Moving With the Crisis — The Fall and Rise of the Mobility Sector
By Ben Kaminski, Jorge Fontúrbel, & Florian Unger
The mobility industry has been on the rise for years. With investors and strategics allocating over $220bn in M&A and investments into new mobility tech startups since 2010, there seemed to be no limit to its expansion potential. But now, as the COVID-19 crisis sees countries shift into shutdown mode and billions of people confined to their homes worldwide, many of Europe’s most successful mobility startups have been left exposed.
Despite the early and pronounced hit, it is also clear that the mobility sector will play a key role in reactivating the global economy. Examples from Asia and less badly hit countries in Europe show how businesses in the sector are finding new ways to flexibly respond to sudden disparities in supply and demand for cargo logistics, rapidly restructure disrupted supply chains, and safely and efficiently transport goods and workers.
We’ll look at how the global mobility sector has been affected by the COVID-19 pandemic and will highlight early positive signs of how the sector is recovering.
COVID-19 Has Impacted All Industries and Sectors Globally
The Covid-19 pandemic has hit every part of the global economy, exposing the fragility of entire industries and reversing over a decade of continuous economic growth within a matter of weeks. Demand has plummeted across the board, and most supply chains have seen moderate to severe disruption. Governments are taking drastic measures to fight the virus as financial markets become increasingly volatile.
Overall, we’re seeing the same three kinds of systemic shock across industries worldwide:
(1) Demand shocks: Social restrictions and stay at home orders have dramatically affected consumer demand, forcing many industries into hibernation. Travel and leisure are two of the heaviest affected sectors, with demand expected to take a long time to recover.
(2) Supply shocks: Factory closures and reductions in industrial throughput are causing delays and shortages throughout supply chains. The healthcare sector has been particularly exposed, with unprecedented pressure to provision critical medical equipment. In numerous cases, manufacturing has been reshored to guarantee local supplies.
(3) Financial market shocks: A perfect storm of falling commodity and equity prices, increased risk aversion, and lower interest rates has made financial markets extremely volatile.
The Impact of COVID-19 Across the Automotive, Transportation and Logistics Sectors
March has been a dispiriting month for automotive OEMs. Countries which enacted early lockdowns, such as Italy, Spain, and France, are reporting falls in new car sales of between 70% and 85%. The impact has been less severe in countries with looser movement restrictions such as the US or UK, but these countries have still seen significant drops of between 40% and 50%. Nevertheless, OEMs have reacted quickly, managing liquidity by freezing production lines and drawing down credit lines to absorb the commercial shock.
Transportation has suffered as a collateral effect of measures taken to control the spread of the virus. With over a third of the global population under some form of movement restriction, from mandatory quarantines to stay at home recommendations, income for transport operators has been reduced. Public and private operators of bus, taxi, ride-hailing, car rental or micromobilityserviceshave seen sharp contractions, but many are gradually resuming operations as movement restrictions are lifted.
For logistics companies, the mismatch between supply, limited by the capacity of carriers to take orders, and demand, shaped by discontinuation of factory production and slowdown of consumer spending, has led to price fluctuations as businesses on both sides of the equation scramble to react. Taking air cargo as a proxy for the sector, in March, the cargo through put of Frankfurt Airport dropped by 17.4% YoY, Heathrow by 32.5% YoY, and Hong Kong by 12.4% YoY. At the same time, the reduction in belly capacity due to cancelled passenger services has caused an increase in demand for full-cargo capacity which cannot always be met.
Early Signs of Recovery for the Mobility Sector
So what comes next? The crisis hasn’t reached its tipping point yet, although there are plenty of signs that mobility patterns are going to be affected for the foreseeable future.
We’re in uncharted territory, and everyone is questioning what the new normal will be. But wallowing in worst-case scenarios will do nothing to bring the mobility industry through the crisis. Businesses have to keep running to get through it.
And there’s actually plenty of good news, as evidenced by reports we’re seeing from Asian countries who got ahead of the curve, such as China, South Korea or Taiwan.
