Two types of players are disrupting the mobility sector: service providers (hail-riding, car sharing) and technology providers (autonomous driving, connected cars). There are all increasingly interacting with the traditional players. Who became partners? Who has acquired whom? What will be the likely distribution of roles among them in the automotive space? Who will control the new, recurring cash flows from rides and own the high-value customer relationships?  

 

One of the mega-trends observed in the mobility ecosystems is the shrinking interest in drivers’ licences and owning a car, as well as the simultaneous desire to have easy and immediate access to mobility anytime, anywhere. A second mega-trend is the accelerated availability of affordable technologies and the increasing quantities of consumer data, which can potentially be turned into valuable information through analytics. Lastly, a third mega-trend is the increasing sensitivity of the general population for our planet’s health, resulting in massive efforts to reduce CO2 emissions.

 

As a result of these mega-trends, a complete transformation of the mobility ecosystem, a sector which the automotive industry has dominated for over a century, is occurring. The incumbents, i.e. the OEMs, are forcefully disrupted by two new types of players: mobility service providers, with hail-riding and car-sharing, as well as advanced technology providers, mainly for electric propulsion, autonomous driving, and connected functionalities. Who will control the customer relationship and mobility cashflows tomorrow? How will the various players collaborate? Will traditional OEMs take a back seat?

 

The central scenario for the evolution of mobility evolves largely around autonomous vehicles, available on demand, which applies to developed, dense regions of the world. OEMs can design and build the (base) vehicle, while technology providers can offer the advanced hardware and software that will turn (base) vehicles into autonomous ones. Lastly, mobility service providers can have access to mobility customers, know their behavior and offer an adequate platform.

We are well aware of the high stake battle between Uber, Didi Chuxing, Lyft, Gett and others are investing huge amounts to buy market share in the booming e-hail riding segment. In this space, customer relationship will drive recurring revenue and profits. What are today simply platforms connecting people and car owners (the “driver partner”), will likely evolve into a dominating force in a position to specify vehicles. For reference, Uber reportedly has ordered 100,000 S-Class from Mercedes-Benz, which would give Uber enough leverage to dictate theirs specs. By the way, this would be a significant shift in Uber’s business model, moving from low to high capital intensity.

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Who will make vehicles for the new mobility services?

Whereas ride-hailing and car-sharing services can benefit from a high value car brand name in their premium segment, it is not true in their volume segment. In this segment,  service providers can rely on contract manufacturers to produce custom-designed cars. This could bring a massive disruption to the auto industry. OEMs with a low brand value would have to either move towards contract manufacturing or focus on low density, less developed markets. Automotive suppliers with a wide product offering such as Bosch, Continental or ZF/TRW (a.k.a. “Tier 0.5” suppliers because they already control such large chunks of the car) could move up the value chain and assemble cars. They have not only the technical capabilities but also the financial means to move in this direction. Yet, they obviously run the risk of upsetting their “traditional” customers! Canada’s Magna is already in the contract manufacturing business on behalf of Mercedes, BMW and soon Jaguar-Land Rover; they will assemble 200,000 cars in 2018, generating close to $6b of revenue from this activity. They certainly would not mind producing a white brand product for ride-hailing and car-sharing fleets!

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Can these new services operate without a strong car brand?

The example of Paris’ car-sharing service Autolib shows they can. French entrepreneur Bolloré has been operating a fleet of battery electric vehicles in Paris. Launched in Dec 2011, the service has now close to 200,000 registered customers who can count on 4,000 “Bluecars”. These purpose-made cars are simply branded “Autolib”. Manufacturing was first handled by Italian subcontractor Pininfarina, and shifted to Renault in 2015. Similar electric car-sharing operations have since been established in Lyon and Bordeaux (France), Indianapolis (IN, USA), and will soon be in London (UK), relying on the same model.

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How are OEMs reacting to these technology and service disruptions? 

They are moving fast and reallocating resources on at least two fronts: (1) establishing new mobility services or partnering with start-ups that operate in this space and (2) investing heavily in technology and partnering with technology providers. Many OEMs have set up dedicated organizations to address these transformations, mostly in a start-up mode, and opened offices in Silicon Valley This proximity not only gives them quick access to technology, it also gives them a chance to trigger a cultural transformation necessary to accelerate their own transformation.

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New mobility services 

Most OEMs are making moves towards car-sharing services and some towards ride-hailing services as well. Their clear objectives are to preserve vital access to customers and to supplement low margin revenue from (probably shrinking) unit sales with higher margin revenue streams from rides, i.e. km/mi covered. For example, BMW has launched “DriveNow” (reportedly profitable car-sharing service, a.k.a. ReachNow in the US), Daimler has “Car2go” (car-sharing) and “Blacklane” (ride-hailing). Ford has announced ride-sharing and ride-hailing services with their own fully autonomous cars (SAE level 4) by 2021, and will add bike-sharing locally. PSA and Bolloré (see above) announced a joint car-sharing service in Los Angeles. Toyota is partnering with Uber to finance vehicles for their drivers. OEMs offer electric cars where a charging infrastructure exists, and will move to autonomous driving vehicles when possible.

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New technologies 

Traditional OEMs and suppliers are pouring billions to develop the hardware and software needed for electric propulsion, autonomous driving and connected vehicles. They are also investing in and partnering with start-ups at an unprecedented pace. For instance, GM invested $500m in Lyft (e-hailing service) and bought Cruise (technology) for $1b. Volvo and Uber established a joint project to develop a driverless car "platform" in which the two will jointly invest $300m; Uber eventually plans on buying automous driving vehicles from Volvo. VW invested $300m in Gett (hail-riding). BMW is partnering with Intel and Mobileye (technology). And there are many more such examples.

 

 

How about the non-traditional players? 

Uber is approaching this from their unique position. They are gaining access to autonomous driving technology with the acquisition (for a reported $700m!) of Otto, a start-up created in Feb 2016 to develop a complete add-on solution. It is obvious that autonomous driving is strategic for Uber, not just to reduce cost (operating without drivers) but for the sheer sustainability of their business model. Apple and Google, with their strong technology foundation, their solid image and their massive piles of cash, are still looking for the optimal path towards a product and/or service offering that would put them on the future mobility map. Tesla positions itself as both an OEM and a technology provider (electric propulsion), and may get into the mobility service space in the future as well.

 

This article would be incomplete without a reference to clean public transportation systems. They cover intercity service, with trains, as well as urban service, with subways and tramways, and are an essential part of the mobility offering. This mobility mode addresses the issues of both lower car ownership and the desire to reduce CO2 emissions for the benefit of our planet. This is why they will continue to develop in their own right. Here again, technology is likely to disrupt this rather slow-evolving segment of the mobility sector. We will see solutions to improve multimodal journey continuity or to better balance load between modes. Hyperloop, Elon Musk's other brainchild, may even trigger a revolution at a system-wide level.

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In the end, however the mobility sector evolves, it must save room for the pure enjoyment of driving where and when it makes sense. While driving hours on a freeway or being stuck in slow moving traffic may be boring, cruising along the seashore or a curvy mountain road — or better yet, on a closed circuit — certainly is not!

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Marc Amblard

Also published on LinkedIn (https://goo.gl/PbZlT9)