The Two Forces Driving The Future of Mobility
Electrification, automation, and the push-and-pull between politics and market economy
Electric cars are here, and self-driving cars are fast approaching. Yet the future of mobility remains uncertain due to a variety of economic, political, and cultural factors at play.
The electrification of cars is, for the most part, driven by an environmentalist cause of switching to clean energy, but the economics don’t really work for electric vehicles yet. In contrast, the development of autonomous vehicles is one that is mostly driven by projected commercial benefits, but it is starting to get derailed by shifting public opinion and the resulting politicking. Therefore, the future of mobility is being interrupted on both fronts, pushed and hindered by the diagonal forces of economics and politics.
Moreover, on the global stage, the rollout of future mobility solutions will also vary from region to region due to vastly distinct policies regarding electrification and automation informed by socio-cultural differences. The future of mobility is a moving target, and every country is taking aim.
Electrification — politically motivated, deterred by economics
Electric vehicles (EVs) are starting to take off globally. Plug-in electric vehicles (PEVs) now enjoy a global market share of 4.6%, almost double from what it was in 2017, according to a recent report on electric vehicle sales by the Center of Automotive Management (CAM). In the U.S., the number of electric cars grew by 84% to 356,000 units in 2018. In particular, Tesla’s Model 3 accounted for 37% of all EV registrations in the states. Nationwide, the PEV share in the USA doubled and now stands at 2.1% (up from 1.1% in 2017).
Although they currently make up a small fraction of total automotive sales, EVs are expected to gain significant market share over the next several years. According to a 2018 AAA survey, about 20% of Americans say they’re likely to buy an electric car in the future, up from 15% in 2017. As of now, there are more than 40 plug-in electric cars for sale in the U.S., with ten more expected to hit the market later this year. Many industry insiders believe that 2020 will be the big breakthrough year for electric cars, with over a dozen of new models slated to bring compelling designs, long range, and attractive prices to EVs.
Globally speaking, China continues to lead the EV market in terms of consumer adoption, with PEV sales new energy passenger vehicle sales in China totaled 1,016,002 units last year, up 83% year-over-year. Some Western European countries also showed significant growth in EV adoption. In Norway, for example, half of all vehicles sold in 2018 was electric. The country plans to end sales of all gasoline-powered cars by 2025. Netherlands and Sweden also stand out in terms of growth in EV adoption, according to the CAM report.
EVs are gaining momentum for a number of reasons. Advancement in battery manufacturing is making large-volume batteries cheaper to make, making EVs more affordable and easier to scale. Thanks to larger batteries, people are also getting comfortable with the idea of having an EV for daily transportation needs. 69% of U.S. drivers travel less than 60 miles during weekdays, well within the range of most EVs.
More importantly, the growth of electric vehicles is driven by political factors, which plays out in two parts. On the consumer side, increasing awareness over environmental issues is propelling more and more people, especially the younger generations, to look for green energy alternatives to cut down on their carbon footprint. On the government side, policies vary drastically from country to country. Guided by environmentalist values, most countries currently leading EV adoption offer strong policy support and economic incentives to spur EV adoption.
In other words, political factors — rather than market economics — created the electric car craze there. Take China for example. For nearly a decade, China’s government has poured money into the EV industry, offering generous tax incentives and subsidies for EV makers and buyers, building out charging stations across the country, and placing restrictions on the sales of gasoline cars. In 2017 alone, China’s central and local governments spent $7.7 billion on EV subsidies.
As a result, most auto players are jumping on the EV bandwagon. Almost every major automaker has at least one fully electric model in development. Volkswagen confirmed last month that it will be investing $800 million in its factory in Tennessee for production of its new electric models. The company plans to stop producing gas-powered cars entirely by 2026. In addition, scouters and, to a lesser extent, bikes, are also being electrified to become part of future mobility solutions.
However, it is also important to note the market reality that is hindering EV adoption in the U.S. Most EV models are still priced at a higher premium than their gas-powered counterparts. According to a BMW executive, the cost of EVs will never quite be comparable with internal combustion vehicles. The absence of a second-hand market for EVs also offers no options for the lower-end market. The fact that the percentage of new cars sold being EV in California was at 4.92% and Mississippi at 0.11% in 2017 spells a big regional and demographic differences of EV adoption in the states.
