Preparing for the Mobility Revolution
Mobility Ecosystem: a look back at 2017
2017 in a nutshell
2017 was another intense year for the mobility ecosystem, in particular for electrification, autonomous driving, and shared and new mobility solutions. Plug-in vehicles sales jumped roughly 50% in China, 40% in Europe and 30% in the USA, reaching respectively 2.4%, 1.7% and 1.2% of total sales — Plug-ins even hit a 39% market share in Norway. Most of the OEMs who had not yet committed to EVs did so in 2017. The industry is now heading full steam towards electrified mobility, with the consensus that pure EVs will reach cost parity with fossil fuel vehicles around 2022-2025.
Massive investments were made towards autonomous vehicles (AV) whether through internal R&D or M&A activity. However the roles have yet to be cast between OEMs, incumbent suppliers, startups and tech companies. Nevertheless, the tech is making its way into drivers’ hands, with Tesla’s AutoPilot or Cadillac’s SuperCruise. In addition, AV-specific regulations were passed and autonomous ride-hailing pilots are now starting.
As for shared and new mobility solutions, the battle heated up between the major new players (Didi, Uber …) and OEMs who accelerated their transformation to fight back (Car2Go/DriveNow, Maven, Moia, Free2Move….) New players received at least $15bn in fresh funding in 2017, which will mainly be used to increase their geographic footprint and invest in AV / AI tech or rental fleets. Automated shuttles become more visible and were joined by automated delivery vehicles. Lastly, eVTOL (electric vertical take-off and landing) initiatives turned last year into an active space with new investments from key players and trials.
Last year incumbents, tech companies and startups made significant progress towards their coexistence. They all increasingly realize the need to partner rather than just compete head-on. Incumbents see the difficulty to become software-centered mobility companies whereas the new comers progressively grasp the complexity of the automotive business, from industry standards and regulations or systems integration or supply chain approaches.
Let’s look in more detail at what actually happened and what it means going forward.
2017 was pivotal for the electrification of mobility
Most OEMs announced their electrification roadmaps and objectives: 1m plug-in EVs per year by 2025 for the VW brand, 1m by 2026 for GM, 15-25% of sales for Daimler or BMW. With the most battery EVs (BEV) sold in the industry to-date, Renault-Nissan-Mitsubishi announced 12 new BEVs by 2022, rather a volume target given the uncertainty concerning customer uptake. Benefiting from their early start (Leaf in 2010 and Zoe in 2011), the Alliance said last year they are generating a profit on variable costs. GM indicated their next gen BEV will be profitable, whereas other OEMs’ BEVs won’t be profitable for a while given the massive underlying investment (eg $24 bn by 2030 for the Volkswagen group, $11 bn for Ford).
How about charging these EVs? BMW Group, Daimler, Ford, and the Volkswagen Group announced the creation of Ionity, a JV that will develop and install high-power charging stations (up to 350 kW) along Europe’s main roadways, with the objective to reach 400 stations by 2020. In parallel, California-based EV charging startup ChargePoint, market leader in the US with 45k charging points, established it’s European operations with the help of Daimler which invested $82m. In the US, Electrify America announced its plan, financed by a $2 bn grant from Volkswagen Group as a result of the DieselGate settlement. A majority of these funds will be invested in the US charging network over 10 years (2800 stations by June 2019).
On the battery side, Bloomberg NEF reported an average battery pack cost of $209 / kWh at the end of 2017, down from about $1000 in 2010. They estimate the cost will drop below $100 /kWh by 2025. Tesla started production at its $5bn Nevada-based gigafactory, slated to produce 50 GWh worth of packs by 2020. NorthVolt announced a $4 bn plan to built a 32 GWh battery factory in Sweden. Whereas some incumbent OEMs announced battery-related investment last year (eg 10 GWh capacity for Daimler in the US), Nissan divested their battery operation in 2017.
