Deep Dive: Shared Mobility

We already touched on it in our overview of the mobility sector: Shared Mobility is an important and desirable development from many perspectives. Vehicles would be better utilized, costs for users would decrease, and in addition, our roads would be relieved and many valuable resources would be saved.

The fact that current vehicle ownership is inefficient is indisputable: On average, cars are used only 5% of the time and are parked 95% of the time, which takes up city space and often costs money. Developments in shared mobility aim to offset these inefficiencies. 

One of the most common forms of shared mobility is ride-hailing, operated by companies such as Uber, Lyft or DiDi in China. With these providers, a ride is booked via app at a set price. Such services also include car-sharing models such as the German provider ShareNow, which can increasingly be found in major cities. In addition, there are micromobility services for the so-called "last mile". These are mostly eScooters, eBikes or normal bicycles that can be rented and parked again at any location within certain zones. Well-known providers include NextBike, Lime and Tier Mobility. 

In 2021, the size of the global shared mobility market is estimated at $251 billion, with the Asia-Pacific and North American markets each accounting for around $49 billion. By 2027, the market is expected to reach US$1000 billion, resulting in a CAGR of 25.9%.

BCG predicts that we will see a shared mobility market share of 4% globally over the next four years, and that by 2035, shared mobility services will account for nearly one-fifth of miles traveled.

Our research team's market analysis has shown that the biggest disruptive changes are expected in ride-hailing, triggered by the development of two key technologies: electrification and autonomous driving. This leads to the following hypotheses. 

Hypothesis 1:

Ride-hailing is still at an early stage of market penetration and will grow exponentially in the coming years, especially in the Chinese market. 

Changing consumer behavior will lead to a steadily growing demand for shared mobility services. Younger generations in particular are increasingly questioning car ownership. In the U.S., between 2001 and 2009, the average number of miles driven fell by 23 percent among 16- to 34-year-olds as they drove fewer and shorter distances and also made a greater proportion of trips using means of transportation other than cars. This trend is likely to have continued over the past 10 years and has been further accelerated by recent developments in remote work. Even though shared mobility offerings suffered setbacks in 2020 due to the pandemic, we see a continuing trend towards more supply and demand in the long term. 

This new form of mobility is particularly popular in the Chinese market. In 2018, 550 million people in China took over 10 billion rides via the app ”DiDi” - almost twice as many as Uber worldwide. DiDi's goal is to penetrate the entire Chinese mobility market by 8% by 2022. China's car sales growth has been declining since June 2018 - the first decline since the 1990s. 

Shared mobility services will further reduce the number of privately owned cars. 58% of drivers who recently parted with their vehicle said they would not have retired their car if not for the availability of services like Lyft. 

These developments show that consumer behavior is changing. Cost and convenience are increasingly the top priorities, while the car as a status symbol is no longer of importance to many. 

Hypothesis 2:

In urban areas, the acceptance of and willingness to switch to MaaS (Mobility as a Service) is significantly higher than in rural areas. 

Mobility as a Service is being perceived with increasing interest, particularly in urban centers. A report commissioned by Lyft and Uber showed that in 2018, ride-hailing companies accounted for about 7% of all miles traveled by vehicle in the D.C. core. Uber and Lyft services accounted for about 13% of all vehicle miles in San Francisco, 8% in Boston, 3% in Chicago and Los Angeles, and 2% in Seattle. The numbers are indicative of the growing interest in ride-hailing services, particularly in large cities.

In urban areas, both the supply of and demand for Mobility-as-a-Service are higher than in rural areas. According to Oliver Wyman, just over half of the world's population now lives in cities; by 2050, that number will increase to 70%. According to the report, urbanization is an additional driver of the growing demand for MaaS. According to BCG, shared mobility offerings will account for 18% of urban trips by 2035. 

Provision in urban areas is also beneficial for mobility providers: in general, there service works best in densely populated urban areas with good public transport networks, where they can provide a useful addition to the public transport. It is primarily urban dwellers with above-average incomes and education levels who use the new services. They are less likely to own a vehicle and are more dependent on public transportation, especially for commuting to work. 

Hypothesis 3:

To drive adoption of ridesharing services, they must become less expensive.  

Ridesharing needs to become more competitive, especially on the cost side. Although it is currently cheaper than traditional cabs, each kilometer traveled is still twice as expensive as driving your own car. The total cost of ownership of an owned car is around €0.45 per kilometer for a mid-range car. An Uber currently costs an average of €1.05 per kilometer.

Pooled services, where multiple passengers are collected on one trip, could help reduce the cost per trip. However, routing algorithms for assigning passengers to rides need to improve to minimize passenger travel time and detours.

