Navigant Research Blog

Automakers Look to Stay Relevant in Rapidly Changing Mobility Landscape

— April 15, 2014

How fast is the urban mobility landscape changing?  Last year, when Navigant Research published its Carsharing Programs report, San Francisco, California-based rideshare company Lyft operated in around four U.S. cities and touted 30,000 members.  A year later, Lyft operates in 30 U.S. cities and, in April, the company raised $250 million in a Series D investment round.  Lyft immediately began making moves to secure greater market share by lowering its prices in all cities by up to 20%.  Meanwhile, Uber, the U.S. leader in app-based car services, continues to add new UberX service locations, including one in Singapore, after raising $258 million in funding in August 2013.

Granted, Uber and Lyft are not carsharing companies exactly.  They are mainly alternatives to taxi or livery services.  But they do share DNA with carsharing.  These companies operate somewhat like peer-to-peer (P2P) carsharing services, such as Relay Rides, which also serve as a way for non-professional drivers and those in need of a car to connect, as well as to maximize the utility of someone’s underutilized car.  And, P2P car services could compete with one-way carsharing, a business model that has taken off in the past few years thanks to companies like Autolib’, car2go, and DriveNow.  These services are all part of the new collaborative economy, which depends on a radically new attitude toward car ownership and the ubiquity of smart devices, apps, and software that makes the collaboration as seamless as possible.

Changing Times

The dramatic growth of P2P car services is just one example of how dramatically the transportation landscape is changing, with a clear shift away from the privately owned car as a primary transportation mode.  Yes, this change is still largely concentrated in major urban areas and in developed countries.  Meanwhile, rising car markets (like China) continue to show increases in sales to first-time car buyers, even as the pace of auto sales growth has slowed somewhat.  Still, in a world that is becoming increasingly urbanized, and with the rise of megacities (cities with populations of 10 million or more), this mobility transformation is going to spread.  In the world’s large cities, automakers will find their businesses increasingly squeezed by a range of other transportation options, including the P2P car services and carsharing.

How much of a threat will these options be to car companies?  Carsharing will cut into car sales to some degree, but based on Navigant Research’s forecasts, vehicle sales reductions directly related to carsharing will be tiny compared to the total passenger car market, which globally reached around 82 million in 2013.  But the broader transformation of urban mobility will have an impact on auto sales, as the many options for personal mobility make it easy to forgo buying a car during the time that fuel costs will be rising, along with the indirect costs of driving such as parking and traffic congestion.

This helps explain automakers’ interest in offering carsharing, which has the potential to provide substantial revenue.  BMW and Daimler in particular each came roaring into this market in the last 18 months, capturing significant market share in the European cities where they operate.  Daimler reports having 600,000 members in its car2go service, while BMW reports 215,000 members in DriveNow.  In the Navigant Research report Alternative Revenue Streams for Automakers, revenue from original equipment manufacturer (OEM)-owned carsharing services is forecast to be in the billions as overall demand for collaborative car ownership grows and more OEMs enter this market.  Carsharing represents a prime opportunity for automakers to ensure they play a central role in the changing mobility landscape.

 

U.S. National Parks and Electric Vehicles: A Match Made in Heaven?

— April 8, 2014

The U.S. Clean Cities program and the National Park Service (NPS) recently announced nine new projects to deploy clean vehicles at U.S. national parks. These projects are part of the Clean Cities National Park Initiative launched in 2010. The nine projects mainly feature plug-in electric vehicles (PEVs) and hybrid electric vehicles (HEVs).  Around 21 vehicles will be installed through the funding, including some low-speed electric vehicles (EVs).  The projects also include the installation of EV chargers for park visitors. While any move to make the U.S. parks cleaner is welcome, the relatively modest ambitions of this funding effort reflect the challenge that parks present in the adoption of EV or HEV technology.

Parks have long been an attractive target for greener transportation. This is not only for symbolic reasons, but also for practical reasons. Diesel and gas vehicles are noisy and disruptive. Park vehicles may spend time idling, which is both an emissions problem and a cost concern given the large amount of fuel essentially wasted during idling. These factors would seem to make PEV and HEV technology a good option, but to date, deployments have largely been pilot or demonstration programs and there has yet to be a full-scale shift toward electric drives at the U.S. parks.

