Driven by doubt: is reputation the real roadblock to AI adoption in automotive?

Our litigation report shows the auto sector is most concerned about AI risks, yet internal adoption remains low. Jonathan Smart explains why, for many automotive firms, safeguarding reputation outweighs cost when it comes to emerging tech.

For an industry at the vanguard of technology and mobility, it is no surprise to find the impact of artificial intelligence (AI) in automotive at the top of the agenda for many businesses.

That is certainly true when we analyse the findings of automotive respondents to our annual litigation survey. The study, which surveyed respondents based in the UK working for companies with revenues in excess of £100 million, found that the threat of AI disputes was seen as a bigger risk for automotive respondents (65%) than any other sector surveyed, with real estate (38%), financial services (55%) and technology & telecoms (50%) all trailing behind. On the flipside of that, the survey found that internal AI adoption among respondents in the sector was slower compared to the others surveyed, especially financial services.

Those two findings are indicative of an industry that is both aware of the threat AI poses, but also a reluctance to adopt it internally to help streamline operations and improve efficiency.

A big driver of that is because processing customer data using AI is a substantial risk. Automotive companies by their very nature are consumer-facing businesses and if a manufacturer was to start using AI to interrogate, say, the purchasing trends for 100,000 of its customers, it could get into hot water very quickly.

The consumer-focused nature of the businesses is critical to this. If a business is operating in the B2B technology sector it can potentially be a little bit more relaxed if it wants to use AI to identify market trends. That’s because the data is either fully anonymised or pseudo anonymised – you just can't do that with consumer data in the same way.

For many businesses we work with, using AI internally is perceived as being as risky as using it in the products themselves. OEMs are very careful about the regulatory framework of how they use it internally – probably more than almost any other industry, apart from financial services. Although there are some businesses that will freely use AI products with no risk assessments, it is only as long as it's not touching customer data.

Using AI in the products themselves is also a cause for concern for many. Although there are Chinese and US OEMs doing on-the-road trials of Level 5 autonomous cars that handle all driving tasks without any need for human intervention, those examples are rare and being carried out by new market entrants. Not a single traditional OEM is trialling the use of AI in the products themselves yet.

Protecting reputation

Some of that reluctance may be the threat to reputation traditional OEMs face if AI technology was to go wrong. That is something borne out in our survey, which found that more than two thirds (68%) of respondents identified protecting their reputation as the main driver for pursuing litigation.

Again, this is down to the nature of the businesses. Consumers in general are much more swayed by reputation, which makes automotive companies more concerned about protecting it. There are also recent industry-wide lessons from emissions litigation, which has seen legal battles over alleged breaches of emissions regulations , that has led to boards being increasingly reputation focused. The final piece of the jigsaw is that the sector operates with a relatively low profit margin on a unit-by-unit basis – in short, you need a lot of consumers to buy a lot of cars to make a profit.

If you compare that to an industry like technology, businesses in that sector can sell products to businesses that are much more profitable on a gross margin basis. It's aggressive in the automotive industry right now with Chinese OEMs coming in and undercutting margins, not to mention the challenges of tariffs and supply chains.

In that environment you've got to fight for every single customer and protecting your reputation is the key to doing that.

More information

The full version of our litigation report can be downloaded here.

We produce a bi-annual legislation tracker, Accelerate, that helps our clients stay ahead of the legal changes affecting the automotive sector. You can subscribe here.

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