Another big economic hurdle for EV adoption lies in the current lack of charging infrastructure, which means it costs more money (and time) for EV owners to keep their car charged. Fortunately, this is an area that has received notable attention from investors and automakers. BMW and Daimler, for example, have invested in charging infrastructure startup ChargePoint to build out charging networks to support their EVs. Volvo also invested in charging startup Freewire.
Nevertheless, it will take time for the U.S. market to work out the economics of EVs and EV-related businesses, as well as lobby for better policy support, in order to make EVs a financially viable option for more mainstream car buyers. Without policy makers creating strong economic incentives for EV buyers, environmental awareness alone is not enough to drive the large majority of U.S. consumers to consider electric vehicles.
Automation — economically driven, hindered by politics
In contrast to EV adoption, which is spurred by favorable policies (in certain countries) and hindered by market economics, the development of autonomous vehicles (AVs) are primarily driven by their perceived economic benefits, both in terms of labor cost and new business opportunities AVs could unlock, but severely hindered by related regulations and a larger backlash against the deployment of automation technologies.
Automation is a major trend sweeping various verticals such as smart home, hospitality, and of course, transportation. Rapid advancement in computer vision and other AI-powered technologies in recent years is pushing AVs closer to reality. Tesla CEO Elon Musk repeatedly promised fully autonomous Teslas will be ready for market by end of 2020, and that is less than two years away. The global AV market is projected to reach $80 billion by 2025.
Compared to the EV market, where automakers are leading the charge, the development of AVs is mostly led by tech companies. Google’s Waymo is the current market leader in AV tech. It has driven more miles in on-road testing than any other competitor and launched the first commercial self-driving taxi service in the Phoenix suburbs in December.
Uber is one of the early movers in the AV tech space, although things haven’t gone very smoothly for them. The ride-sharing company was involved in a high-profile intellectual property lawsuit with Waymo, and their AVs reportedly passed only 82% of track tests, way behind Waymo, per The New York Times. Not to mention the highly publicized fatal accident in Arizona. (more on this later). Nevertheless, the development of AV technology is central to Uber’s vision for its future, so it is certainly not giving up any time soon.
Besides, there are some well-funded smaller players, in the space as they aim to beat the big tech companies at bringing AVs to markets. Voyage, for instance, has started testing a self-driving taxi service in one of the nation’s largest retirement communities in Florida. In China, Baidu is leading the country’s AV development. It has signed a number of Chinese carmakers including BAIC and Red Flag onto Apollo amid a global race to mass produce autonomous vehicles. It also recently inked a deal with Volvo to develop self-driving passenger cars.
Make no mistake, AVs are gaining strong traction across the technology and mobility sectors primarily because the astronomical economic benefits they are projected to bring. Sure, they may help save over 350K lives in the US and millions worldwide from car accidents. But the real drive has always been the commercial benefits.
For the auto industry, when AV becomes a reality, they will further boost the efficacy of on-demand ride-sharing services while significantly lowering its cost. And people will have less of an incentive to own cars, prompting the auto industry to further pivot into the service model. The same is true for many other industries looking to AVs as a key future value driver.
AV will also have a strong impact on the logistics industry, and by extension, the retail and ecommerce sectors. For example, Amazon is investing heavily in developing self-driving trucks, for they would help it reduce its long-haul shipping expenses by as much as 50% by replacing human truck drivers. In addition, Amazon is also potentially looking to use AVs for delivery services, as it teams up with Toyota to explore the latter’s ePalatte AV fleet concept.
Interesting, Amazon’s investment in AVs is also causing its retail rivals to rush into the space. Walmart, for example, forged a partnership with Waymo to explore a driverless grocery delivery service. McKinsey predicts that autonomous deliveries will slash retailers’ shipping costs by 40%, so it is quite understandable why both Amazon and Walmart are looking to AVs to deliver goods quicker at a cheaper cost.
