New Players Are Revolutionizing the Mobility Sector
September 2016
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.
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!
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.
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.
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.
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.
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!
Marc Amblard
Also published on LinkedIn (https://goo.gl/PbZlT9)
2016 Paris Motor Show: Massive Shift towards EVs
October 2016
The world’s most attended motor show witnessed a significant shift in global OEMs’ strategy towards electrified and autonomous vehicles, i.e. EVs and AVs. The pressure applied by new players combined with increasingly stringent emission standards has forced OEMs to rethink their strategy. Where do they each stand? What did they present and announce in Paris? What will be the bigger impact of these strategic shifts on their business and ecosystem, e.g. on people, industrial assets or the service network?
Why such hype today for battery EVs?
Increasingly drastic emission standards and … Tesla. This major disruptor brought to market a product that traditional OEMs expected to see fail. In addition, Tesla did so with a business approach that is unprecedented in the industry, e.g. “launch fast and iterate” approach, Over The Air software update or direct retail. Tesla’s Model S sales exceed those of the Mercedes S Class in the US. And Model 3 has attracted over 400,000 down-payments when BMW is selling about 25,000 i3s per year. Moreover, Model 3 is expected to offer 345 km under the EPA cycle vs approximately 150 km (closer to real life than the 190 km under the NEDC cycle) for the current i3. By the way, would any other OEMs have dreamt about collecting $400 million from prospective buyers 18 months before delivery? That’s enough pressure to move fast!
Incumbents are forced to reshuffle their product portfolio and transform their business models … and do so swiftly. The announcements made during the show indicate that most OEMs are doing just that, but there is a strong feeling they were caught off guard. These new moves vary from significantly increasing the range of existing EVs, for the few that offer such models (eg Renault, BMW), to announcing a blitz of new ones over the next 10 years (eg Volkswagen AG, Daimler).
How did we get here?
The first electric vehicle was tested 150 years ago; it was a two-wheeler presented at the Paris Exposition of 1867. The first car to ever reach 100 km/h (62 mph) was also an EV: "Jamais Contente" (never satisfied) was clocked at 105 km/h in France in 1899. However, the combustion engine took over because of inadequate battery technology. Government initiatives have been created locally over the past 25 years to introduce zero-emission vehicles. The most ambitious of these was the 1990 ZEV initiative by California’s state agency CARB. As a result, a number of OEMs engineered electrified versions of standard vehicles and GM developed EV1, a purpose-built EV. This triggered significant research but the battery technology was again not ready to meet customers’ expectations. CARB softened their legislation and GM eventually removed all EV1s from the market.
There is still one lasting benefit from this early ambition to breathe clean air: Toyota invested heavily in hybrid powertrains and introduced Prius in 1997. Over 6 million Prius have been sold to-date! By the way, Toyota is not betting today on batteries to power their EVs but rather on fuel cells (see Mirai). Even if hydrogen has a promising future to generate and store electricity, no other OEM is communicating on this alternative. Is Toyota getting a head start again when others are playing catch-up on EVs?
Increasing the range of existing EVs
Tesla just introduced a 100 kWh battery pack on Model X. This increases its range from 489 km NEDC with the current 90 kWh pack to 542 km (410 to 465 km EPA), for a base price tag of $135,000. Tesla is a moving target that is harder for premium market incumbents to take aim at.
Renault also announced a much bigger battery pack on Zoe, Europe’s best selling EV; the 22 kWh pack is replaced by a new 40 kWh version which now provides a 400 km NEDC range (300 km stated in real conditions). The retail price increases by 1,800€ to reach about 25,000€, before incentives and battery lease (lease options start at 69 €/month for 7,500 km/yr, i.e. $75 for 4,700 mi/yr). Renault’s 3 other EVs are unchanged, namely an urban compact 2-seater, Twizzy (also available for rent from Scoot in San Francisco), a small commercial vehicle, Kangoo and a notchback, Fluence.
