Telematics@China: The End of Car Ownership

A strange thing happened on the second day of Telematics@China. An analyst suggested that the role that driverless cars will play in the future will be to enable the six billion people who do not drive cars today to own and operate cars. The industry expert suggested that the industry must deliver driverless cars to these people or the industry will collapse.

This was a strange perspective given the fact that the developing world, from which most new car demand is emerging, is in the midst of a shift from bicycles to cars sufficient to support demand for automobiles of all kinds for decades. With just over 1B cars on the road today (according to Ward’s - https://tinyurl.com/ckd5dsb) and more than 7B people, it is safe to say that the auto industry is not facing an imminent existential threat of declining demand.

What this analyst failed to perceive is two demographic shifts and one technology trend taking place globally and changing the automotive game.

? The ongoing global population shift to urban areas/megacities – already 50%+ of global population resides in cities.
? The inability of global Gen Y populations to afford/justify vehicle purchases, according to a recent Deloitte study (https://tinyurl.com/kuw37jn - Mobility Preferences of Gen Y in Europe and China).
? The emergence of car- and ride-sharing alternatives to vehicle ownership.

These three ongoing developments are contributing to the rise in ride sharing services such as Lyft and Uber and the growing ranks of their competitors. It is also driving the onset of and interest in ad hoc car sharing services from car makers and rental car companies.

In fact, Uber’s ability to raise $1B last week creating a $40B valuation (https://tinyurl.com/m9g23sm - Uber Snags $40B Valuation) reflects the frothiness of the alternative transportation marketplace. Uber’s success – reflected in leaked company documents (https://tinyurl.com/nz53god - Leaked Uber Deck Reveals Staggering Revenue - BusinessInsider.com) showing hundreds of millions of dollars in revenue generated from its most strategically important cities such as New York and Los Angeles, is attracting competitors and investors like bees to honey.

During a recent visit to Los Angeles for the L.A. Auto Show I discovered Curb – Yellow Taxi’s answer to Uber – and Flywheel, another ride sharing startup, both of which were in use by regular cab drivers. In fact, cities all over the world are seeing the emergence of EITHER ride sharing OR car sharing services or both, depending on local regulations. Germany, for example, has rejected Uber but embraced car sharing services such as DriveNow and Car2Go.

Combine this with the automotive ambivalence of the Gen Y crowd and what emerges is a far more fuel efficient and dynamic population moving proposition in which vehicle ownership is no longer the fixation or status symbol it once was. I visited with an old friend while I was in L.A. who noted that his high school age sons have zero interest in owning or driving cars – in LOS ANGELES!

I was incredulous that his sons, one of whom is quarterback of his high school football team, would consider car ownership unimportant or optional in the car capital of the U.S. But for my friend’s sons, cars are expensive and dangerous – too much trouble.

This same demographic and technological shift is playing out in China where ride sharing services are multiplying – to compete with the already substantial taxi fleet – as are cars. But for China to achieve the same rate of car ownership as the U.S., the current fleet of about 70M cars (Ward’s) would have to increase to 1B cars – a 16-fold increase requiring decades of accelerated vehicle production.

In the end, it looks like car makers simply can’t make enough cars to meet global demand – even as the current global highway overload suggests that there isn’t much capacity left for millions more cars anyway. The answer is car and ride sharing – ad hoc, on-demand vehicle borrowing – in and around urban areas.

Will driverless cars have a role to play in a world of increased personal transportation alternatives? Sure. But it may take a decade to get to driverless cars – in the meantime, leaving the driving to someone else is more or less the same thing.