Preparing for the Mobility Revolution

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)

© 2020 by Orsay Consulting