BMW is also trying to close the gap with the autonomy of ICE vehicles; the i3’s new optional 33 kWh pack offers 50% more autonomy at 300 km NEDC (200 km in real life) vs 200 km for the current version. The increase range adds "only" $1,200 to reach a high price of $45,000. It should be noted that the 2 cylinder gas range extender provides an extra 150 km of autonomy … but is in effect used by only 5% of all i3 owners. This option will likely be scrapped, especially with the extended pure electric range.
It should noted that the marginal retail price for the extra kWh on the i3 and Zoe is approximately 100€ (or $). This is evidence of the radical drop in the price of battery packs, which has come done from about $1000/kWh in 2010 to about $200 today.
Launching new EVs
First off the Chevy Bolt, a.k.a. Opel/Vauxhall Ampera-e in Europe. With this second generation, GM goes full electric with what seems to be a very mature product for an expected price of $37,500, i.e. similar to Model 3. The announced range is significant 500 km NEDC / 380 km EPA. This is thanks to a high capacity battery pack, with 60 kWh. This capacity matches that of the entry level Model S, and is much higher than those of the Nissan Leaf (30 kWh, 200 km NEDC), Renault Zoe (40 kWh, 400 km NEDC) or BMW i3 (33 kWh, 300 km NEDC). For comparison, Tesla Model 3 is expected to offer a lower range of 345 km EPA or about 450 km NEDC. Bolt / Ampera-e clearly appears to be a great product, yet GM has not projected its EV vision beyond this first full EV.
The most drastic announcements were naturally made by Daimler and Volkswagen AG. Daimler currently offers two BEVs, the Mercedes B200e with a 200 km NEDC range and the Smart Electric with about 140 km NEDC (17 kWh), both fitted with Tesla-supplied battery packs. Mercedes has also three plug-in hybrids (PHEV) powertrains in production. These are used on different vehicles and offer up to 30 km NEDC in electric mode with 8.7 kWh (GL500e). The next move is bold and is named EQ, a new sub-brand of products and services (mobility, energy storage for private and even industrial networks). The show car on display is the first of 10 EVs to be launched by Daimler (Mercedes and Smart) by 2025. The small crossover presented has a range of 500 km and will be launched in 2019. Daimler CEO Zetsche aims for an EV mix of 15-25% of global sales by 2025. This looks quite ambitious only 6 years after launching the first product. Another sign that a deep transformation is underway: Zetsche’s Silicon Valley dress code during his press conference, i.e. jeans and a buttoned down shirt!
Volkswagen Group currently offers two BEVs (e-Golf and e-Up) and 4 PHEVs (Golf and Passat GTE, as well as Audi A3 and Q7 e-tron). VW displayed their two existing EVs, which benefit from increased range at 300 km NEDC for e-Golf and 145 km for e-Up. This is just the tip of a massive 2-pronged portfolio makeover for VAG. 17 new PHEVs will be launched within the next 2 years and … 30 new battery EVs by 2025! An ambitious goal of 20-25% of group sales has been set for 2025 — not too different from Daimler’s. The first radical new product is I.D., premiered in Paris. This 600 km (NEDC) hatchback is based on the new EV-specific MEB platform and gives a first glimpse of a vehicle to launch in 2020. It will offer inductive charging. The concept car also offers full autonomous driving capability, which is intended for 2025. VAG’s very costly product campaign comes at a bad time, as they must spend over 20 B€ to address their Diesel issue. Lastly, new products will be joined by new services: VAG will create a 13th brand responsible for developing new mobility services.
BMW has yet to announce their bigger plan beyond the “i” initiative (i3, i8). EV are meant to go mainstream within the product range rather than be a parallel offering. But BMW is mute so far and its management board reportedly skipped the motor show to work on their EV strategy. The clock is ticking.
How about hybrid powertrains?
PHEVs are becoming increasing ubiquitous and represent a good solution given the architecture of existing vehicles. They offer a much better overall solution than “simple” HEVs, with a really useful capacity in electric mode. The longest full electric range of any PHEVs presented in Paris comes from Audi Q7 e-tron; it reaches 55 km (17 kWh of battery). Daimler, BMW, VAG, Volvo, Ford, Mitsubishi, Hyundai and obviously Toyota and Lexus each offer at least one PHEV. Lexus Europe reports that 98% of the 70.000 vehicles sold in Europe are HEVs or PHEVs, thanks to a line-up of 10 cars and crossovers. PHEVs will be increasingly common as a natural transition towards full EVs. However, Nissan, Renault, PSA, FCA, Jaguar-Land Rover, Honda and more have yet to show their PHEV hand.
