From automotive to mobility

Last week, Waymo received approval for the world’s first commercial, driverless, ride-hailing service. For anyone hoping that driverless cars were still at least a decade from hitting mainstream, this should come as a rude wake-up call. We are rapidly approaching the point of no return for a new era of transportation. Even Bloomberg now has a section dedicated to the future of transportation, suggesting the future may already be here.

What is interesting about this change — which Nathaniel Bullard describes as equal to the change American’s faced after the civil war — is that it leaves practically no industry untouched. While there is substantial debate and disagreement on exactly how the varying technologies — EV, mobility services, autonomous driving, personalized flying drones, and autonomous delivery vehicles — will affect us, what is clear is that a number of industries will be affected.

Should personalized transportation get commoditized, as it is being by Uber and Lyft, the automotive industry’s substantial investments in brands will be for naught. Public policy will be impacted as government will have to deal with re-designing urban cityscapes and dropping parking and traffic violation revenues. Rail and bus service operators and manufacturers will also have to compete increasingly with alternatives. And the O&G industry will be affected by the shift to EV and may lose out — potentially to the benefit of the power generation sector.

Understanding this reality, most incumbent players are making bets that extend beyond their normal realm of operations. Automotive OEMs have substantive investments in mobility services. Last year, for instance, Volvo announced the establishment of Volvo Mobility Services, around Sunfleet — one of the world’s first car sharing companies that Volvo has operated since 1998 (following the example of Daimler’s Moovel). Shell bought NewMotion, a car charging company, last year with plans to enable car changing at gas stations; BP also announced plans to invest into and support car charging at its stations.

Who will win and lose in this new mobility landscape is anyone’s guess. Some outcomes, however, will follow the same pattern that is playing out in other industries undergoing a breakdown of traditional value chain boundaries.
First, those that control the interface to or understand the customer will win. In industry, that is the manufacturer or the ERP solution provider. In transportation, companies such as Google Maps, Uber or Lyft could replace OEMs such as Ford, Audi, or Volkswagen by becoming the primary interface for users mobility needs. Conversely, OEM and after-market parts suppliers will be squeezed. According to Roland Berger (and more recently confirmed by BCG), the share of auto industry profit accruing to OEMs and suppliers will fall from c. 68% in 2015 to just 36% in 2030. The big winners will be mobility providers, gaining over 40% of profits from being practically non-existent in 2015.

Second, this transformation will create opportunities for new entrants. Examples of this are emerging across the value chain as newer players challenge incumbents, even as the incumbents expand into segments of the value chain they previously did not operate in. For instance, where O&G majors once controlled gas station retail, utility companies are making a play to develop EV charging infrastructure — as evidenced by EnBW’s (a German utility) move to establish charging infrastructure across Germany.

As this accelerates, expect greater competition from inter-related players. OEMs will look to provide mobility services even as new EV-focused OEMs look to challenge the established ones. Tech providers, such as Google, will provide solutions but also compete with auto OEMs. Utilities will both provide power to O&G stations, but also look to deploy their own charging networks. And startups, such as Volocopter, will look to re-invent completely the way we travel and bypass the existing ecosystem entirely.

In this brave new world, the question every executive and investor must ask is, what business am I (investing) in and what does the future of that business look like? That future no longer resembles a relatively siloed automotive industry, nor the transportation sector — it is one of providing mobility in which several players from different sectors cooperate, compete, and collide.