From Auto Sales to Mobility Miles

For large automakers facing the future, the transition from automotive sales to mobility miles will not be an orderly pit stop. It won’t be as easy as bolting on one new business to replace an old one. It is more likely that today’s sustaining auto businesses (vehicle sales, service and finance) will continue to contribute the majority of the revenue and almost all of the profit before new businesses make a material difference.

Those new business lines will attempt to move from small incubated ideas to new swim lanes of material revenue. One potential outcome is the replacement of the revenue from their traditional vehicle sales business to something which is measured by the mile — aka the mobility mile: charging a customer only for their specific use of a vehicle; your $28 Uber ride is one example of this in action.

In order to move from auto sales to mobility miles, how do they arrive at a reasonable replacement figure? The chart below attempts to resolve this transition.

There are three ‘new mobility’ assumptions about this chart which are important to understand in order to arrive at these conclusions.

  • (row b) Replacing auto sales with mobility miles assumes a new per mile revenue target of $1.25. We use this figure based on the mid-level assumptions in Morgan Stanley’s recent Waymo report (link).
  • (row c) Calculating the corresponding fleet size that generates such revenue uses Deutsche Bank’s ‘70/59’ assumption about mileage utilization. By their assumptions (link), one autonomous fleet vehicle travels 70,000 miles per year and has an 85% utilization rate, thereby generating revenue on 59,500 of those miles (the rest is a combination of deadhead miles looking for a passenger and trips to / from service and maintenance).
  • (row d) Calculating the initial fleet cost uses Deutsche Bank’s $50,000/unit assumption from the aforementioned report.

Getting to this replacement level won’t happen in 2020–21 despite many manufacturers estimating that timeframe for their autonomous deployments. Internally, many CEOs are hoping to get their miles business to a material level. What is material? The goal is to get one of these net new business lines to approach 10% of total revenue; at a company like GM, that means a new business line should attempt to get to $16B in annual top line revenue before it really signals GM has a net new business. That’s what Cruise is attempting to do at GM. That is a stunning hurdle — the equivalent of GM creating an entirely new business the size of Whole Foods Market or Halliburton.

There is good news baked into this transition: miles traveled is growing much faster than vehicle sales and is expected to nearly double in the period 2015–2030 (via Morgan Stanley). There is further good news: global shared miles are also growing. Although today it looks radical to move an existing automaker business from unit sales to mobility miles, at some point we will view it as pragmatic.

Our chart only speaks to replacing revenue numbers; gross margins from mobility miles are potentially healthier than today’s incumbent automaker earnings (much, much healthier — with estimates as high as 20%, or 2–3x that of today’s midtier automakers). Some will charge a premium and will deploy smaller fleets; others will attempt to charge much lower prices with greater scale based on shared use.

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