As businesses slowly try to get back to work and shops and establishments open after the Covid-lockdown, it will be a while before people get used to the idea of moving around freely in our cities. Post-Covid, the automobile industry in China seems to be seeing a reasonable uptick in sales, though it is not estimated to be anywhere in the pre-Covid region. I suppose, Covid might make many people avoid public transport for a while and might even encourage people to own their own cars in the short term.
However, there’s no denying that the automobile industry has been in the slow lane for the past couple of years, well before Covid arrived on the scene. Across the world, including in India, the industry has been plagued with issues around new emissions regulations and environment standards, higher costs of ownership and most importantly, the growing popularity of ride-hailing.
On the other side, cities have been grappling with rising road congestion, air pollution and longer commute times. It is hard to imagine that ride-hailing alone could have such a significant impact on car sales, but not if you consider that in the US and many other developed countries in the West, there has been a much faster rate of migration to the big cities in the past decade or two. And it is in these big cities that ride-hailing services thrive and that has a significant effect on demand for cars.
In emerging economies like China and India, urbanization still has some way to go and as new towns and cities are built and existing ones expand, there will still be demand for cars. However, urban agglomeration in India and China in cities with population above 1 million is already at highs of 61% and 72.7% between 2000 and 2017, while in the US it is 20%.
There is one key player in the automobile industry now and it could change the direction as well as disrupt it: digital and electronic technology. It doesn’t always move in a linear fashion and its impact on many industries, as we are already witnessing is often of exponential proportions.
The automobile industry already features several types of cars: traditional ICE (Internal combustion engines) cars that are increasingly using more of electronic sensors and computing technology, fully electric cars, plug-in hybrids, plug-in electric and autonomous cars that are still under development. The future, as most companies seem to see it, is electric and then electric-autonomous.
According to a McKinsey report, The Future of Mobility 2020, most automobile companies estimate growth across five levels and the third level or what they call “connected cars” is what they hope to achieve by 2025. By connected cars, they don’t mean fully connected through IoT, but basic connection through GPS navigation and infotainment systems and they expect 45% cars to be connected by 2025. The fifth and most advanced level of autonomous has been pushed back by several years, according to the report. It is estimated that by 2040, 66% of passenger miles travelled by car would be autonomous (both shared and private). What I find strange about the report is that it doesn’t address what I would consider the most advanced stage which is Mobility as a Service, which many auto companies are already working towards, as I had written in a blog post long ago.
I had seen the future of the automobile industry somewhat differently, and Covid has convinced me that it is time for the industry to move towards that future more decisively and swiftly. It will not be a linear growth pattern at all, but with US and China leading the way as the two largest automobile markets and the most advanced in electric battery technology and information technology as well, other countries will have a chance to leapfrog to autonomous automotive technology quickly. More importantly, I see the world moving much more quickly to the MaaS world and a lot of it as public transport, with few luxury car-makers in the private car ownership market, if at all.
According to BCG (Boston Consulting Group), the leaders of urban mobility will be regional, not global. While they acknowledge the importance of the role that technology is increasingly going to play in mobility, and they do see it as a service, they think that cities and governments have a chance to use these changes to shape mobility, in the larger scheme of urban planning, to suit their own local requirements. To that extent they think that private transportation networks and ride-hailing will be the future in the US, in Europe it will be individual cities that will lead with their own business models, and in Asia, especially China, they believe that public-private partnerships in mobility will emerge.
In my opinion, the automobile industry is now led by digital technology and the McKinsey report does bring out the importance of partnerships between automotive companies and software companies. It says that average annual investment in e-hailing or ride-hailing went from a mere US $0.2 billion in 2010-13 to US $ 11.4 billion in 2014-19. The next highest growth in investment is in semi-conductors, which went from US $ 0.8 billion to US $ 7.4 billion during the same period. What’s more, 2/3rds of partnerships in the automotive industry initiated by OEMs (Original Equipment Manufacturers) focused on sharing investment burdens and the future seems to indicate that tech companies will be playing a vital and growing role in these partnerships.
It is not just the investment levels and partnerships that indicate where the future lies. We can also see it in the estimated growth rates of various segments. According to the McKinsey Report, auto sales are expected to increase by 10% in 2020-25 and by 25% in 2025-30. During these same periods, the automotive software market is estimated to expand by 52% and 29.5% respectively, albeit on a smaller base. This means the automotive software industry is going to grow at five times the rate of the automobile industry in the next five years, before the latter catches up with the former and we arrive at some kind of new equilibrium.
