AUTONOMOUS DRIVING: UNDERSTANDING INNOVATIONS IN AUTONOMOUS VEHICLES THROUGH DIFFUSION MODELING

Abstract

The world automobile market is potentially at a tipping point that would allow autonomous vehicles (AVs) to be widely adopted. The global automobile manufacturing output is over $3.0 trillion annually. Auto-related deaths in the United States in 2019 were over 30,000. In 2009, Americans spent over $150 billion on annual automobile insurance premiums. Since 2012, at least 41 states and D.C. have considered legislation related to autonomous vehicles. The largest automaker by volume is Volkswagen (VW), having produced over 10 million vehicles in 2019. Tesla produced fewer than 500,000 vehicles in 2019 but has an almost 50% larger market capitalization than VW. And over the past 10 years, more than $1 billion has been invested in dozens of startups to build a single type of sensor, LiDAR, that helps autonomous vehicles perceive their surroundings. The autonomous vehicle revolution is underway. But like all great paradigm shifts, understanding what is happening while it is happening is a difficult task. Academics in the field loosely defined as Innovation Theory have studied the phenomenon of competitive displacement from innovation all the way back to Schumpeter in the 1930’s. In the intervening century, many theories and some actual formulas have been developed to aid in the understanding of these “gales of creative destruction.” This thesis studies the underlying technology that is enabling autonomous vehicles, the industry incumbents investing in the technology, and the startup companies that are attempting to either partner with or wholly displace the incumbent market participants. It also reviews the legal framework around AVs and the impact that AVs might have on the insurance industry. Models first developed by Bass in 1969 to explain the diffusion process for innovation are leveraged to understand where the nascent autonomous vehicle industry might be on the S-Curve of technology adoption and what impacts various factors might have on the timing and eventual success (or failure) of the marketplace.