How will these radical portfolio shifts impact OEMs and their ecosystem?
Daimler and VAG announced that 15-25% of their 2025 group sales will come from EVs. Assuming EVs replace combustion engine vehicles one-for-one, that is about 2,5 million units of engine capacity that must be converted just for these 2 OEMs. This means massive write-offs on their balance sheets and an investment in equivalent capacity for e-motors and other EV-specific hardware — this comes again at a very bad time for VAG. The supply base must also find the financial resources to accompany the dramatic shift.
There will be also a massive impact on people, whether they be in engineering, sourcing, manufacturing or parts and service activities. A combination of retraining and reallocating the existing workforce as well as recruiting will be needed, but will there be enough capacity on the job market?
The EV shift will also significantly impact the service network, in terms of both quality and quantity. Most small workshops have disappeared due to the increasing electronics content and overall product complexity. EV maintenance obviously requires new skills and certifications; you don’t work with 400+ volts the way you do with 12 volts. In addition, EVs generate less service and repair activity. As a result, dealer networks must also prepare for a bumpy ride!
In conclusion, the 2016 Paris Motor Show marked a clear shift in the strategy of traditional OEMs. Their moves are swift and of significant amplitude. This drastic transformation will have a massive impact on the industry at large, way beyond the initial objective of meeting emission regulations and curbing global warming.
Marc Amblard
Also published on LinkedIn (https://goo.gl/8nlKtE)
Car Manufacturers Pivot to Provide Clean Mobility Services
November 2016
The growth experienced by the U.S., European and Japanese markets since the low point of 2009 is mostly behind us. At the same time, new players are exerting increasing pressure on incumbents, introducing disrupting products and services that the latter are incapable to compete against in the short term. As a result, traditional OEMs are forced to radically and hastily transform themselved, pivoting from vehicle-focused to mobility-focused strategies. What is exactly taking place?
The stabilization of the triad’s mature markets is simply mechanical, as they have mainly come back to their nominal level. The potential impact on the car market of any further increase in purchasing power in these economies will be offset by two key drivers. One, authorities take measures to reduce car usage in urban areas and introduce tougher emission standards as people are increasingly sensible to environmental and congestion issues. And two, younger generations are less interested in car ownership, favoring instead open access to multi-modal mobility solutions on an as-needed basis. In a number of European countries — including Germany, where the car is a major status symbol — interest in getting a driver’s license and owning a car is dropping among millennials.
In recent years, traditional OEMs have taken various initiatives to address this market transformation, but none have fully embraced — until now — the strategic pivoting that this revolution entails. Most have introduced solutions to address the environmental and regulatory shift, offering either hybrid, plug hybrid, battery or even fuel cell electric vehicles. Few have ventured into offering alternatives to car ownership and provided some sort of mobility service, such as car-sharing or ride-hailing. Even fewer have done both.
New players leverage emerging technologies to address the above trends and do so with unmatched agility, causing the deep turmoil we are currently witnessing at traditional OEMs. These technologies allow for disruptive solutions at an increasingly accessible cost, in the areas of energy storage, driving automation or connectivity as well as cloud services. These new players are agile, have easy access to venture capitals and are not burdened by legacy assets or culture. How do traditional OEMs react to this game changing transformation to secure their financial sustainability?
OEMs currently benefit from some level of customer loyalty; this must be cherished as relationship is essential to securing future revenue, whether they come from mobility services or from content streamed during future driverless journeys. OEMs must react very quickly as mobility service disruptors (Uber, ZipCar, BlaBlaCar, etc.) are establishing direct communication with mobility customers, bypassing cars via smart phones. For OEMs, mobility services will mean an alternative source of revenue (vehicles sales will likely shrink in the three markets mentioned above) as well as a means to sustain their vehicle business. How will they secure their spot in this market?
