The car manufacturing industry is undergoing a huge transformation after having been free of significant disruptions for about 100 years, since the first mass-manufactured car was marketed by Ford Corp. in 1903.

The first change is the replacement of the internal combustion engine, the workhorse that has powered cars since the early twentieth century, with an electric engine. A continuous increase in the production and purchase of electric vehicles is to be expected over coming years, a 2017 report by Israel’s Innovation Authority published on Monday said.

The second change is the autonomous vehicle revolution, which will push the world to transfer the driving of cars from humans to machines and bring a “dawn of a new transportation age,” the report said. Most car manufacturers have set the early 2020s as the target for entering the market with cars that will drive autonomously 90-95 percent of the time.

Get The Start-Up Israel's Daily Start-Up by email and never miss our top stories Free Sign Up

A regulatory environment must be developed, however, to enable the mass marketing of autonomous vehicles. Several countries have already created supportive regulation for the experimental stages of autonomous cars, most noticeably California, the report said. However, there is still no legal framework for the commercial operation of autonomous vehicles. Legislators, including those in Israel, will need to set out guidelines that define safety and manufacturing standards and licensing, insurance and traffic laws.

Autonomous vehicles are expected to be safer and shorten travel time by optimizing routes to reduce traffic congestion, and the travel experience is expected to be enhanced, the report said. Travel costs are also expected to decrease dramatically, mainly as consumers will switch from privately owned cars to pools of autonomous vehicles that will compete with each other in efficiency and quality.

“The dramatic changes in the global motor vehicle industry and in the world of mobility offer many opportunities for new players from additional fields to join the transportation industry and shape the revolution,” the report said.

Large technology companies such as Intel Corp., Google and Apple have been working for some time on developing prototypes of autonomous vehicles, alongside car manufacturers such as Toyota, General Motors and Tesla and at times also in cooperation with them. In 2016, investors and corporations invested some $1.1 billion in auto-tech startups — representing a 30% rise in annual deal activity, according to New York-based data firm CB Insights. Investment is expected to soar to $3.4 billion in 2017, at the current run rate, CB Insights forecast.

The technological and social challenges this automotive revolution is expected to bring “create a great opportunity for Israeli industry to take part in the technology race and to capture key positions in completely new markets,” the Innovation Authority report said.

Some 450 companies in Israel are currently engaged in smart transportation fields such as travel sharing, communication, sensors and control systems, according to the Innovation Authority. Israel represented some 4% of the global auto-tech deal share in 2016, the third largest globally after the US (68%) and Canada (7%), the CB Insights report said.

“The acquisition of Mobileye by Intel this past March for $15.3 billion, one of the largest transactions in the field of auto-tech in 2017, has focused the attention of global corporations and investors on the tremendous potential of combining Israeli technological excellence with the autonomous vehicle revolution,” the Innovation Authority report said.

To accelerate the development of the Israeli industry in auto-tech and in smart transportation, “there is profound importance in developing local infrastructure to serve Israeli companies in the development and commercialization of technologies and enable them to implement innovative business models,” the Innovation Authority said.

Israel must also set up the the regulatory and physical infrastructures necessary to allow startups to try out their technologies locally. In addition, local transportation systems must be encouraged to adopt these technologies, “so that Israel may serve as a primary market for local initiatives in their global growth programs,” the report said.

This year, the Israeli government launched a national program to boost smart transportation to encourage the integration of advanced auto-tech developments into Israeli transportation systems, with the aim of accelerating the development of Israeli technology in this field. As part of the plan, the government aims to set up a designated trials center and start work on a regulatory framework, the report said.