BLOG

the new mobility, part one: key factors for the future of cars

< Back to blog

ARTICLE

The New Mobility, Part One: Key Factors for the Future of Cars

Leonidas Quentzel is an analyst with Fabernovel. In this two-part series, he offers an overview of the key stakes shaping the future of automobiles, and a look into the implications these changes are having on the transportation ecosystem.

The future of cars is led by three main drivers:

1. On-demand marketplaces are reinventing the way we think of cars: Car sharing and ride sharing introduce a flexibility on the marketplace which brings a greater ability to match supply and demand, but also lead us to rethink car ownership and maybe also car design.

2. Electric cars are changing fundamentally the economics behind car manufacturing. Removing the combustion engine and transmission reduces the number of moving parts. This might, with a few years of R&D, make building cars less capital-intensive, which might in turn change who makes cars.

3. Self-driving cars are a growing obsession throughout Silicon Valley and beyond. In addition to Google and Uber allocating huge amounts of capital to autonomous-car-related R&D, universities have been very involved in developing numerous prototypes.


Self-driving cars, electric cars, and the rise of sharing practices are impacting mobility in key areas, but the impact these factors have does not always move in the same direction:

Car ownership is changing paradigms

The on-demand economy is reshaping the way people think about owning a car. One could imagine, as does Benedict Evans, a company with a large balance sheet owning the assets (i.e. the cars) and individuals no longer taking on the lease themselves. This could have tremendous consequences, ranging from insurance to design. If cars are only meant to be used in a practical, shared paradigm, then they probably will look different, in a way which stills feels personal and elegant.

Smart cars are unique in the history of automobiles for systems that can be updated. When someone bought a Nokia 3310, the product would start “amortizing” from day 1, and at best keep constant functionalities. When smartphone came along, systems could be updated and features could be added. The smart car brings exactly the same change. What you buy now might actually have increased functionalities further down the road. This obviously changes the relationship to ownership, as the intrinsic value of the asset is less continuously decreasing. And this is obviously a very strong marketing point for Tesla. 

The relationship of risk to individual history and demographics will be called into question

In a sharing-type economy, many people drive the same car, and insurance policies become hard to price. Companies like Turo and Getaround offer very high coverage to their members, up to $1 million. However, an article in the April 2014 Wired pointed out that Turo was losing money due to insurance costs, even with higher fees than other marketplaces.

In an autonomous car-dominated future, how will traditional premium pricing models stay relevant when DMV driving records and demographic factors are no longer indicators of how the car is being driven? TechCrunch in a recent article calls for a new risk-monitoring standard, less based on human error.

Cost of manufacturing and cost of ownership will drop

Electric cars could be in time built with (partly) commoditized components, bringing their price lower. This could reduce the amount individuals spend on cars, or the price they pay for transportation services.

Self-driving cars have implications for the sharing economy, too. Everyone knows Uber Technologies is looking to drive its clients around in self-driving cars as soon as possible. Uber CEO Travis Kalanick pledged to buy 500,000 autonomous cars from Tesla Motors should Elon Musk’s company manage to come up with autonomous cars (called Robocar) by 2020. With a rough unit cost estimate of $40,000 (TM’s Model 3 will sell for $35,000 as a comparison), this would round up to a capital expenditure of $40 billion, or 80% of its current $50 billion valuation. In addition, Uber is investing undisclosed but thought to be very large amounts into its own research. The rationale behind this is of course that Uber could retain the 60-80% of the fare drivers currently earn, which could make Uber more than double its margin while charging a lower fee to riders.

In Part Two, we'll look at the implications these changes are having on the transportation ecosystem.

PARISOMA provides freelancers and early-stage companies with the space and tools they need to support their business.