A Building Barrier

One major barrier has been the lack of truly commercial vehicles available. As discussed in the Navigant Research report Hybrid and Electric Trucks, most of the traditional truck original equipment manufacturers (OEMs) are offering hybrid versions in the larger trucks classes that are not applicable to the park service. In the truck category, parks would primarily utilize utility trucks, pickup trucks, or vans and trucks outfitted to transport passengers.  These would be vehicles in the Class 2b light duty category or medium duty Classes 3-5, where, until recently, there was more attention focused on producing electrified vehicles for delivery service.

Even though pickup trucks are among the top-selling vehicle in the United States, U.S. OEMs have tailed off production of hybrid pickups and only ever offered demonstration models of plug-in trucks.  However, in the past 18 months, there has been an uptick in companies focused on these class levels and in applications with some applicability to national parks. In January, U.S. startup VIA Trucks announced a major commitment by Canadian company SunCountry to place VIA’s plug-in vans into passenger transport services at Best Western hotels. VIA also develops plug-in electric utility trucks, which will be used at several electric utilities in a pilot project funded in part by the U.S. Department of Energy (DOE). U.S. company Odyne Systems will be delivering 120 utility trucks through the same DOE funding; the plug-in system allows utility workers to avoid engine idling by running equipment off of the battery.

Looking at the larger class of passenger buses that are used in national parks, the biggest push is coming from China’s BYD, which has been targeting parks and transit agencies. While most of the company’s orders are outside of the United States, BYD is making a strong push for the U.S. market. After winning bids in Los Angeles and Long Beach, California, the company began to face major backlash from activists and its U.S. competitors. The Long Beach order was recently canceled, although, evidently, the reason was simply a paperwork glitch. In any case, this environment would make it difficult for the NPS to adopt these buses until BYD becomes more established in the United States through transit deployments like the one in Los Angeles.

While increased vehicle availability will help make electric and hybrid options more feasible for any park looking to convert, the issue of the price premium still looms large. With hybrids costing well over 25% more than conventional vehicles and electric buses often reaching a 100% price premium, cash-strapped public services like the NPS will likely find themselves unable to make the switch even if they want to. Lower-cost options, like propane, continue to see uptake in national parks for this reason. This also explains why the Clean Cities National Park Initiative is still necessary to move these vehicles into U.S. parks.

 

Google Invades the Car Space

— January 30, 2014

Google’s acquisition of Nest has already pushed its automotive announcements from CES 2014 out of the news.  But Google continued to make inroads into the connected car environment through specific Android partnerships with original equipment manufacturers (OEMs) and the Open Automotive Alliance.  Through the Alliance, GM, Hyundai, Honda, and Audi will work together with Google to bring the Android platform to their cars.

If you tie this to the Nest acquisition, it looks like Google will soon have the ability to track you everywhere: online, at home, and in your car.  This may be the paranoid version of what Google is after, but it’s not crazy to think that is a driver for entering these markets, given how Google has built its business on the customer-as-the-product model.  However, at least in the automotive arena, it’s not quite so simple.  Google is working with the great immovable force that is the auto industry, a business with a product development timeline that’s longer than in consumer electronics, and a relationship with its customers that’s different than Google’s.

CES 2014 did show continued advancement in the ways that automakers are thinking about connectivity, with greater openness to direct integration with outside apps and operating systems. It also showed how much more of a role that telecom providers are playing in the automotive sector, with cars increasingly becoming Wi-Fi hotspots.

Skeptics Disagree

But automakers disagree on how to integrate these outside systems and how to use the massive amounts of data they are going to be collecting on driver behavior.

From conversations with auto industry executives at CES, as well as from presentations at the Consumer Telematics Show, I see a spectrum of views on the topic of using consumer data to drive new revenue.  Some executives are confident that connectivity and driver data will open up promising new revenue opportunities.  These include offering insurance products that match customer’s actual driving habits and records, connecting them with local restaurants or other businesses as they are driving, or simply reporting back diagnostic information to the dealership or local repair shop, which can then connect with the driver to tell them when they need an oil change.