Several companies emerged with the ambition to become OEMs
Tesla delivered 101 k Model S and X in 2017, or about 0,1% of global vehicle sales. Yet, this represents more Model S than either Mercedes S Class or BMW 7 Series in both Europe and the USA, which is quite an achievement. Model 3, a great product, got a rough start due to “manufacturing hell.” Over 400k clients are waiting for their cars after “loaning” $1 k to Tesla. But the emerging OEM doubled down and announced in Nov ’17 two rather revolutionary products: a new Roadster and a full electric semi. Tesla promised amazing characteristics: 0-60 mph in less than 2 sec for the former and up to 500 miles range for a fully loaded 36t truck for the latter. This is putting intense pressure on incumbents as well as tempting a number of Tesla wannabes.
A year ago, Faraday Future was forging ahead. The LA-based startup lowered their ambitious plan due to financial difficulties, but is now ready to get back into launch mode after finding a new investor in late 2017. More such ventures became more visible in 2017. Also backed by Chinese investors, several new OEMs have built momentum. Nio introduced their first product in China in Jan 2018. The ES8 SUV was developed between China, Silicon Valley and Germany. Lucid is finalizing the development of its Air sedan in Silicon Valley for a late 2019 launch. Byton (SUV presented at CES) and SF Motors and are building up their teams in Silicon Valley. All these companies have their eyes on China, the largest EV market with 600 k plug-in sold in 2017.
A new player emerged in Europe: Dyson came into the public eye with a £2 bn ($2.8 bn) commitment to introduce 3 EVs, starting in 2021. One of the building blocks was the acquisition of Sakti3, a Michigan-based designer of solid-state batteries for $90m in 2015. Dyson had 400 engineers working on the project as of Sept 2017. Interesting expansion from vacuum cleaners and hairdryers to cars!
New OEMs focus exclusively on EVs and prepare to enable autonomous driving. They are much more nimble than incumbent players as they can embrace technology and new business models with ease compared to established OEMs. The latter have to cope with legacy manufacturing assets, distribution networks or organizational structures. New players can build their business from a clean slate, eg domain-based electronics architecture (vs up to 100 ECUs), direct distribution model, manufacturing though partnership vs in-house (eg Nio with JAC), software-centered engineering.
Incumbent players are adapting, but no fast enough … yet
Incumbents continue to suffer from their inherent inertia which makes it very difficult to pivot and become software-centered mobility companies. Realizing the necessity to deeply transform themselves, several incumbents have decided - or are considering - to split into a digital / AV business on one side and a legacy hardware on the other. This was the case in 2017 for Delphi/Aptiv. ZF and Autoliv are looking into such a move. All players are massively recruiting software engineers. Continental has about 15 k of them (7% of the workforce) and is adding 1 k per year.
Incumbents increased their presence in Silicon Valley last year. Ford grew their local team from about 150 to over 200 during 2017. Tier 1 suppliers Continental and Faurecia opened offices in SV during the year. And those that do not have partake in this ecosystem ought to at least understand what is going on here.
The battle heated up significantly in the AV space
Intel acquired Mobileye for an impressive $15bn last March. Ford committed to invest $1bn in ArgoAI. Aptiv (ex Delphi) acquired nuTonomy for $450 m. GM acquires Lidar maker Strobe for a reportedly $32 m. Many OEMs and Tier 1 suppliers invested in either hardware- or software-related AV startups. Delphi even put money on several Lidar companies to hedge their tech bet.
Two tech companies created their own open ecosystem last year with the objective to gain a dominant position and impose their tech. Nvidia created the “Inception Program” dedicated to AI and startups. Baidu established “Apollo,” an open platform which gathers both established companies (OEMs, Tier 1s) and startups. Intel and Nvidia are now on a collision path and Baidu tries to get in the way. Meanwhile, Waymo continued to refine its full stack AV solution, reaching a cumulated 4+ m miles of autonomous driving. They achieved an industry leading disengagement score of 0.18 / 1000 miles during the 352 k miles driven in 2017 in California.