Existing organizations are not fit for the deployment of the strategic pivot most OEMs are initiating towards mobility services. Daimler was probably the earliest movers among OEMs, introducing Car2Go car-sharing scheme in Germany in 2009 (reportedly 2 million customers worldwide today). But a whole lot more is required now to secure OEMs’ future; the multiple moves announced in the last months attest to this.
Toyota, the first mover in the EV space, was restructured in April mostly to tackle the issues at stake here. A new business unit (BU), Connected Company, was created to leverage the power of cloud computing, artificial intelligence and to transform the OEM into a "mobility service platform provider.” Toyota also announced Nov 17 the creation of a “virtual” in-house venture company responsible for developing BEVs. The four person organization is designed to enable “unconventional work processes, leading to accelerated project progress and, thus, fast-to-market products”. Ford recently created Smart Mobility, a new BU dedicated to developing software, tech services and business models related to mobility. Renault/Nissan just created a startup division focusing on software development, cloud engineering and big-data analytics. Already staffed with 300 people, the team is expected to grow quickly to 1000 people, mainly developers. Volkswagen Group will create a 13th brand responsible for developing new mobility services. Daimler is creating EQ, a new brand of products and services including mobility, energy storage for private and even industrial networks. PSA (Peugeot, Citroën, DS) has just established Free2move, an entity hosting new mobility services, including car sharing and peer-to-peer rental. And more are reshaping their organizations to adapt to the new market conditions.
These re-organizations are critical to drive the necessary in-house transformation in terms of competencies, business and operating models as well as culture. Traditional OEMs must significantly strengthen their ranks with programmers, but just as important, be able to create new value propositions related to mobility. They must also develop the ability to work with much shorter technology cycles and operate a radical cultural transformation to accommodate all these changes. This must take place in order to bring about new mobility services and match the agility characterized by newcomers such as Tesla or Uber. The newly created BUs are often led by people coming from the tech industry, as they best understand the disruptors and their underlying technologies. These leaders will be spearheading both the technical and the cultural transformation OEMs need to pivot from product focused strategies to ones centered on mobility services.
However, re-organizing may not be enough. Leveraging external resource can accelerate the required transformation and provide an edge over an OEM’s competitors by gaining access to advanced technology, data or distribution networks. For instance, Toyota has partnered with Uber to learn how they collect, manage and use their data. Volvo and Uber have established a joint project to develop a driverless car platform. GM has invested in Lyft to access mobility services and bought Cruise for its technology. VW has invested in Gett. Renault/Nissan is partnering with Microsoft, BMW with Intel and Mobileye. Daimler, Audi and BMW joined forces in 2015 to buy digital map maker Here from Nokia. The trio also launched last September an alliance with 5 major mobile telecom network equipment companies to accelerate the development of the infrastructure needed for self-driving cars. And these are just a few examples.
Whereas it is necessary for OEMs to engage in deep internal transformation, create strategic partnerships and possibly make acquisitions, this will not be sufficient enough to morph them into customer centric providers of mobility services. For instance, OEMs will have to develop expertise in the areas of pricing models, basic customer service (e.g. lost and found) or fleet management. The stakes are extremely high for OEMs and will require massive resources in order for them to become significants players in this new game. Nonetheless, some will fail.
In conclusion, the transformative changes in the business environment and in people’s behavior towards mobility combined with the emergence of enabling and affordable technologies are driving a revolution in the 125 year-old automotive industry. Traditional OEMs are engaged in deep transformations in order to pivot towards mobility focused strategies and secure their long term sustainability. But the road to success is all but a straight line.
Marc Amblard
Also published on LinkedIn (https://goo.gl/rQuDK2)
Car Manufacturers Pivot to Provide Clean Mobility Services
November 2016
The growth experienced by the U.S., European and Japanese markets since the low point of 2009 is mostly behind us. At the same time, new players are exerting increasing pressure on incumbents, introducing disrupting products and services that the latter are incapable to compete against in the short term. As a result, traditional OEMs are forced to radically and hastily transform themselved, pivoting from vehicle-focused to mobility-focused strategies. What is exactly taking place?
