Navigant Research Blog

Brickyard City Hosts Carsharing Experiment

— June 10, 2014

Indianapolis, Indiana, is set to become the site of one of the biggest electric vehicle (EV) carsharing programs in the United States.  The Bolloré Group kicked off the “BlueIndy” carshare program, the company’s first in the United States, in May.  The Bolloré Group is large French conglomerate that, among other things, produces electrical components for capacitors and lithium polymer batteries.

Indianapolis is an odd choice for an EV carshare service location compared to a city like Paris, where Bolloré’s Autolib one-way EV service has been a huge success since its launch in December 2011.  Autolib was one of the first carshare programs to combine EV technology with the one-way carshare model, which allows users to drop cars off at any of the service’s designated parking spots.  The Autolib program has expanded beyond Paris and now has around 140,000 users across France.  According to Hervé Muller, the president of BlueIndy and vice president of Bolloré subsidiary IER, the cars in the Paris Autolib program are used an average of 7 times per day and the program is set to become profitable just 3 years after its launch. The company is now targeting the United States.

Charge Here

So why Indianapolis?   The city has limited public transportation, and its downtown, although quite suitable for hosting the Super Bowl, lacks the concentration of residential living that successful carsharing cities like Paris, Boston, and San Francisco have.  What it does have, though, is a mayor who made the carshare program one of his major priorities and an electric utility that stepped in to pay for charging equipment.

Setting up a public charging network fulfilled a key goal for Indianapolis Mayor Greg Ballard.  Indeed, this program demonstrates a creative way for a city to rapidly establish a charging network.  Bolloré will let other EV drivers use the stations, thus adding an additional revenue stream.

Bolloré has committed to bringing 500 Bluecar EVs and 1,000 public charging stations to Indianapolis. This represents a $35 million commitment from the company.  Indianapolis Power & Light (IPL) has also partnered to support the charging deployment, although there is some question about whether IPL can secure a rate hike to pay for it.  In my conversation with him, Muller said Bolloré expects the BlueIndy service could take up to 6 years to reach profitability and noted that the company is taking a long-term view of developing its U.S. carshare business.

Students and Tourists

It will be instructive to track how this service is used.  Typically, public transportation can be a key ingredient for successful carsharing services, because it allows city residents to get around easily, with the carshare filling in the transit gaps.  In Indianapolis, BlueIndy may essentially take the place of a widespread public transit network.  This is an advantage of the one-way model, with cars being easily used for short trips across town, for example.

The Bolloré Group is also looking to draw membership from the city’s large student population, travelers using the Indianapolis airport, and local businesses that could use the carshare program in place of fleet vehicles.  It’s an ambitious plan. Bolloré has yet to deliver its first U.S.-approved EVs and the program could take several years to reach viability. But if it works, the Indy experiment could serve as a model for other similar U.S. cities.

 

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.

 

The Circular Economy Rolls Forward

— January 15, 2014

In 2002, Michael Braungart, a German chemist, and American architect William McDonough published a book called Cradle-to-Cradle: Remaking the Way We Make Things.  The book put forth a manifesto for how to achieve closed loops in the lifecycles of both technical and biological materials.  Put another way, the book uses the concept of “waste = food” to outline strategies for creating an economy where the need for landfills and incinerators is minimized (also called the circular economy).  As the authors put it, the recycling system of today is actually one of downcycling, which only postpones most materials from ending up in a landfill.  The authors see this as a design problem: products are currently designed for their usable life with no thought of what happens after they’re discarded.

Instead, Braungart and McDonough argue, products should be designed to be easily broken down into their raw materials, which can be cycled back into the manufacturing process without any degradation.  In fact, the authors point to opportunities for the quality of materials to even be upgraded in the recycling process.  Today, a number of organizations, such as the Ellen MacArthur Foundation, are trying to implement some version of the circular economy.  In fact, the U.S. Green Building Council has added the Cradle to Cradle Certified Program to its LEED Version 4 Rating System.

In order to achieve a circular economy, you have to be able to sell businesses and consumers on the (monetary) benefits of making such a transition.  There’s no point in designing a good to be infinitely recyclable if you don’t have a practical, cost-effective system in place to collect and process it at the end of its usable life.  According to the Ellen MacArthur Foundation, circular business models present a significant financial opportunity. However, defining what a circular business model actually looks like has remained largely speculative.