It is also interesting to note that Nvidia partnered with Bosch and ZF for the distribution of the Drive PX AV platform. Similarly, Lidar leader Velodyne partnered with Autoliv to increase their global engineering and manufacturing footprint. Newcomers and incumbents need each other.
A very dynamic share-mobility space, for both people and goods
By the end of 2017, Didi was generating 22 m daily rides with its 4 m drivers, about 6% of which were driving EVs. The Chinese company raised $9.5 bn in two rounds last year and used some of the funds to buy “99,” Brazil’s #2 ride-hailing platform. They also invested in Grab and Careem. Could an investment in Lyft be next? Uber had a difficult year, starting with the lawsuit initiated by Google for allegedly stealing trade secrets (settled in Feb ’18). With 10m daily rides during 2017, the SF-based company introduced “UberFreight,” a platform connecting shippers and carriers or “Express Pool,” a less expensive ride-hailing solution. Uber also accelerated its autonomous driving activity (2 m miles to date) and expanded it to trucks. They finally indicated they will introduce vehicles in their fleet without human backup drivers in 2019.
Second tier ride-hailing players were very active too. At 1 m daily ride and 500 m since launch, Lyft was very active in 2017, taking advantage of Uber’s difficulties. The company created “Level 5,” an autonomous driving division, launched “Shuttle,” a fixed route service, initiated partnerships with GM (early investor), Ford, JLR, Waymo (Google’s investment arm, CapitalG, led a $1 bn round in Lyft in 2017) or Drive.AI. Singapore-based Grab reached 1.2 m drivers across 7 countries, raised $2.5 bn in equity from SoftBank, Didi, Toyota, Hyundai and others, as well as $700 m of debt to finance a rental fleet for its drivers. With its 1 m drivers, India’s Ola continued to develop its connected services, introduced a dock-less bike-sharing network and raised $1.1 bn from SoftBank and Tencent. With 250 k drivers in 10 countries, Dubai-based Careem raised $500m from Daimler, Didi and others. In the USA, Juno was acquired by Gett, in which Volkswagen invested $300m in 2016. Lots of movement in 2017!
Automated shuttles continued to progress in 2017. Though they will likely remain a niche market vs mass automotive, these vehicles already offer full geo-fenced driving autonomy. The leading players, Navya and EasyMile launched new pilots across the world and both established a structured US presence, including manufacturing capacity for Navya. The two French companies received financing from Valeo and Continental respectively. US-based Local Motors and newly established May Mobility will contribute to deploy the solution in city centers, gated communities, campuses and eventually as free floating shuttles. Automated delivery vehicles also got a boost in 2017. Silicon Valley startup Nuro raised $92m at the end of 2017 and is joined in this space by Starship (Daimler invested last year), Udelv and Gatik; all signed or performed pilots in 2017.
Several key steps taken in 2017 make 3D mobility a foreseeable option
Battery cost and density are finally starting to make it possible to consider electric aircrafts for short distance transportation (i.e. up to 30-50 km). Airbus’ single seater eVTOL “Vahana” took its first unmanned flight a few weeks ago; a production-ready aircraft is expected within 3-4 years. Uber announced plans to introduced an eVTOL as a complement to its ground-based service. Daimler invested in German eVTOL startup Volocopter which gave a demo at CES 2018. Joby Aviation received funds from Toyota AI Venture and Intel, amongst others, whereas Chinese carmaker Geely (owner of Volvo cars, of half of Lotus, of 10% of Daimler, of 8% of Volvo Trucks, …) acquired US electric “flying car” startup Terrafugia. Delivery drones also became more visible. One example is Matternet, which operated a pilot in 2017 with Daimler, delivering 2 kg up to 20 km away. Other players such as Amazon, are betting on this mode of delivery.
Overall, 2017 proved again that the mobility ecosystems is undergoing a deep transformation. It impacts products, services, business models, interactions among players, financing, expertise, social balances and more. No stones will be remain unturned!
Managing Director, Orsay Consulting