The stabilization of the triad’s mature markets is simply mechanical, as they have mainly come back to their nominal level. The potential impact on the car market of any further increase in purchasing power in these economies will be offset by two key drivers. One, authorities take measures to reduce car usage in urban areas and introduce tougher emission standards as people are increasingly sensible to environmental and congestion issues. And two, younger generations are less interested in car ownership, favoring instead open access to multi-modal mobility solutions on an as-needed basis. In a number of European countries — including Germany, where the car is a major status symbol — interest in getting a driver’s license and owning a car is dropping among millennials.
In recent years, traditional OEMs have taken various initiatives to address this market transformation, but none have fully embraced — until now — the strategic pivoting that this revolution entails. Most have introduced solutions to address the environmental and regulatory shift, offering either hybrid, plug hybrid, battery or even fuel cell electric vehicles. Few have ventured into offering alternatives to car ownership and provided some sort of mobility service, such as car-sharing or ride-hailing. Even fewer have done both.
New players leverage emerging technologies to address the above trends and do so with unmatched agility, causing the deep turmoil we are currently witnessing at traditional OEMs. These technologies allow for disruptive solutions at an increasingly accessible cost, in the areas of energy storage, driving automation or connectivity as well as cloud services. These new players are agile, have easy access to venture capitals and are not burdened by legacy assets or culture. How do traditional OEMs react to this game changing transformation to secure their financial sustainability?
OEMs currently benefit from some level of customer loyalty; this must be cherished as relationship is essential to securing future revenue, whether they come from mobility services or from content streamed during future driverless journeys. OEMs must react very quickly as mobility service disruptors (Uber, ZipCar, BlaBlaCar, etc.) are establishing direct communication with mobility customers, bypassing cars via smart phones. For OEMs, mobility services will mean an alternative source of revenue (vehicles sales will likely shrink in the three markets mentioned above) as well as a means to sustain their vehicle business. How will they secure their spot in this market?
Existing organizations are not fit for the deployment of the strategic pivot most OEMs are initiating towards mobility services. Daimler was probably the earliest movers among OEMs, introducing Car2Go car-sharing scheme in Germany in 2009 (reportedly 2 million customers worldwide today). But a whole lot more is required now to secure OEMs’ future; the multiple moves announced in the last months attest to this.
Toyota, the first mover in the EV space, was restructured in April mostly to tackle the issues at stake here. A new business unit (BU), Connected Company, was created to leverage the power of cloud computing, artificial intelligence and to transform the OEM into a "mobility service platform provider.” Toyota also announced Nov 17 the creation of a “virtual” in-house venture company responsible for developing BEVs. The four person organization is designed to enable “unconventional work processes, leading to accelerated project progress and, thus, fast-to-market products”. Ford recently created Smart Mobility, a new BU dedicated to developing software, tech services and business models related to mobility. Renault/Nissan just created a startup division focusing on software development, cloud engineering and big-data analytics. Already staffed with 300 people, the team is expected to grow quickly to 1000 people, mainly developers. Volkswagen Group will create a 13th brand responsible for developing new mobility services. Daimler is creating EQ, a new brand of products and services including mobility, energy storage for private and even industrial networks. PSA (Peugeot, Citroën, DS) has just established Free2move, an entity hosting new mobility services, including car sharing and peer-to-peer rental. And more are reshaping their organizations to adapt to the new market conditions.
These re-organizations are critical to drive the necessary in-house transformation in terms of competencies, business and operating models as well as culture. Traditional OEMs must significantly strengthen their ranks with programmers, but just as important, be able to create new value propositions related to mobility. They must also develop the ability to work with much shorter technology cycles and operate a radical cultural transformation to accommodate all these changes. This must take place in order to bring about new mobility services and match the agility characterized by newcomers such as Tesla or Uber. The newly created BUs are often led by people coming from the tech industry, as they best understand the disruptors and their underlying technologies. These leaders will be spearheading both the technical and the cultural transformation OEMs need to pivot from product focused strategies to ones centered on mobility services.