Major OEMs and transport providers may need to prepare for a year or more of significantly reduced demand. But there are also signs that this initial period of chaos and rapid reorganization may soon settle into higher usage of private vehicles such as cars or bicycles.
Companies are already looking to resume production towards the end of April. Volkswagen is using new online sales channels to allow business to restart safely. Volkswagen China even claims strong consumer interest: 2,000 dealerships are open and seeing similar footfall to the same period last year. This is a clear sign of business recovery, and boosts hopes that summer sales will see a return to 2019 levels.
Public transport systems are showing modest recovery. In Shenzhen, metro ridership has been gradually increasing as the city reopens, although figures show ridership is still 66% lower than normal. Demand is growing, especially as countries introduce new sanitization regulation and other measures to help keep people safe. For example, bus frequency has been increased in some areas in an attempt to decrease rider density.
After lifting many lockdown restrictions, China has seen a surge in bike-sharing, with Beijing-based Didi recording 150% growth in bike-sharing compared to early February. There are probably several factors behind this: beyond the infection fears of taking crowded public transit, it’s also likely that the massive decrease in car traffic and associated improvements in air quality during quarantine have made cycling much safer and more appealing. Another encouraging sign is coming from ride-hailing company Didi, which is bringing trust back into the system with sanitization hotspots. To reassure customers, Didi has been installing protective plastic sheets in its vehicles as dividers between passengers and drivers. The company has also urged both drivers and passengers to wear masks and drivers are required to disinfect and ventilate their vehicles regularly.
Transportation Mode Has Changed After COVID-19 Outbreak in Various Chinese Cities
The logistics sector is also picking up. To cover the undersupply in airfreight, China has cut rail freight to promote economic activity. These cuts should complement nationwide reductions in cargo insurance fees and container detention charges, announced in early March.
China is also reopening cross-border logistics flows, and at the end of March the Chinese government implemented measures with international cooperation, aimed at controlling the spread of the virus while keeping the global supply chain running smoothly. Container cargo is also showing promising signs of recovery, with the weekly number of large container ship journeys originating in China increasing again. These sectors are still a long way from their normal levels, but these are very promising improvements given how stark the figures looked in February and early March.
Finally, with more people staying at home the appetite for on-demand services is on the rise. Food delivery platforms are experiencing unprecedented growth with their weekly sales increasing on average 20% to 30% compared to the previous year. Despite a large number of restaurants having shuttered, food delivery platforms have responded quickly acquiring new restaurants and smoothing the transition of those to dine-out only by reducing on-boarding fees, offering marketing funds, reducing pickup fees, and promoting contactless delivery. Additionally, several platforms including Delivery Hero or Uber Eats have expanded into high growth adjacent segments like grocery delivery teaming up with local supermarkets.
This is not a surprise. Lockdowns and stay at home recommendations are accelerating the use of delivery platforms across all product categories and services. Out of the current necessity, delivery is reaching a broader audience beyond younger generations with many customers ordering for the first time. Grocery and convenience store sales are experiencing all time high sales while local delivery in the US has increased by 240% YoY.
We are effectively becoming a delivery economy.
Encouraging Signs for the Long Road Head
There is no doubt that this is the biggest challenge the mobility sector has faced in decades. But despite the unprecedented global shock, we’re already seeing very promising signs that businesses throughout the mobility sector are quickly adapting to changing patterns in demand, and that governments are working quickly and sensibly to provide regulation and support that will help boost confidence and demand and keep workers and supply chains moving quickly and safely.
International cooperation combined with smart solutions in mobility and logistics will be the key to unlocking constrained economies across the world. It’s still early days, but it looks like businesses in the sector — and startups in particular — are rising well to the challenge.
About Target Global: Target Global is an international investment firm with 800EUR+ AUM focusing on fast-growing tech companies across their lifecycles. Through its dedicated Mobility 2.0 Fund, Target Global is actively investing in next-generation mobility solutions in Automotive, Transportation, Logistics, and Industry. Recent investments include Zego, REEF, Bird or Choco.