Lease, Rent, Return

In Cradle to Cradle, the authors propose using a leasing model for technical (non-biodegradable) goods.  Instead of paying for ownership of the product, consuming it, and throwing it away, the customer pays for performance of the product without ever owning it.  The company maintains ownership and collects the product when the customer is done with it. The leasing model has taken off in the residential PV industry, and it is beginning to show up in LED installations, such as with Philips’ Pay-per-Lux concept and Duke Energy’s Outdoor Lighting Services.  While it’s not necessarily Cradle to Cradle (C2C) principles that are driving adoption of leasing models in these industries, having a leasing model in place could make companies more likely to adopt C2C principles.

Leasing adapts well to the circular economy; however, it doesn’t work in every situation. For example, I don’t see leasing working for most consumer goods, especially the less expensive ones. Can you imagine paying a monthly fee for everything you possess?  Luckily, leasing isn’t the only option.  An obvious alternative to leasing is pay-as-you-go renting, and this model is manifesting itself in new ways that are gaining popularity, such as in carsharing services.  For products with shorter lifespans, such as consumer electronics, it might be more practical to let consumers retain ownership but offer them strong incentives to return products at the end of their usable life. A trade-in policy would be a natural fit for cell phones as well as for a myriad of other products. Tesla is experimenting with a battery-swapping program that it may end up turning into a battery-leasing program. These kinds of programs, which are just new takes on old business models, could lead to serious customer lock-in and a new level of consumer/producer interaction. Stay tuned for future blogs in which I’ll talk about some of the new takes on old business models that are already being implemented in more detail, and for more information about smart materials use, refer to Navigant Research’s Materials in Green Buildings report.

 

Suddenly Popular, Carsharing Services Seek Profits

— December 18, 2013

Carsharing, suddenly, is hot.  A slew of media stories has documented the dawning of the era of the shared economy, where consumers feel less need to own things than to have access to them.  Whether this movement is attributed to the recession, smartphones, demographic changes, or Napster, many observers think it promises to transform the automotive industry.  Navigant Research developed its first forecasts for this market this year.  Our report, Carsharing Programs, forecasts that membership in global car sharing programs will reach 12 million, up from around 2.3 million as of 2013.

Annual Revenue from Carsharing Services by Region, World Markets: 2013-2020

 

(Source: Navigant Research)

These programs have unquestionably boomed in the past decade.  According to the Transportation Sustainability Research Center at UC Berkeley, there were 350,000 members of carsharing programs in 2006, so Navigant’s 2013 forecast represents a 31% compound annual growth rate since then.  Automakers and traditional rental car companies have been jumping into the carsharing sector.  The U.S. General Services Administration (GSA), one of the largest fleet operators in the United States, is testing carsharing services as a way to reduce costs.  China is implementing one of the biggest and most ambitious carsharing programs, with a fleet of 100,000 electric cars.  But as appealing as the concept is, and as much as it is in tune with the zeitgeist of collaborative consumption, carsharing still faces some challenges as a business.

Take Zipcar for example.  Even though Zipcar is by far the biggest carsharing company in the world, with around 760,000 members as of 2012 – that is 43% of global membership in 2012 – it has struggled to find profitability.   In 2012, after 12 years in business, Zipcar finally reported net income for an entire fiscal year.  Zipcar was then acquired by Avis, in a move that the two companies expected would help reduce Zipcar’s operational costs and thus improve the bottom line.  Like any merger between a small, nimble startup and a conservative corporate behemoth, this move was fraught with risks.  So far, Zipcar seems to have been able to retain its brand identity a high-tech company with cool cars, which has been critical to its success.

We are likely to keep seeing carsharing companies partner with or be purchased by bigger companies, either traditional rental car companies or automakers, as has happened with BMW and GM.  Carshare companies, though, must search for new revenue opportunities.  One that seems to be gaining traction is selling the company’s expertise in fleet management.  Zipcar is developing fleet management solutions for New York City and Houston.  Switzerland’s Mobility Cooperative launched a subsidiary business intended to exploit its software expertise.  Renault is using the company’s software to operate its some of its Twizy BEV carsharing services.  Another opportunity lies in expanding into new market segments such as government fleets or airports.  Turning a profit will require a delicate balance between exploring these expansion opportunities and maintaining the brand identity of the carsharing company.

 

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