However, re-organizing may not be enough. Leveraging external resource can accelerate the required transformation and provide an edge over an OEM’s competitors by gaining access to advanced technology, data or distribution networks. For instance, Toyota has partnered with Uber to learn how they collect, manage and use their data. Volvo and Uber have established a joint project to develop a driverless car platform. GM has invested in Lyft to access mobility services and bought Cruise for its technology. VW has invested in Gett. Renault/Nissan is partnering with Microsoft, BMW with Intel and Mobileye. Daimler, Audi and BMW joined forces in 2015 to buy digital map maker Here from Nokia. The trio also launched last September an alliance with 5 major mobile telecom network equipment companies to accelerate the development of the infrastructure needed for self-driving cars. And these are just a few examples.
Whereas it is necessary for OEMs to engage in deep internal transformation, create strategic partnerships and possibly make acquisitions, this will not be sufficient enough to morph them into customer centric providers of mobility services. For instance, OEMs will have to develop expertise in the areas of pricing models, basic customer service (e.g. lost and found) or fleet management. The stakes are extremely high for OEMs and will require massive resources in order for them to become significants players in this new game. Nonetheless, some will fail.
In conclusion, the transformative changes in the business environment and in people’s behavior towards mobility combined with the emergence of enabling and affordable technologies are driving a revolution in the 125 year-old automotive industry. Traditional OEMs are engaged in deep transformations in order to pivot towards mobility focused strategies and secure their long term sustainability. But the road to success is all but a straight line.
Marc Amblard
Also published on LinkedIn (https://goo.gl/rQuDK2)
How New Types of Mobility Solutions Compare
December 2016
Car ownership, public transit and classical car rentals are increasingly challenged by alternative mobility solutions. They leverage the omnipresence of smartphones, the development of data analytics and affordable technologies and surf on the wave of the collaborative economy. They result in a much higher utilization of existing vehicles — a huge potential — which will contribute to the sustainability of the planet and generate economic benefit for both vehicle owners and secondary users.
These alternative mobility solutions come in various formats. They are based on peer-to-peer platforms or are operated by companies that own the vehicles. The transaction is about either a vehicle or a journey. These solutions initially address one mega-trend: car ownership is progressively losing ground in cities, giving way to mobility on-demand. In turn, this trend will reduce pollution in cities as well as free up space in dense areas as fewer vehicles will hog spots during much of the day. Let’s analyze the various forms of new mobility solutions.
Dedicated start-ups have been introducing these alternative solutions over the past ten or so years. But car OEMs do not stand still as they face the risk of being challenged at the core of their business. Daimler is possibly the most daring of them when it comes venturing in new mobility services. As we’ll see below, they are testing multiple solutions as they try to pivot from vehicle architects and manufacturers to mobility service providers. One of the expected benefits is a steeper learning curve in their understanding of the mobility market and in their ability to code apps and develop platforms. Another one is much more agility and a culture of testing and iterating in much shorter cycles than usually experienced in this industry.
On-demand ride-hailing
Taxi fleets are challenged in more and more cities by Uber, Gett, Lyft and the like. These companies offer increased convenience, such as app-based reservation, no cash transaction, and often better comfort, i.e. vehicle condition and service quality, than traditional taxis.
New ride-hailing providers offer a somewhat cheaper alternative to taxis. The main reason for the price gap is the different status of the drivers. They are most often self-employed and do not receive the social benefits their taxi peers get. This has been challenged in several cities, sometimes successfully ($100 million settlement paid by Uber in the US last April). Another opportunity to reduce cost is to do away with the driver altogether, but this will have a significant social impact.
Obviously, the potential economic benefits are the reason why Uber is so interested in automated driving, despite the fact that the technology is far from mature enough to operate driverless, particularly in dense cities. Last July, Uber spent an estimated $700 million (or 1% of its market cap) to acquire Otto Truck, a 6 month-old start-up engaged in Lidar development. Uber also tested a ride-hailing service using automated vehicles last August in Pittsburgh. In addition, they will jointly invest with Volvo Cars $300 million to develop an automated vehicle for 2021. Lastly, Uber will invest $500 million to develop its own maps in order to free itself from Google’s market domination.
