Was 2018 Peak Cars? Carpool/Ridesharing to Blame? (Part 2)

• Forecast 2029 (at the earliest) before global rideshare industry enters maturity
• Average-weighted global member/fleet ratio of 180, will continue to increase in time
• Est. global carpool/rideshare between 546-806m members by 2030
• McKinsey in 2017 forecast global car sales in 2030 ~115m units
• Predict 2030 global vehicle sales ~ 64m (2019 ~65.5m units)
• Vehicle ownership less aspirational for younger generations
• Sociological transition from car ownership, to usage
• Urban autonomous vehicles will transform personalised transport economics
• First-mover EV/hybrid companies to strategically partner/acquire App platforms
• Consolidation among existing car manufacturers as hyper-competition ensues
• Car-hire industry cannot compete with ridesharing platforms; transform or die
• E-vehicles are a potential disruptive technology

The idea that in 2018 we could have reached global “Peak-Auto”, until recently, would have been thought preposterous; with the introduction of several billion consumers from the rise and development of China and India, simultaneously.  And yet, sales in many markets had either been stagnating or declining 12-18 months prior to this recent pandemic.  The largest reason why we believe that global auto sales were declining synchronously, without an apparent decline in consumer consumption to provide a covering economic rationale, is the advent of widespread carpooling and a host of other rideshare platform Apps.

In many urban centres around the world, car ownership is increasingly becoming burdensome, not only because of increasing and more expensive congestion charges, fewer and tighter parking restrictions, but also in anticipation of the plethora of proposed urban vehicle restrictions.  Determining what is hyperbole or aspirational is difficult.  In recent days, the London Mayor has announced plans to create one of the largest car-free zones in any capital city in the world; raising the congestion charge to ￡15pd (~￡5.5k pa), with pavements widened, closure of several bridges (across the Thames) and numerous roads to existing motorists.  Personal car ownership for the average Londoner will soon be out of economic reach.  Furthermore, Britain plans to legislate and ban the sale of petrol and diesel cars by 2035, including, for the first time, extending these sanctions to hybrid cars.

This is not only a UK phenomenon, but extending throughout Western World, including a host of proposals to ban all but electric/hybrid cars in numerous town centres; including Paris, Munich, Lyon, Dijon, Madrid, Barcelona, Oslo, Tokyo, and Melbourne just to name a few.

Where are we within the Adoption Cycle?

We have largely based the following on quantitative research published by Shaheen S. & Cohen A. (2020)[1].  We are personally unaware of any other equivalent data comparison, which makes this survey both unique and its numbers noteworthy.

From 2012 to 2018 (see Figure 1), the two-year CAGR growth rate exceeds the collectivised LT curve.  We interpret that relationship as demonstrating the point whereby the carpooling/rideshare market exits the “Introductory” and enters the “Growth” phase (see Figure 2).  The Sigmodal Curve typically describes the adoption of most technological phenomena, regardless of type.  We would expect maturity to arrive when adoption rates are in their low teens.  2018 CAGR was ~53%.  Only the North American market currently fits the “Maturity” category with a CAGR at 7%.  Given current growth-rates provided by Shaheen & Cohen (2020), we believe it will be 2029 (at the earliest) before the global rideshare market collectively enters maturity.

Carpooling/Ridesharing technologies have the ability to sate growing vehicle demand in many quarters of China, Vietnam, and India, where car ownership is not a realistic proposition due to population densities, lack of infrastructure, absence of parking and excessive pollution.  In most countries, car sharing does not affect an individual's car insurance, with the Association of British Insurers stating that member premiums are not affected so long as a profit isn't made.  These platforms not just for vehicles, a similar ride-sharing business model (“Wingly”) has been designed for small aircraft, connecting private pilots in France, Germany and the UK with passengers, in order that the high costs of flight are able to be distributed.  The website indicates flight details, destination and number of available seats, with EU regulations only allowing pilots using this scheme to operate as ‘not-for-profits’.

Raw data (see Appendix A) shows an Asian member/fleet ratio of 210, up 62% over the pcp.  In isolation, it could be considered an outlier, however, it is pertinent to note that over the same period North American and European member/fleet ratios also rose ~29% and 80%, respectively; with the average-weighted global member/fleet ratio of 180.  On the face of it, this indicates substantial operating efficiencies, whether it be the result of improved algorithms, and/or increased membership densities allowing a more efficient hub and spoke system.  As membership numbers continue to grow, it would be reasonable to believe that this ratio will continue to rise substantially into the future, particularly with a new field of e-scooters (which can travel up to 26km/hr), e-bikes and e-cargo bikes primarily aimed at the inner-city dweller.

These e-transport alternatives can additionally replicate opportunities that, in many instances, a car would traditionally provide.  After consultation about legalising e-scooters in March, over the past several days, UK government plans to fast-track trials of e-scooters (which are currently banned on both streets and pavement) on British roads starting in June.  Critically, these trials do not extend to individual ownership, but are intended for cities who want to operate a rented scheme in partnership with existing scooter firms.

Working Assumptions

The commodity impacts of carpooling is entirely reliant on vis-a-vis assumptions inputted.  There have been substantial changes from 2016[2] to 2018[3] data sets, particularly among Developing Nations, where comparative growth rates are currently ~140% more than those observed in Europe and North America; so the quantitative conclusions can be indicative only.  We believe, however, that carpooling has all the hallmarks of developing into a social megatrend for urbanites globally.  It’s effects will not only impact primary industries, from rubber, PGEs, copper, aluminium, nickel, iron ore; but also vehicle manufacturers’ growth projections, model and drive train selection, R&D, Banking and Insurance industries.