Currently, 80% of Uber's gross bookings go directly to drivers, so the company may struggle to significantly reduce its cost per mile driven. However, this cost item could be significantly reduced or even completely eliminated eventually through autonomous driving. 

Hypothesis 4:

Consistent electrification of ride-hailing fleets could effectively reduce costs for providers and consumers. 

Deployment of an electric ride-hailing fleet has the potential to reduce running costs by up to 50% compared to conventional internal combustion vehicles. Besides the economic incentives, social pressure and demand for sustainable mobility are increasingly on the rise. Uber is responding accordingly and plans to transition to "100 percent" electric vehicles by 2030. This transformation is likely to pose some challenges, however, as most Uber drivers are not directly employed and use their own cars.

As of today, only 0.5% of ride-hailing vehicles in the U.S. are electric.

In China, the share is already 21%. In particular, China's DiDi, the largest ride-hailing company in the world, is leading by example and has around one million e-vehicles in its network. The goal is to reach ten million by 2028, according to David Xu, DiDi's head of strategy. The company has managed this transformation without offering its own incentives to drivers. At least 22 major cities in China, including Shenzhen and Guangzhou, have simply enacted stricter requirements for ride-hailing vehicles, often mandating that new vehicles be electric or equipped with another zero-emission powertrain.

Hypothesis 5

The greatest potential for cost-effective market penetration of shared mobility lies in the adaptation of autonomous driving. In the medium to long term, autonomous services could enable a large proportion of kilometers driven to be covered by shared mobility providers.  

As foreshadowed by the Uber example, autonomous driving is arguably the biggest lever to reduce the cost of ride-hailing services. The projected cost of mobility services (MaaS) performed by autonomous electric vehicles will be lower than non-autonomous cab fleets or shared mobility service providers like Sharenow. Autonomous Driving is a critical step for these companies to remain competitive.

A study by ARK projects that autonomous cabs will cost consumers $0.25 per mile in the medium term. Further, Ark estimates that while the addressable market of a robotaxi network is 100 times larger than that of a ride-hail service, Tesla can generate profits sooner and more predictably, if it offers both services. ARK's modeling suggests that ride-hail could add more than $30 billion to Tesla's recurring operating revenue in 2025. If Tesla decides against launching robotaxis, a ride-hail service alone could improve the company's profitability and ultimately account for about 30% of the company's value, according to ARK estimates. 

Once the technological and legal challenges of autonomous driving are solved, shared mobility will be a lot cheaper than owning a car. The price per kilometer will fall from the current €0.45 to an estimated less than €0.15 for an autonomous robo-taxi.

Market potential

Considering the societal shifts with regard to the car as a status symbol, the increasing demand for flexible and sustainable mobility and the expected convenience as well as the competitiveness with regard to costs, we believe this estimate is realistic. 

Ride-hailing services are still in the very early stages of adaptation and offer exponential development potential. Market acceptance already exists, particularly in cities, and will continue to increase due to the expected cost reduction with the onset of electrification and autonomous driving. Electrification and autonomous driving are central key technologies, and their market maturity could provide the decisive trigger for exponential development in this area.

The use of autonomous robo-taxis in particular could massively reduce costs for providers by eliminating the cost factor of drivers and significantly increasing utilization. In addition, autonomous fleets offer a completely new kind of flexibility and convenience. Features that are increasingly demanded by consumers. 

The think tank RethinkX even assumes that the entire mobility-as-a-service sector will cover 95% of passenger kilometers traveled within 10 years. In our view, this is aimed decisively at fully autonomous driving.

Conclusion

Overall, the shared mobility sector represents a growth market in which we see a lot of potential, driven by consumers' desire for flexibility and a more sustainable lifestyle. These developments bring new challenges for automakers. Connectivity and entertainment while driving will soon become more important than paint color and horsepower. The individualization strategy of German carmakers, which allows customers to configure their car from a range of optional extras, is therefore not fit for the future. In addition, the higher utilization of individual vehicles is likely to reduce demand for cars overall.

With the dawn of autonomous driving, the roles in shared mobility will be redistributed. It remains to be seen what role currently leading players such as Uber, Lyft or Didi will take in a world where carmakers have achieved Level 4 or 5 autonomy and can distribute their cars not only as privately owned vehicles but also use them as robo-taxis. Since none of the shared mobility providers have pioneered autonomous driving yet, they will likely need to position themselves through their route planning software and platform and partner with an automaker that has the autonomous driving expertise to play a role in the future shared mobility market.