When automakers talk about the connected car -- a car that sends and receives data wirelessly -- they tend to have an almost exclusive focus on what they see as the positive aspects. But what about the downside?
Most commonly, automakers emphasize that they can remotely control changes to the car -- so called over-the-air software updates ("OTA"). This way, they can fix bugs and implement new functions, without having to bring the car in for a wired connection. Those capabilities can be positive for the automaker and the consumer. But there's also a downside.
This came to light recently when Volkswagen (VLKAF) partnered with Microsoft (MSFT) - Get Report for connected-car functionality. Many of these considerations are not specific to Volkswagen, but will also be faced by many, or even most, automakers in just a couple of years from now.
One of the greatest fashions in the automotive world today is that it's a good idea to make the automobile "connected" to the Internet. This lets vehicles receive software updates wirelessly, as well as an unspecified list of new "services." Almost all automakers are moving forward with some plan to implement this technology, which began in a major way by Tesla (TSLA) - Get Report starting in 2012.
One variant of this development, is what Geely-owned Volvo and its performance brand Polestar has announced: Build Android as the infotainment operating system and app store, in the car itself (not via Android Auto, where you plug it in and out via the phone). This new embedded solution puts an unknown amount of power into the hands of your Google by Alphabet (GOOG) - Get Report account, and with that a long list of perils. More about that later.
In Volkswagen's case, it is launching, starting this year, 70 new battery-electric vehicles (BEVs), including at least 27 on the low-cost MEB (modular electrification toolkit) platform by year 2022. This new Volkswagen BEV platform is designed to work on wireless software updates and a long list of embedded software services in the car.
To manage this connected-car applications and infrastructure, Volkswagen in February partnered with Microsoft: For some reason, VW felt that it did not have the in-house expertise to figure out this on its own.
One wonders about the timing of technology development in the context of the first Volkswagen MEB car -- the so-called ID -- starting production this November. It's supposed to go on sale early 2020 -- and VW will be taking deposits or orders on May 8.
With an announcement only nine months in advance of production, it is typically the case that all specifications must have already been frozen years prior, leaving the last 21 months to durability and other quality testing. In other words, this Volkswagen-Microsoft announcement seems too late to be relevant for this particular Volkswagen electric car and its start of production in November 2019.
One must therefore conclude that Volkswagen already had some other, in-house development before getting Microsoft involved. Otherwise, you would not have this particular vehicle development program dependent on this new technology infusion.
What will this mean for privacy?
We are just now starting to react to what a connected car can do to your privacy. Here is one of the earliest examples, in the form of Axios describing what a Tesla knows about you.
In European data-privacy terminology, including in the automotive industry, we keep hearing this mantra that "The customer owns the data." But what does that mean?
It doesn't mean that data isn't being collected. It means some sort of fuzzy concept that the consumer "owns" this data after someone else has collected it. But what does that mean, in practice -- and over time.
I argue that when they say "the customer owns the data," it gives no protection for the consumer. The data is being collected, and it is really out of the consumer's control how it will ultimately be used -- even if not right now, today. For example, what if there is a new law or interpretation of an existing law, that suddenly says something different about what can be done with this data? Do you really "own it" if you don't control 100% of how it will be used, forever?
Then, in the future, the damage is already done. With the data out of the consumer's hands, the consumer is rendered powerless. The horse is out of the barn. Once upon a time, when the promise was made, you "owned" the data -- and now you don't. So, you pretty much didn't own in the first place, did you? At a minimum, this "consumer owns the data" mantra was 100% worthless, in the end.
The only way to prevent this, is for the automaker to ensure three things to the consumer: The car collects no data, the car transmits no data, and the car receives no data.
Basically, the car should not have a (cellular or WiFi) modem, and it should not have recording capability mated to its sensors. Will Volkswagen offer this option to its customers? Volkswagen, just like all automakers, used to do that, of course -- as the technology didn't even exist until relatively recently. That's why some of us are looking to buy only old used cars going forward, unless this trend changes. We call it "The Cubanization of the fleet."
In Cuba, those cars are all since before 1959. In the U.S. and much of Europe and Asia, they would have to be older than, say 2005, or in some instances 2020 or even newer.
So far, I have no evidence that Volkswagen will offer such a "no modem, no record" option for its customers, in the future. Maybe it will, but until it has stated so, I have to assume that it won't.
I don't know which automaker will do it, but I think it would be a huge opportunity for an automaker to offer such a privacy option. It's impossible to say in advance what percentage of customers would choose it. I am pretty confident that it won't be 1% or 99%. It'll be somewhere in-between. Approximately 50%? Who knows?
Even if it is only 1% of the market, it seems very worth it for an automaker to offer such a privacy mode. Capturing even a single percentage point of market share is a huge deal in the very large automobile industry, and this would be an easy way to do it. It would not even cost anything. It's a "tech delete" option which may even save a few dollars per car.
