A growing number of young urbanites are deciding that the costs of personal car ownership outweigh the convenience and are opting for shared mobility. Ease of use, always-on connectivity and cost-effectiveness are contributing to exponential growth in app-based ride-hailing services such as Uber and Lyft. For example, in just eight years since its 2010 launch, Uber surpassed 10 billion completed trips earlier this year. But ride-hailing is just the tip of the iceberg. Disruptive trends within the auto industry are likely to accelerate the shift toward transport as a service versus personal car ownership over the next decade.

Technology paves the way…

Converging technological developments are poised to transform the automobile industry and redefine personal mobility in the coming decade. Growth in sales of electric vehicles is expected to accelerate as dozens of new models come to market in the next few years. Plus, rapid improvements in computer vision, artificial intelligence, and machine learning are propelling progress in self-driving technology and have the potential to move cars from partially to fully autonomous over the coming decade. Both electrification and increasing autonomy decrease the cost per passenger mile, increasing the economic viability of ride-hailing as an alternative to personal vehicle ownership.

… and dovetails with social trends

Social and demographic changes are likely to reinforce the trend toward mobility as a service. Urban congestion, already at an all-time high, is estimated to worsen over the next 30 years; the UN estimates that by 2050, city dwellers will account for 66% of the global population (up from 30% in 1970), with an additional 2.5 billion people joining already crowded cities.

While increasing congestion decreases the convenience of personal car ownership, costs continue to increase, especially in big cities. Moreover, as the cost of rideshare comes down and options for mobility on demand proliferate, the balance is likely to tip further. These forces are expected to contribute to double-digit annual growth in ride-sharing over the next five years. In fact, census data showing declining rates of car ownership is leading many pundits to declare the world has already reached “peak car.”

Millennials’ focus on access to services in lieu of ownership is driving a broader shift to a global on-demand subscription economy. Just as streaming services like Netflix and Spotify have fundamentally changed the way in which people search for, consume, and pay for media, rapid growth in ride-hailing previews the power of the longer-term trend toward mobility on demand. (DISPLAY)

Mobility as a Service Replaces Ownership

Most analysts expect that self-driving, robo-taxi services will be the first autonomous vehicles to market. With dozens of companies targeting the autonomous driving market, the race to launch and safely scale reliable, fast low-cost urban robo-taxi fleets is on. Commercialization, concentrated in densely populated, meticulously mapped urban centers or “geo-fenced zones,” is expected to begin as early as 2019 – with GM and Alphabet’s Waymo leading the charge.

The combination of autonomy and electrification should have a significant impact on reducing the cost per ride-share mile. Currently, ride-hailing services in the developed world cost an average of $2.50 per mile, more than double the roughly $1.20 cost per mile for private cars. As drivers are replaced by robos and batteries replace fossil fuels, the cost is estimated to fall as low as $0.70 per mile, providing a powerful economic incentive to opt for transport-on-demand instead of private car ownership.

But the sharing economy in autos is likely to extend beyond the likes of Uber and robo-taxis in densely populated urban centers. Car sharing and auto subscription services are already beginning to proliferate. The auto subscription market has attracted considerable interest from traditional industry participants—with the resulting Book by Cadillac, Car by Volvo, Flexperience by Mercedes Benz, and Porsche’s Passport. Dealer-led programs and car rental companies are also vying for market share.

With a single monthly bill that covers everything—the vehicle’s cost, registration, warranty, insurance, delivery, maintenance, repair, and concierge services—the appeal is clear. Industry experts estimate that by 2025–26, car sharing and vehicle subscription programs could account for nearly 10% of all new vehicle sales in the US and Europe.

More Players Duking It Out

There is considerable debate about what impact mobility as a service will ultimately have on annual auto sales. BMW estimates that within a decade, one car-sharing vehicle will replace at least three privately owned ones and that mobility services will account for one-third of all trips. Other industry research predicts that car sharing will reduce car ownership at an estimated rate of one shared vehicle replacing 15 privately owned ones.

Within the auto industry, there is a consensus that over time industry revenues will shift from auto sales to the purchase of mobility services. (DISPLAY)

The “passenger economy” is estimated to be worth as much as $7 trillion by 2050. Car manufacturers, auto dealership groups, ride-hailing firms, maintenance and repair companies, technology start-ups, and lending companies are all jockeying for position, often through a web of alliances and partnerships. Automakers recognize that in an era of ride-sharing, battery-powered fleets, and self-driving cars, they will need to reinvent themselves as mobility companies to get a piece of the pie.

An information edge can mean the difference between getting ahead—or being left behind. That’s why many of our entrepreneurial clients look to us as a source of intellectual capital. For more insights on disruption, check out the related blogs here.

The views expressed herein do not constitute research, investment advice, or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

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