Is there life beyond the car for the auto industry?
Mobility is a constant in human life. People have always wanted to move from one place to another, and they will continue to do so—to see their families, meet friends, make a living, or just for fun. And nothing suggests that this desire to move will go away any time soon. Even though communication innovations such as video calls have become part of our daily lives, the desire for in-person interaction remains strong and the number of person-miles travelled in developed countries has grown by 3.4% in recent years.
However, how we move has evolved dramatically over the centuries. From walking to riding, from carriages to cars, and beyond: we now are at a second inflection point, where our mobility patterns are likely to change as profoundly as they did 100 years ago.
A wealth of new transport options is emerging, but some things never change—people will continue to want a cheap, fast, comfortable, and seamless way to get from A to B. As a result, the mobility value pool has reached about US$3-4tr—a sum comparable to the current GDP of France or the UK.
Mobility’s second inflection point
Since the first inflection point, mobility for the majority of people in developed countries has mostly meant driving their own cars. In US cities, the share of car mobility in the modal split is as high as 90% of passenger miles travelled. Even in Europe, which has more advanced public transit, this share is still 40-55% depending on the type of city. This focus on personally owned cars with traditional internal combustion engines is the aspect of mobility we expect to change most in the years to come, at least in cities.
In fact, the shift away from traditional car ownership is already under way. Just five to seven years ago, most city dwellers had three main mobility choices: their own cars, taxis, and public transit. Nowadays, a plethora of options—including ride hailing, car-sharing, e-scooters, shared bikes, and shuttles—have emerged to significantly close the gap between taxis and private cars.
One obvious driver of this change is technology. The smartphone has already enabled countless new business models, including ride-hailing and micromobility. The total number of micromobility trips grew from 35 to 84 million in the 2017-18 period. And investors have pumped more than US$12bn p.a. into the global e-hailing market since 2015. Going forward, innovations such as driverless cars and vans, scooters and bikes powered by electric motors, and unmanned aerial vehicles will make even newer forms of mobility possible.
These technological opportunities would have less impact without the pressure of consumer demand behind them. As growing cities drown in traffic, urbanites are frustrated by gridlock and the resulting wasted time. Deteriorating air quality is also a major concern. In cities in the largest economies, air pollution levels far exceed World Health Organization (WHO) guidelines—less than 20% of the global urban population live in areas where air quality is classified as ‘OK’. And congestion worsens exponentially as cities become denser. In Beijing, population growth of less than 1.5% caused a 25% increase in congestion.
In today’s digital world, companies like Amazon, Google, Tencent and Baidu provide seamless, integrated, holistic customer experiences. The difficulties of moving through cities stand in stark contrast to the kinds of experiences customers have come to expect, and they increasingly hope that new technologies can close some of this gap. In 2019, for instance, 75% of the Chinese population believed that autonomous vehicles will be safe, up from 38% in 2017. Acceptance of ride-hailing is growing rapidly as well: 30% of citizens in large cities have used ride-sharing in the last month.
Beyond their personal mobility experiences, consumers are concerned about sustainability. The world has identified the climate crisis as the major threat to our societies and is beginning to implement actions to fight it. Cities are making bold moves: banning cars powered by internal combustion engines (Paris, Copenhagen), plans to reduce private car use (Vancouver, Los Angeles), making parking spaces rarer and more expensive or restricting access to the city centre altogether (London), and heavily supporting alternative modes of transport such as bicycles and public transit (again Copenhagen, Utrecht). Such action is essential. Although cities today take up less than 2% of the earth’s surface, they will be home to 70% of world population in 2050 and already consume 78% of the world’s energy and produce 60% of greenhouse gas emissions.
Automakers: it’s time to make your move
It may seem that these changing patterns of mobility and tightening urban regulations spell doom for the automotive industry. But we don’t think this is the case. Automakers and their suppliers can and will play a significant role in future mobility—assuming they get their strategies right today. To do so, they must consider how to position themselves strategically in the newly emerging mobility value chain. The traditional automotive value chain—selling cars—will disintegrate into a world that seamlessly integrates different mobility solutions (private cars, e-hailing, car-sharing, public transports etc.). Players can consider three main roles, namely as a mobility provider, an orchestrator or a pure hardware provider, as outlined below.
The automaker as mobility provider: Providing mobility can be extremely attractive from a business perspective—more attractive, in fact, than just selling cars. Automakers currently make about one cent in profit per mile driven. New mobility services have the chance to up this amount by a factor of 10 to 25. One option for automakers is therefore to go all-in as mobility service providers.
The automaker as orchestrator: Rather than providing mobility themselves, orchestrators bring together different modes of transport (e.g. in a city), providing customers with a nearly seamless, easy-to-use mobility menu. In Europe, some public-transit agencies (such as Jelbi in Berlin) are experimenting with the orchestrator role: in addition to being a one-stop shop for subway, bus, and e-hailing, they also offer micromobility. Automakers’ experience and data in fleet management could make orchestration a viable path for them. They could manage the vehicle control centres in a city, optimising the mobility experience for every citizen and servicing the vehicles, especially those used for autonomous driving. While this suggestion might sound odd, a look at the air travel industry shows that this type of business model does make money. Many airlines struggle financially, but the companies that provide services in the air mobility value chain (such as airports and fleet maintenance) make healthy profits.
The automaker as pure hardware provider: This counterintuitive third option—automakers could continue to ‘just’ provide hardware (sell it or own/operate it)—involves less of a role change than a change in how this role is performed. Conventional wisdom often says that selling hardware alone will not be valuable in the future. However, we expect smarter ways of ‘selling’ hardware to emerge. And again, the air travel industry can serve as an analogy: producers of aircraft make good money, and turbine manufacturers no longer sell their products but hours of service. Automakers could do the same.
In short, the time is definitely coming when the privately-owned car will no longer be the dominant mode of transport, especially in urban areas. And yes, automakers will have to adapt to this new normal. This transformation will not be easy. New automakers are entering the space—think of the more than 60 new Chinese brands focusing on electric vehicles. Big suppliers will try to defend their strong positions, and tech giants will want to get their share. But in our view, automakers are well positioned to secure a stake in the new mobility world. The key for them is to become part of the solution by providing a seamless, easy-to-use, comfortable and holistic mobility experience.
Rather than trying to prevent the mobility revolution, the automotive industry could be a driver of change to a world beyond the car—making the mobility experience in the 21st century better for everyone.
About the authors: Kersten Heineke, Philipp Kampshoff, and Timo Möller work in the McKinsey Center for Future Mobility