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BriefCASE: The robo-taxi gamble - Extended return-on-investment timelines rattling investors
Aptiv's decision to discontinue capital support for Motional further accentuates the industry concerns around the return on investment related to the commercialization of Level 4/5 robo-taxi business model.Aptiv's CEO, Kevin Clark, stated during the company's fourth-quarter earnings call that although Motional, its robo-taxi venture with Hyundai Motor, continues to progress on its technology roadmap, Aptiv is exploring alternatives to reduce its ownership interest. "The costs related to delivering the tech principally, in and around hardware, really makes it challenging from an adoption standpoint in the mobility on-demand market," Clark said. Motional was established in 2020 as a 50:50 joint venture (JV) focused on autonomous driving technology with each partner investing $2 billion. Its roots trace back to nuTonomy, founded in 2013 by Karl Iagnemma and Emilio Frazzoli in Boston. NuTonomy rapidly gained recognition for successfully testing autonomous vehicle technology on public roads. In 2017, Delphi acquired nuTonomy for a substantial $450 million. As Delphi later underwent a strategic split, its focus on advanced electronic systems, safety technology, and autonomous vehicle hardware and software crystallized into Aptiv. NuTonomy seamlessly integrated into Aptiv. Collaborating with Hyundai Motor, Motional unveiled plans to co-develop production-ready autonomous versions of the Hyundai Ioniq 5, earmarked for deployment in a robo-taxi service slated for launch this year. The Hyundai Motor Group Innovation Center in Singapore emerged as a pivotal hub for advancing this initiative. Motional's geographical footprint extends across key cities worldwide, including Boston, Pittsburgh, Las Vegas, Los Angeles and Singapore, where rigorous testing regimes validate the robustness and safety of its technology. Notably, Motional established autonomous delivery services in partnership with Uber Eats in Los Angeles. Motional also announced its plans during CES 2024 to collaborate with Kia on developing next-generation vehicles primed for commercial deployment later this decade. Motional's robo-taxi service ambition now depends on Hyundai Aptiv's decision was positioned as a strategic maneuver rather than a sign of skepticism toward Level 4 mobility-as-a-service (MaaS) technologies, but it is impossible to fully separate the two sentiments. From this perspective, Aptiv will be reallocating resources to support its impressive near-term growth in advanced driver assistance systems and automated driving of which it is a conventional technology supplier. This shift bolsters the company's revenues while allowing Aptiv to mitigate the risk associated with continued investment in a technology with uncertain return-on-investment (ROI) timelines. Another perspective speculates that Hyundai may choose to continue funding and developing autonomous technologies, without the involvement of Aptiv. One aspect supporting Hyundai's potential independent funding and development is the significant role of original equipment manufacturers (OEM) in the mobility landscape. OEMs serve as the primary point of contact and engagement with customers, whether in traditional vehicle ownership or the emerging market of autonomous MaaS similar to Uber or Didi. Given their close relationship with consumers, OEMs have a vested interest in advancing autonomous technologies to meet evolving consumer demands for mobility solutions — and Hyundai has shown its desire to be viewed as a high-tech brand active in new technologies. Is there new competition within Hyundai Motor Group in its 42dot acquisition? Either way, with Aptiv stepping back, Hyundai-Kia Motor Group will be considering the future of the Motional JV. It may choose to shut down the JV entirely, which would imply a lack of certainty surrounding the viability of Level 4 MaaS technologies — or at least a markedly similar interpretation to Aptiv on ROI timelines. The potential decision to close the JV could stem from various factors, including bolstering its financial strength or realigning its strategic priorities; however, it may simply need to focus on other nearer-term challenges (such as the late-2023 delayed launch of its Level 3 features). However, the Level 3 delay brings another interesting angle. Just three years after Aptiv acquired nuTonomy, Hyundai acquired 42dot in 2023 for $328 million with Hyundai and Kia holding stakes. In November 2023, Hyundai postponed its launch of the Level 3 Highway Driving Pilot. Just a month later, Hyundai consolidated its electronics, infotainment and autonomous driving efforts under 42dot in a push to advance its software-defined vehicle initiatives in a software-focused reorganization. The influence of startup 42dot will play a larger role within Hyundai's core business, starting with advancements in electrical/electronic architectures, crucial for the redevelopment of its Level 3 technology. This raises a question — will Motional continue to influence Hyundai's Level 4 ambitions, or will 42dot take on this responsibility? This does not necessarily signify the end for Motional, as it could potentially be retained as a US subsidiary (given the relatively high prospects for robo-taxis) or as the consumer-facing mobility brand in the US market. However, if Hyundai maintains its Level 4 ambitions, it could lead to a significant shift in the organizational structure and positioning of its product/expertise. These alternative viewpoints highlight the complexity and dynamism of the autonomous vehicle industry and the uncertainty of the robo-taxi business model to operate sustainably and profitably. This is causing stakeholders to weigh their long-term ambitions against competing priorities, including short-term profitability as well as midterm growth of core business units that should make their future positions even stronger — presumably to be ready if and when Level 4 MaaS is ready for prime time, provided there is still market share to be captured. Authors: |
This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.