are maturing, and more legacy automakers are focused on bringing ADAS technology, but not fully autonomous vehicle technologies, to market based on consumer demand.
In light of these trends, we anticipate that additional Level 2 and 3 ADAS technologies will continue to be introduced in passenger vehicles at an increasing level over the next five years, while Level 4 ADAS technology capabilities are more likely to be a focus for commercial trucks. Below we detail the trends and developments that have brought us to this point and the issues and opportunities they present to auto industry stakeholders.
Opportunity: Legacy automakers and mobility stakeholders will be introducing several new Level 2 and 3 ADAS technologies, which are designed to improve occupant safety and reduce accidents, in passenger vehicles, but the driver must remain ready to override the system and maintain control of the vehicle. Pursuant to SAE J3016, Driving Automation Systems for On-Road Motor Vehicles (more commonly known as the SAE Levels of Driving Automation), there are six levels of ADAS technologies, ranging from Level 0 (no driving automation) to Level 5 (full driving automation).
Level 2 ADAS include “partially automated” ADAS systems that combine automated functions, such as acceleration and steering, with the driver remaining fully engaged in the driving tasks at all times. Level 2 ADAS technologies require vehicles to be equipped with lidar systems that add materially to component costs, though some of the sensor and computing costs are decreasing.
Level 2 ADAS include features such as low-speed in-path object monitors, adaptive cruise control that can navigate regular traffic, heavy traffic jam pilots, and adaptive braking. It is expected that legacy automakers and mobility stakeholders will continue to invest in Level 2 ADAS adoption while they continue developing more advanced autonomous systems.
Legal Considerations: Development of safety architecture and guidance are core components of ADAS systems development, including robust consumer-facing disclosures that explain that Level 2 ADAS technologies are not substitutes for relinquishing human control over the vehicle.
Opportunity: Level 3 ADAS include “conditionally automated” technologies, which still prioritize human driver control. With Level 3 ADAS, human drivers can transfer safety-critical functions to the ADAS under certain traffic and environmental conditions, such as light or moderate traffic or in clear, precipitationless weather.
This level of automation requires advanced sensor packages, hardware backups, and sophisticated software to keep occupants safe, which carry material added component costs for each vehicle. The maturation of Level 3 ADAS technologies over the previous four years, as well as consumer demand for them, has been deemed to warrant continued investment in the evolution of these systems for passenger vehicles.
Legal Considerations: In addition to the legal considerations involving Level 2 ADAS technologies and consumer education discussed above, as the autonomous capabilities of ADAS systems become more advanced and can assume conditional control of the vehicle for longer periods of time, manufacturers and investors of Level 3 ADAS should be cognizant of the need to develop and update the ADAS cybersecurity and data privacy safeguards.
Implementation of reasonable cybersecurity and data privacy practices are essential for a variety of reasons, including becoming a market leader in cybersecurity and data privacy that inspires additional investment and consumer confidence in products.
Opportunity: Because of the steep development and validation costs for Level 4 ADAS technologies, which are projected to potentially exceed $1 billion per system, it is more likely that Level 4 ADAS would be first considered and adopted for commercial use, primarily commercial truck use. Level 4 ADAS, or “high automation” technologies, are designed to perform all safety-critical driving functions and monitor roadway conditions for the entire trip.
Level 4 ADAS technologies are limited to the “operational design domain” of the vehicle. In other words, the ADAS is not designed to account for every driving scenario. Presently, Level 4 ADAS is the highest level of autonomous driving technology available. Level 5 ADAS technologies, which do not require human attention and eliminate the “dynamic driving task,” are still in the conceptual stage. At the current rate of ADAS development, Level 5 ADAS technologies may not begin to appear as an option on US public roads for another 7 to 10 years.
Legal Considerations: Manufacturers and investors should be prepared to address the critical legal differences between autonomous vehicle standards in the United States and Europe, especially in light of the research and development costs associated with Level 4 and 5 ADAS technologies.
Level 4 ADAS technologies, installed in Class 4 to 8 trucks, could revolutionize the commercial trucking industry by reducing long-term costs and increasing supply chain efficiencies. During the COVID-19 pandemic, supply chain routes between seaports to rail depots and distribution centers ground to a halt due to labor shortages and caused bottlenecking in the consumer goods and manufacturing industries.
The pandemic highlighted the need for additional support for seaport to rail depots and distribution centers, among other trucking and shipping needs. Level 4 ADAS systems in commercial trucks could allow for 24/7 service on critical support routes. With respect to last-mile transportation, several parcel-delivery services have invested in Level 4 ADAS technologies that can support the delivery of goods from distribution centers and final purchasers.
Level 4 ADAS technologies are currently in use and in testing phases, and their on-road presence will likely continue to expand, particularly in states that have encouraged Level 4 ADAS development and deployment, such as Michigan, Arizona, Nevada, Texas, and Florida.
Level 4, and the future development of Level 5, ADAS technologies could eventually support the trucking industry. The Teamsters and other labor groups have been applying pressure on state legislatures to pass laws that would limit deployment of such ADAS technology by, for example, requiring at least one safety driver in the cabin of every semi- or fully autonomous commercial truck.
Legislation is pending in a number of states that may impede deployment of Level 4 or 5 ADAS technologies in the commercial trucking sector and, as such, while Level 4 ADAS technology in commercial trucks appears to be the way of the future, its deployment may remain state dependent, barring federal intercession (which appears to remain unlikely).
Because of the advancements in autonomous driving technologies, the next five years are critical for legacy automakers and mobility investors to capitalize on their investments and become market leaders in the Level 2, 3, and 4 ADAS technology segments. The shift in ADAS investment shows that certain stakeholders are satisfied with the development of their autonomous vehicle systems and will expand their product offerings that are supported by in-house research and development, albeit with the short-term focus for passenger cars and light trucks on Level 2 or 3 ADAS deployment while commercial vehicles are likely to be the primary focus for investment in, and deployment of, more advanced technology.
Opportunities and challenges continue to emerge in the ever-evolving automotive and mobility space, including developing hydrogen fuel infrastructure; safeguarding EVs, EV supply equipment, and the electrical grid from cyber threat actors; and introducing more complex ADAS technologies in passenger and commercial vehicles.
Morgan Lewis’s Automotive & Mobility team offers unique insight into the complex legal and regulatory issues automakers, component manufacturers, technology suppliers, distributors, and other mobility stakeholders need to consider before pressing the pedal today on the trends that are driving the industry toward tomorrow.
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