Similarly, Didi Chuxing has been developing at an accelerated pace in China. The very costly fight they had with Uber to win a dominant position in the booming local market ended up with Didi buying out Uber’s Chinese operations last July. Today, Didi has reported over 50 million active users and provides more than 100 million rides a week. Remember Apple invested $1 billion in Didi in May 2016 in a move to better understand the Chinese sharing economy and car technology. Also, Lyft and Gett has chosen to partner with OEMs, accepting investment of respectively $500 million by GM for the former and $300 million by VW Group for the latter.
Other start-ups leverage existing taxis, whether as fleets or as individual owners/drivers, by providing an app-based booking platform. Hailo and MyTaxi both took that path. The former was founded by ex-London taxi drivers. Daimler, owner of MyTaxi, acquired a stake in Hailo mid-2016, and now controls 60% of the merged company, which operates today under the MyTaxi brand. With over 100,000 taxi drivers, it is Europe’s largest taxi booking platform. Daimler’s move can be explained by the strong presence of the Mercedes-Benz brand among European taxi fleets.
Other OEMs will progressively offer on-demand ride-hailing, which will allow them to leverage their current core business. The most recent announcement comes from the VW Group; it will launch under the Moia brand, an agile shuttle service operating in between scheduled buses and ride-hailing services such as Uber. Tesla and others have also indicated their intention to be present in this space as well.
One more point concerning on-demand ride-hailing services. The new players are currently very asset light. How about when moving to fully automated vehicles? These will not longer be owned by individuals but rather by operators themselves, or possibly by leasing companies that may carry fleets on their own balance sheets. This will be a different financial model which will nevertheless bring substantial benefits to operators’ profitability.
Peer-to-peer car sharing
On average, private cars are parked up for 23 hours a day, whereas they typically represent the second largest investment a family makes. Why not generate cash from these assets rather letting them sit idle? That’s exactly what EasyCar, Drivy and others offer through on-line market places in a social economy.
EasyCar provides a peer-to-peer platform, the Club (UK only), where car owners and drivers are matched through a secured transaction and an operator provided insurance coverage. EasyCar reports that their most successful owners make close to $4,000 a year. One other such platform is Drivy. Founded in France in 2010, the start-up is expanding the reach of its peer-to-peer car sharing platform to other European countries. Drivy reached 1 million users mid-2016 and offers 40,000 vehicles.
OEMs are also venturing on this market. Daimler just launched Croove, an other peer-to-peer car sharing platform in November 2016. The mobile app-based service is initially available in Germany and is not only restricted to Mercedes-Benz or Smart vehicles.
FlightCar, another peer-to-peer platform, gave car owners a chance to make money off their vehicles rather than leaving them sit on airport parking lots while traveling. Founded in 2012 and available in the US only, FlightCar failed to scale and sold its technology platform to Daimler in July 2016. The 90-strong staff will further strengthen Daimler’s innovation lab for mobility services.
And there are others, such as Gateway (4 US cities) or GoMore (Scandinavia, Spain, France) in the car sharing economy.
Peer-to-peer ride sharing
Whereas the object of peer-to-peer car sharing transaction is a vehicle, that of peer-to-peer ride sharing (or carpooling) is a spot in a vehicle travelling from point A to point B. This mobility solution addresses two markets: home-work commute and long distance. The alternatives are personal car or public transit for the former and personal car, train or bus for the latter. The fact that car ownership is dropping among the younger generation, especially in dense cities, explains the growing interest peer-to-peer ride sharing.
BlaBlaCar is the global leader in this segment with 20 million members. Created in France in 2006, the company is already present in 19 countries including India, Russia and Brazil. The collaborative platform generates 4 million trips per year with an average distance of 330 km (200 miles). Its global deployment will continue thanks to the $200 million recently raised, for a total funding of $310 million to-date. The user benefit is dual: economic and social. The recommended price per passenger equates to ⅓ of the cost of gas and tolls. Drivers cover their variable cost with 3 or more passengers. At peak time, i.e. Friday or Sunday evening, passengers save 50 to 70% vs a train ticket for a 500 km / 300 miles journey between two main hubs (e.g. Paris-Lyon in France). As for the social benefit, it’s great for meeting people! These benefits are no longer just attracting young people: the average age of new members went up from 29 in 2010 to 34 in 2015.