Despite all the projected economic benefits, AVs are still facing the same backlash that nearly all automation technologies currently face. The first fatal accident involving AVs occurred last March when a self-driving Uber car killed a pedestrian in Arizona, which led to increased skepticism regarding AVs. An April 2018 AAA poll following the crash found that 73% of American drivers would be “too afraid” to ride in a self-driving vehicle, compared to 63% in late 2017. Only 20% of respondents said they trust a self-driving car.
The deployment of automation is also quickly becoming a major political debate, due to concerns over impending labor displacement it will bring. Research suggests it will also displace large portions of the workforce in a technological transition that affect 800 million people worldwide, and automating mobility is a huge part of that. As we noted in our Outlook 2019 report, automation is likely to be the first collection of technologies in decades which will be pre-emptively constrained by government regulation. Perhaps rightly so.
In addition, a large-scale rollout of AVs also depend on increase wireless connectivity tech like 5G, which is also quickly becoming a highly political topic itself as countries put Huawei products under scrutiny. As the U.S.-China trade war escalates and the global race to 5G deployments begins, the next few years will see the automation of mobility play out in vastly distinct dynamics on both sides of the Pacific.
The Cultural Factor
Culture also plays an important role when it comes to the different policies towards the electrification and automation of vehicles, with regulatory headwinds blowing in opposite directions.
In the U.S., with the green new deal gaining popularity among the left-leaning voters, environmental and energy issues are set to become a key debate in the upcoming 2020 election, with policies supporting electric cars being a major part of the debate.
In China, however, subsidies for EVs won’t last for much longer. Over the next five years, the Chinese government reportedly plans to wean domestic EV makers off subsidies and raise technical standards. If this comes to pass, the lack of government subsidies would likely dampen the consumer enthusiasm for EVs. Due to the pragmatic culture that most Chinese consumers subscribe to, environmental cause alone would not be enough to sustain the EV growth in China if the supporting policies get pulled.
In terms of automation, certain countries in the APAC region, such as Japan and Singapore, have strong demographic and economic incentives to push for AV deployment. Many developed European countries also share similar incentives to adopt self-driving vehicles. Although public skepticism towards autonomous cars remains high, a recent Intel study suggests that most U.S. consumers expect AVs to get safer and better over time, and eventually become commonplace and unlock a variety of in-car experiences.
Contrary to popular belief, China remains rather cautious towards AVs — and automation in general — out of fear for large-scale labor displacement in a country where cheap labor is still largely available. China’s pro-tech, future-oriented regulations in many areas hardly extend to AVs. In addition, China’s recent crackdown on ride-sharing services suggest that the government would prefer to keep the transportation industry, typically consists of public companies controlled by the government, from being overtaken by private tech firms, which further complicates the matter.
What Brands Need To Do
First of all, it is important to recognize the enormous opportunity that AVs and EVs can bring. Both will bring new media channels for brands to reach consumers, both in-car or at charging stations. Most EV charging networks haven’t explored potential media opportunities yet. However, a SF-based startup called Volta is exploring ad-supported EV charging services, combining DOOH ads with EV charging. It has already rolled out a network of 1,000 charging stations that are open for sponsorship, and hopes to reach 2,000 by the end of 2018. And as the mobility-as-a-service concept takes hold, more brands will be able to tap into ride experiences to further engage consumers.
Because of the complex nature of AV tech and deployment, the interest parties involved are quickly forming a tangled web of alliances in order to forge ahead. If your brand is in a mobility-related industry, it is time to team up and start exploring your options. It is important to re-evaluate who your customers are and where new points of aggregation are. Potential allies might include OEMs, ride-sharing platforms, or even aftermarket players.
In addition, brands with an international presence also need to pay attention to the political factors that vary from region to region. Depending on where the regulatory headwinds turn, brands will need to adjust their regional strategies accordingly.
The Lab is closely monitoring disruptions in the auto industry and charting the future of mobility. To learn more, and discuss how your brand can leverage these opportunities, reach out to Josh Mallalieu at josh@ipglab.com.