Volvo is now opening up a new frontier in this privacy battle. Yes, it is going to be installing cameras in its cars, so as to -- how can I say this politely -- monitor its drivers. Yes, the purpose is -- as always -- "noble" because it's meant to catch people who have been drinking and are distracted.
But that's what they all say: It's good for you, and don't worry. Somehow, citizens in dictatorships have a different view of this. Why shouldn't someone -- ultimately, the government -- listen to everything you say, and film you in your car? I mean, if you don't have anything to hide, why should you complain about this?
Do Volkswagen's plans -- without without Microsoft -- involve cameras with transmit and recording capability? If so, has VW asked its current and future prospective customers first, whether they want them?
In Volkswagen's dealings with Microsoft, it ought to think about what the consumer really wants, and at least offer a diversity of options: If you don't mind the car collecting, transmitting and receiving data, then you can have a modem there, and allow it to record video/audio, among other things. But if you want eternal privacy, offer the "no modem, no record" option in all Volkswagen models.
If VW does not offer this second option -- privacy -- then it risks losing a lot of customers to the automaker(s) which does offer such an option. This debate is just getting started, and I expect such offerings to appear in the next 2-4 years.
At that point, I expect one or more automakers to "break ranks" and offer a non-connected version of their vehicles as a major selling point. What will happen then? My guess is that the first automaker to do this, will become associated with the feature, just like Toyota (TM) - Get Report became synonymous with "hybrid" almost two decades ago. For something that could capture more market share than hybrids have ever done (in the U.S. market anyway), that would be a big deal for any automaker.
Electric, Shared, Autonomous and Connected
Almost every automaker has some form of acronym for most or all of these new or future trends. When most automakers go on stage and present these days -- and for most of the last 2-3 years at least -- these "technology trends" have been presented as a package. To the untrained eye (and ear), it seems like they are one big package deal: You want one (say, electric), then you must get the others, too (say, connected).
It's a mistake to assume that the consumer will accept all of these technologies and potential future trends equally. Let's take them in turn:
Electric: This one is in many ways the easiest to predict. People ask me all the time what I think electric car sales will be in so-and-so many years into the future: What percentage of overall car sales, etc.? My answer is always the same: As many as the government mandates or incentivizes.
You see, there is almost zero "natural" demand for electric cars. In a world without mandates, subsidies and other incentives, the EV take rate has been around 0.1% thus far. However, it would be 100% if the government simply banned non-EV cars. In reality, most countries and regions have pursued policies that are now pushing EV adoption to 2%-3% in the near term, with a pathway to 10% in less than five years from now. Norway is the outlier, where sales have been close to 50% in 2018 and is exiting the third quarter of 2019 well above even that.
Shared: This is a combination of new deregulated taxi services such as Lyft (LYFT) - Get Report and Uber, as well as extreme short-term or other rental situations, where you don't have to get your car from the traditional rental car companies such as Hertz (HTZ) - Get Report or Avis (CAR) - Get Report . There is no doubt that there is consumer demand for these services. If the price is right, this is a no-brainer. The problem thus far is that the providers have subsidized these services, which can't go on forever. I don't know anyone who doesn't love the subsidized prices they get from LYFT and Uber. When their prices have to rise, what will the "real" demand be?
Autonomous: This is worthy of a far longer discussion, but let's start with a fact that ought to be more obvious than it seems to be: The product doesn't exist yet. The best illustration of this debate may be this rebuttal by Ed Niedermeyer to a recent article by Kara Swisher: Basically, Swisher says that we will all be in driverless cars soon enough. I think that Apple (AAPL) - Get Report said the same thing about pen-based computing (The Newton!) ca. 1986 too, but never mind. The product doesn't exist yet, and we don't know how people will react to it. This is decades away, still.
Connected: This is the main topic of this article. It is assumed that the car will be one big smartphone, and that the consumer will gladly let someone -- the automaker, your government, someone else's government -- control the car's software via wireless access. My point is that I think it is unwise to take this for granted. It's one of those things that sounds nice -- if you assume that the person on the other end of the "wire" (wireless) are good-hearted people whose interests are aligned with yours. But what if that other person represents a less benign regime? The point is that you are ultimately not in control of this, over time.
The public is just beginning to become aware of how much data at least some new cars are starting to collect on their life. Here is a good example of a new frontier.
I expect it may still take two to four more years until the population realizes what can be remotely done to their car, given the connected status of the new cars Volkswagen and others are bringing to market starting in less than a year from now. And they may not like it.
Volkswagen, along with its new connected car partner Microsoft, had better figure out a fallback plan if the consumer demands three things from their cars going forward: Don't record/collect any data. Don't transmit any data. Don't receive any data.
If Volkswagen -- and other automakers -- don't offer an option for the consumer to buy a non-connected car, what happens if the consumer doesn't want it? Someone at Volkswagen really needs to have a contingency plan for this.
At the time of submitting this article for publication, the author was short TSLA and long GOOG, GOOGL, AMZN, FB, FCAU and GM. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers. Volkswagen hosted a press conference.