Let us now look at how citizens and governments might view mobility in the next decade. Nearly everyone agrees that commuting is just way too much of a waste of time and road congestion in cities is already beyond tolerance levels. Pollution too is unbearable and even with new emission standards coming into place this year in India, Europe and China, a cleaner, electric future is clearly the path forward. Only the US seems to be going in the wrong and opposite direction by relaxing their emission standard norms just last month in response to Covid and plummeting car sales. On the whole, there are some developments that are hastening this future: the falling costs of electric battery production, even as they improve their range and performance and the falling costs of renewable energy as well in a related area.
Citizens are gradually realizing the benefits of using electric cars, though their penetration in the overall car market is still very small. What could hasten their acceptance and growth is if this technology were made widely available as public transport. And that is clearly in the hands of local and central governments. If they made it mandatory for all ride-hailing and taxis to be electric and subsidized their adoption, we could be well on our way to greater production of electric cars, thereby also lowering their production costs.
Electric buses too, are a way to reduce pollution and should be incentivized by governments. In India, many cities, led by Delhi, shifted to buses and autos (three-wheeler tuk-tuks) that were run on CNG (compressed natural gas) and it did make a perceptible difference to the pollution levels in the capital.
Making electric vehicles the choice for the future is very doable, just needs the right policies and infrastructure to be created for it. In India, it hasn’t progressed beyond mere chatter, while in Norway, electric cars are ubiquitous and China leads the way in electric car production because it leads in electric battery production as well. Tesla, as the world’s leading electric car maker, has shown that it is a viable choice, even though it operates at the luxury end of the market. Tesla has recently launched a mass-market version, which might be accepted more easily in developed markets and China, though it too will not become mass in the sense of being used as a ride-hailing or public transport vehicle, and certainly not in countries like India which have much lower purchasing power. This shows us there is plenty of room for other companies to manufacture more mass-market electric cars, provided government policy actively encourages it.
The other important aspect of change is mobility as a service; it doesn’t have to wait for automobiles to move to the autonomous stage. Ride-hailing or mobility being offered through a fleet of vehicles and an app can become the standard, whether through electric, plug-ins, or autonomous cars. MaaS is a new business model for the automobile industry and it is technology-agnostic.
Mobility will then become a service much like airlines. The industry will have fewer manufacturers, with many operating it and managing it as a service. And, like I said earlier, a few luxury car brands might still offer private ownership, the way the world’s wealthiest now fly their own executive jets. These too could be available to own or to hire.
After all, we can already see that owning cars has been losing its cachet over the years, and we have only the automakers to blame. Cars are not seen as status symbols or markers of individual success anymore. Because carmakers have not thought it necessary to make people feel the need or desire to own their brands the way they used to, and because of the rise of ride-hailing, the industry was waiting to be disrupted.
What will become of all the millions employed in the automobile industry, directly and indirectly, you might well wonder. It is a valid question to ponder over, and we need to consider it just the way we should consider the future of the entire transportation industry, that is going to lose the most jobs to automation and AI. Apparently, the first place where autonomous vehicles will be used in large numbers is in the transportation industry.
There will be widespread effects of developments taking place in automation and AI as well as in the field of mobility, but that doesn’t mean that we can prevent the future or hold it off much longer. Much better that we start preparing for the future, by reskilling and retraining the workforce for new and emerging fields of work.
The future of shared mobility has so many real and important benefits to offer us in terms of improved health, quality of life, environment, and more liveable cities and these significantly outweigh any losses on the jobs front, although we should try and minimize those to the extent possible.
Which brings me back to the immediate post-Covid world. If people try to avoid public transport and prefer to buy cars, it’s great news for the car manufacturers. However, governments should see this as the time to usher change in the way cities manage road traffic, reduce pollution levels, and commute times. These are seemingly opposed to each other, but it would be wiser for cities and governments to help make the shift to electric ride-hailing and mobility as a service easier, by formulating the right policies now in consultation with the automobile industry.
Many are of the opinion that Asia, led by China, will lead the future of mobility. With so many Asian cities already overcrowded, and with China and Japan powering electric car and MaaS innovations, perhaps it is to be expected that the new dawn of the automobile industry will also rise in the East.