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The state of play in mobility transformation
Staying abreast of the automotive and mobility sectors’ transformation has been pretty easy if you have a lot of time on your hands. There are conferences just about every week that put expert speakers and panelists in front of insight-hungry audiences trying to understand where technologies, markets, economics and policies are headed. Corporations, academics, consulting firms and a bevy of industry observers and pundits release reams of articles, studies and opinion pieces trying to shed light on what’s going on.
Many of these conferences and articles address the disruptive power of new technologies, such as sensors, artificial intelligence, data analytics, connectivity, cybersecurity, additive manufacturing, energy storage and new materials. Some concentrate on the emergence of new business models, and their underlying economics and policy implications.
There often is an explicit belief that all of this is being done to yield a safer, cheaper, more accessible, efficient and sustainable mobility system for the movement of people and goods. Speakers and authors often present a picture of rapid change and pervasive disruption that spells doom for the incumbent industries and a new world of mobility that is just around the corner. Others, looking at the same evidence, say that any fundamental changes are many decades away.
As I reflect on what I have seen over the past decade and more recently in 2019, I think there are several fundamental forces at play that may shed light on how the auto and mobility sectors might evolve.
The 100-plus-year-old incumbent auto industry is inherently capital intensive and cyclical. Its DNA is wired for slow, risk-averse incremental change. It has to be. The downside of a rushed decision or misplaced investment can have devastating impacts on a company’s finances and image. Despite years of incremental improvement, the industry’s core business of designing, engineering, making and distributing vehicles through dealers to individuals has led to a mobility system that remains dangerous and inefficient.
Over 1.3 million people are killed due to auto accidents annually around the world, most automobiles are unused 95% of the time, all road transport vehicles collectively contribute 17% of global CO2 emissions, and the loss of productivity due to traffic congestion has been estimated at over $300 billion per year in the U.S. alone.
In response to regulatory pressure and market demand, the industry has in recent years spent heavily on electric propulsion systems, advanced connectivity and safety systems, including autonomous vehicle technologies. Many OEMs also have experimented with shared vehicle business units. But the core DNA, business model and culture does not deal well with disruptive change. Allocating resources to new technology and businesses reduces spending elsewhere, which can be detrimental to the core. Slowing sales and rising costs have created a strategic dilemma for many OEMs and suppliers.
Mobility disruptors come in many forms, from large tech companies to startups. Many have challenged long-standing assumptions about personal and goods mobility systems by blending new technologies with novel business models funded by risk-tolerant investors. The result has been an increase in mobility options, especially for those living in cities, such as peer-to-peer vehicle and ride-sharing, autonomous shuttles and scooter services.
Many new pure electric vehicle companies have emerged over the past several years to vie for a piece of the small but rapidly growing market. Some aim at high-end luxury sports car segments, while others like Michigan-based Rivian and Bollinger will be launching pure EV pickup and utility vehicles.
When it comes to autonomous vehicle technology, many believe that much of the leading work has come from Waymo, despite significant investments by OEMs and suppliers. Without a traditional core auto business to protect, Waymo has been able to focus solely on transformative technologies and models.
Many of these tech and startup entities have demonstrated an ability to move quickly, adapt with agility and take on more risk than auto industry incumbents. In addition to more innovative cultures, they also have an inherent skill set advantage in that their core competencies revolve around computer science and data analytics.
Despite being at odds, there also have been some interesting collaborations between transformers and incumbents, including a recent partnership between Waymo, American Axle & Manufacturing, and Magna for an autonomous vehicle conversion operation to convert Chrysler Pacifica vans and Jaguar I-PACE SUVs to advanced autonomous vehicles.
Where is the customer for all of this? The market for electric vehicles remains very small, while various forms of connected vehicle services and advanced driver assistance systems (ADAS) have become increasingly common.
Deloitte recently released the results of a global survey suggesting that interest in EVs and ridesharing is rising, while the appetite for higher levels of vehicle autonomy has slowed or stalled due to lack of trust in safety, data security and privacy are a big reason for the latter. It also reported that those using car and rideshare services are increasingly less interested in owning a vehicle and that trust in incumbent OEMs to provide autonomous vehicle technologies is declining while trust in tech companies and startups is rising.
Markets for which there is little customer experience are inherently hard to forecast. Since its inception, car owners have had to tolerate the high cost of buying, maintaining, fueling and insuring a vehicle, and that the time spent behind the wheel is largely lost.
Some analysis has suggested integrated autonomous, connected, electric, shared (ACES) mobility systems could reduce the total cost of mobility by around 80% on a dollar per mile basis. This, coupled with improved safety, sustainability and overall efficiency makes for a compelling value proposition, even though the technical, economic, regulatory and adoption hurdles are high.