Scoop, unlike BlaBlaCar, targets mainly home-work commutes. Operating in San Francisco and Los Angeles, Scoop has managed to obtain city subsidies for participating drivers as they contribute reducing congestion and pollution. They also collaborate with companies to ease their employees’ commute.
An interesting new comer to this mobility segment is Google, with a ride sharing functionality offered through its Waze collaborative platform. WazeRider was first tested in Tel Aviv and is now being rolled out in the San Francisco area. It targets commuters and their employers. The platform uses Waze’s traffic knowledge and Google’s algorithm expertise to best match drivers and passengers.
There are many more local initiatives, whether local at community or corporate level, and private platforms that provide ride sharing services.
Operator-based car sharing
Car rental companies such as Hertz or Avis mostly serve the long distance market and manage large fleets (about 500,000 for Hertz). They also often penalize one-way rental and require pick-up and drop-off at set locations. New services have emerged that focus on short distance, point-to-point, use-as-you-need situations. Vehicles do not necessarily have set base and will be increasingly electric.
The main player in this space is ZipCar. The company founded about ten years ago offers thousands of vehicles at set locations in 8 countries. For a marginal registration fee, various types of vehicles can be rented by the hour, either for one-way or round trips.
OEMs have also developed their own offerings, leveraging their core business. Daimler established Car2Go in 2008. According to its parent company, it the world’s largest "free-floating" (no fixed location) car-sharing operation, serving 2 million customers with 14,000 vehicles deployed in 29 cities across Europe, the U.S. and China. Thanks it its early start, Daimler has gained a competitive advantage over other OEMs.
Similarly, Ford has been testing GoDrive, an app-based car sharing service, in London for the past 2 years. Initially equipped with 50 Ford cars available at 20 set London locations, GoDrive charges by the minute (about $0.21). BMW partnered with rental company Sixt to found DriveNow in 2011. The joint venture operates in 11 European cities, mostly in Germany, without set pick-up or drop-off locations. The platform has reached about 500,000 customers.
France’s Bolloré Group combines car sharing with zero emissions in its Bluecarsharing service. Launched in Paris in 2011 under the Autolib’ brand, it serves 200,000 registered customers. Four thousand purpose-built battery electric vehicles are based at 7,000 charging points throughout the Paris metro area. Bolloré has since replicated the electric car-sharing model in Lyon, Bordeaux, Turin, Indianapolis, Singapore and London. They recently announced the same service in Los Angeles where they will deploy 100 of the same BEVs and 200 charging stations in 2017.
Not all shared vehicles have four wheels. In San Francisco, Scoot offers 400 GenZE-made electric two-wheelers with a 20 mile range. Scoot also has a handful of Twizzys, an ultra light, four-wheeled EV made by Renault and renamed Scoot Quad with a Nissan badge. Scoot has plans to expand in other US cities as well as in Europe.
Multi-modality and conclusion
Ride sharing and car sharing essentially rely on cars. Yet the car is just one physical component of the mobility offering. In the future, smart mobility must integrate the various modes of ground transportation, including bikes, public transit, trains and buses. These various modes must be coordinated in order to provide optimal continuity in any journey, whether it be within an urban area, between hubs or between a city and the countryside. Much progress can still be made to provide smooth transitions in multi-modal journeys.
Before we consider a properly integrated multi-modal offering, some countries will have to strengthen their weak links. In particular, public transit must develop where such options are currently limited; in particular this is the case for mega-cities in developing countries. The mobility needs generated by growing populations cannot be addressed by more private cars, both for environment and congestion reasons. In cities like Mumbai or Istanbul, new mobility services are likely to flourish, eventually with multi-passenger electric shuttles, in combination with more developed public transit.
Eventually, the combination of car sharing, ride sharing, electric and eventually automated vehicles, public transit and the efficient integration of all transportation modes will help address the increasing need for mobility as well as addressing congestion and global warming.
Marc Amblard
Also published on LinkedIn (https://goo.gl/CBVjMnvv)