Other industry officials are skeptical of these ideas, noting that customers find it creepy when other businesses know what their oil change schedule is.  Some of the luxury car company executives, in particular, emphasize that their customers expect not to be harassed by coupons or ads, and they would never pass along their customer’s information.  In one example of how OEMs will want to control this data, Mercedes previewed its new predictive user experience system, which can learn from the driver’s habits and adjust the telematics systems accordingly.  Mercedes stressed that this personal data will only be stored on the vehicle.  Even automakers who plan to take advantage of the new revenue opportunities note it must be an “opt in” procedure.

A Protected Environment

Right now, the automakers are still the gatekeepers on how Google, Apple, or application providers like Pandora will interact with their drivers through any in-vehicle system.  So, I think it’s premature to assume that Google will have the same ability to track and target connected car drivers as they do with web users, other than as they can do already, via the driver’s cell phone.  I’ve seen some suggestions that automakers should hand over the user interface to the tech companies, like Google, but I see very little evidence they are interested in doing so. Every automotive executive I spoke with believes that the interface with the customer must be a protected environment, where they want to compete against other automakers.  However, the manufacturers themselves are showing more interest in moving into motorists’ homes.  See Ford’s MyEnergi Lifestyle, which lets a customer integrate the C-MAX Energi plug-in hybrid with solar panels by SunPower and, you guessed it, the Nest smart thermostat.  While Ford is ahead of the pack in bringing this concept to market, expect to see more automakers pursuing similar home-vehicle integration models.

 

Popularity Soaring, Uber Faces a Backlash

— January 8, 2014

Web-based car service company Uber is facing another backlash – not the first in the startup’s life.  For a company that offers what seems like a fairly uncontroversial service – convenient on-demand urban transport ‑ it has attracted a lot of controversy.

At the most basic level, Uber is simply a way to maximize existing transportation resources.  The company realized that current car services and taxi drivers had significant downtime when they were actually willing to work.  And city dwellers can attest that there are many times they want a taxicab but can’t find a free one.  This means resources are sitting idle at the same time there is unmet demand.  Very inefficient.  Uber solves this problem elegantly, with a smartphone app and algorithms to match up drivers with riders as quickly as possible.

Not So Fast

However, Uber’s path to growth is not proving to be so simple.  It has faced significant pushback from a number of quarters.  Initially, and not surprisingly, opposition came from conventional taxi services and the cities that heavily regulate them.  To avoid certain taxi regulations, Uber has to wriggle itself into a very oddly shaped box.  It strives to appear as a livery service, which are less regulated than taxis.  But a service that sends a car to pick up a customer in just a few minutes and then charges by the hour and mileage sounds a lot like a taxi company.  The company initially specialized in offering the black “executive sedans” associated with livery companies.  Yet, Uber doesn’t own any of these town cars – or even employ the drivers.  It contracts with local car services and drivers, supplying them with the app that matches drivers with customers.  This has allowed Uber to claim it is not a transportation service and thus avoid certain regulations and insurance requirements.

The response from many cities has not been to work with Uber, but to treat it as a scofflaw.  As Tesla found with auto dealers, a powerful interest group closely entrenched in local politics makes a challenging competitor.  Uber has plowed ahead with its expansion plans, continuing to fight on many fronts.  The company won its battle to offer its service in Washington, D.C., but is still facing multiple other challenges.  For example, it is appealing a California Public Utilities Commission ruling that it is indeed a transportation company.  In cities where Uber has won, it has rallied users to provide public support for the service.

Unfortunately, many of those customers are now irate.  The latest backlash comes from some Uber users who have complained about the premium that the company charges during periods of high demand, like weekend nights in Manhattan.  Some customers have gone public after paying several hundred dollars for a short ride.  While this probably won’t turn most customers away, it does make Uber look a lot more like a service for the wealthy.  That will make it harder for Uber to gain broad public support in its struggles with government agencies and it may embolden politicians and regulators to go after a high-end car service for a select few.

 

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