So, while most quantitative forecasts are probably wrong, the cumulative benefits that new mobility systems might deliver seems a compelling reason to accept the directional trend is toward more of the transformative and less of the old model.
Observations and implications
1. The incumbent system provides a “Just in Case Asset” model in which individuals own and operate vehicles that are overengineered for typical usage. We all know people who have an SUV for summer and winter family trips but use it mostly for commuting and errands. Alternatively, Mobility-as-a-Service (MaaS) fleet models provide “Just in Time Access” so the type of vehicle hired is matched to the needs of the travelers. The differences are fundamental, suggesting that development and adoption will require a lot of coordination, resources and time.
2. Mobility transformation is not an “either-or” situation. For the foreseeable future, there is likely a need for both traditional and MaaS models to co-exist because the mobility needs of people vary widely. ACES vehicles and MaaS models increase the diversity of mobility options for the wide range of mobility needs around the world. However, those with a stake in the outcome tend to advocate what is in their best interests and create false dichotomies along with outlooks that support their case, trying to turn “and” into “or.” These arguments are largely self-serving.
3. Elements of the incumbent and transformer camps likely are ripe for consolidation. The incumbent model, based on high volume production and operating efficiencies, is confronting a market that some say has passed “peak auto” demand, leaving companies sitting on excess capacity. Lower sales and rising input costs can lead to mergers, acquisitions and partnering throughout the supply chain. For different reasons, some disruptor sectors are crowded and overfunded. For example, there are over 100 EV companies in China and upward of 70 LIDAR companies vying for capital and customers. These consolidations inevitably will add stress to the system.
4. High levels of vehicle autonomy can be existential for both the incumbents and the disruptors. If autonomy works, it could kill incumbent businesses because in an ACES/MaaS world, there is little reason for personal vehicle ownership and the brand/user experience connection with the customer is via the service provider. Vehicle brands could be largely irrelevant. However, if autonomy does not work, the profitability and sustainability of MaaS businesses are in jeopardy because they need to remove the cost of human drivers if they are to survive. (I recommend Larry Burns’ recent book, “Autonomy: The Quest to Build the Driverless Car and How It Will Reshape Our World” if you want to learn more about the history and promise of autonomous vehicles.)
5. Existing ecosystems can secrete powerful antibodies against change. While new mobility models could lead to business opportunities, jobs and vastly improve mobility systems for many stakeholders, there will inevitably be losers, some of whom have a lot of economic and political influence. These forces can and may already be acting as a brake on mobility transformation.
The auto industry has been and continues to be a key contributor to Michigan’s prosperity. However, it is an industry going through what some believe is the most fundamental challenge and change since its inception. The state has increasingly recognized this and taken steps to position itself as a leader in new mobility technologies, working within the state, throughout the U.S. and around the world to promote and attract companies, talent and investors.
By supporting the testing and development of advanced mobility technologies and assisting with the collaboration between corporates, startups, academia and communities, the state is making a significant investment in the future.
The Michigan Economic Development Corporation’s mobility-focused arm, PlanetM, has been the lead for many of these initiatives designed to support investment and the advancement of the mobility landscape. PlanetM is a “partnership of mobility organizations, communities, educational organizations, research and development, and government agencies working together to develop and deploy mobility technologies.”
Through PlanetM, mobility companies are able to apply for testing and pilot grants that allow opportunities for advanced testing and deployment of technologies in the state. Further, PlanetM works with private sector investors and academic institutions to cultivate the broader entrepreneurial ecosystem, and it serves as a hub that links those working on mobility technology advancements with the industry and the state’s economic development resources.
Michigan has become a particularly attractive place for mobility startups. In addition to and in collaboration with PlanetM and the MEDC, several other organizations and programs support auto and mobility startups such as the University of Michigan’s Center for Entrepreneurship and the Michigan Translational Research and Commercialization (MTRAC) programs, Techstars Detroit, the Small Business Development Center and the state’s Smart Zones. Through these and other entities, startups and entrepreneurs can gain access to training, mentors, grants, talent, potential investors and customers, and other valuable networks.
Is the transformation to ACES-based MaaS models inevitable? What I find compelling is the simple argument that 1) today’s system is dangerous and expensive and 2) aggressive innovators can prevail against entrenched systems when the resulting benefits are significant for a large number of people.
The promise of cheaper, safer, more accessible and sustainable mobility has been driving auto and mobility industry transformation. Hundreds of billions of dollars have been invested, and many new technologies and businesses have been created that are achieving initial milestones toward the end goal. There is no reason to think this will not continue in our new decade and beyond as more benefits accrue.
The core challenge for industry leaders and policymakers is how to manage the transformation rather than resist it. Entrenched interests that want to protect and maintain the status quo will need help transitioning to the future, just as transformers will need support as they test, iterate and refine innovative new technologies and business models to make them safe and sustainable.