To undertake this kind of analysis, we have created a number of quantitative assumptions:

• The average life span of a car in the US (according to consumer reports) is about eight years, or 240k km.  In the UK, the average age of a car at scrappage (in 2015) was 13.9 years, averaging ~159.7k km.
• The calculated weighted-average carpool vehicle to membership ratio using data from Shaheen and Cohen (2020)[4] in 2018 was ~180.  To be conservative, we have used this figure as a long-term basis despite the fact that we expect this number to continue to rise into the future; with Asian membership/vehicle ratios already at 210 (see Appendix A).
• Life expectancy of a carpool vehicle was calculated using estimated utilisation data, then cross-referenced with published annualised taxi mileage; estimated at approximately two years.
• Forgone vehicle purchases (as a result of eschewing individual ownership) are a more qualitative, than quantitative assumption.  We accept the argument that not every carpool member will not forgo buying their own vehicle, in particular, in North America, whereby many casual members utilise rideshare vehicles, for instance, on shopping trips where they acquire numerous parcels and want the ease of pick up and drop off.  Globally, we believe that many members (we est. ~70%) use carpooling as a primary mechanism for vehicle usage, especially in Asia and parts of Europe where car parking/storage is at a premium; or in parts of South America where car ownership is a relative rarity.
• Bulk material elemental breakdown of the “average” vehicle is a combination of makes.  America vehicles are dominated by domestic and Japanese makes; and in the UK are predominantly continental European in origin.  Using an average (dry-weight) between an American and UK vehicle, we applied the most recent metal abundances we could obtain (see Table 3).  Collectively, taking away the weight metallic constituents from our quantitative car from the average total weight, leaves 159kg non-metallic inputs per vehicle (which we believe to be approximately correct).

Effect of Carpooling on Global Vehicle Sales

Assuming global carpooling/rideshare membership is ~59m by the end of 2020 (CAGR two-year 37% over published 2018 numbers), we modelled a number of membership growth rates (see Appendix A) ranging from 15 to 30% (average-weighted global growth rate ~ 53%) projecting total membership numbers by the end of 2030.  If we had to nominate the most likely decade long-term growth scenario, ceteris paribus, using current non autonomous platforms, we would nominate 25% CAGR (est. ~50% probability), which is why this growth rate in all the following diagrams is highlighted in red.  However, the proviso being, if autonomous vehicles become a reality, that would instigate a substantial drop fare charge resulting from the invisible hand.  We would then expect the inception of a social paradigm shift, with carpooling growth rates to match.

Using the global membership/vehicle ratio of 180, assuming a two-year life span per vehicle, a 25% CAGR equates ~1.1m vehicles pa required to service carpooling activities globally by 2030 (see Figure 5).

However, the number of vehicles demanded by carpooling services will only be a small portion of the total impact because we believe that the majority of membership will eschew individual ownership as a direct result.  If we assume that 70% of the future members totally rely on various platforms for intermittent travel, presuming a 25% global CAGR and an 11-year individual car ownership lifespan; 33.7m (net: 34.8m minus 1.1m required to create the net impact of carpool platforms) less cars would need to be produced annually.

Obviously, the numbers only get larger if we assume a 30% CAGR platform growth (which we assign a 20-30% probability), has a modelled net negative impact of ~51.1m vehicle sales annually by the end of 2030.  To put that into context, Volkswagen and Toyota produce between 10 to 11m pa units each, with global car sales est. ~65.5m at the end of 2019.  The numbers, of course, cannot be taken at face value, because global car growth would still continue in locations where car saturation has not occurred, namely Asia, Africa and South America.

To derive the net impact, one has to overlay the projected impact of carpooling against the forecast natural growth rate of individually owned vehicles over time, preferably, before the impact of carsharing was fully cognisant.  McKinsey (2017)[5], before global automotive sales started stalling, estimated that total annual global vehicle sales in 2030 would be ~115m units (including 10m shared vehicles!).  Assuming, ceteris paribus, that the McKinsey projection was accurate, total global sales in a decade’s time (115m units) minus forgone ownership sales, implies sales in 2030 could be ~64m units; or in other words, effectively remain identical to current levels of sales.

Bulk Material Impacts

A similar level of analysis can also be applied to bulk material calculations.  In Table 7, we have calculated the amount of raw materials required to maintain a carpooling fleet in 2030, at each projected growth rate.  On its own, it represents a relatively small number.  However, when you compare the negative impact on the demand of various commodities (see Table 8) resulting from a decline in vehicle ownership, a different story emerges.  For example, a 12.1kt decline in REE demand amounts to ~10% of 2019 global primary production levels; or in the case of PGEs, a decline of ~13% over 2019 of world refined amounts.

Effect of Covid 19 on LT Growth Carpool Prospects?

The WSJ recently opined that Covid 19 would destroy demand impetus for car sharing.  At one stage, half the global population was in lockdown, Ford re-evaluating business plans for autonomous vehicles, concerned that the pandemic could lower demand for shared services in the longer term; delaying commercial autonomous-vehicle services by 12 months to 2022.  FreeNow (combined Daimler and BMW) intend to restructure, possibly cutting jobs.  GM driverless-car division (Cruise) intends to lay off ~8% of its workforce as part of cost-cutting.

We contend, however, that it is critical we differentiate between immediate effects, against the longer-term growth prospects of the carpooling sector that the current situation is not a permanent depiction.  We contend that safety is a process, not a barrier.  For example, vehicle interior surfaces could be cleansed via UV light, and/or saturated via alcohol mist after every trip.  US car companies are haemorrhaging cash and are looking at any option to cut costs in the short-term.  In Sydney, Australia, reportedly half the taxi drivers returned their plates while there were no passengers.  Uber have cut 7k jobs and closed 45 offices.  Rental company, Hertz has precarious debt levels, $3.7Bn at the corporate level and another $13.4Bn outstanding in its vehicle finance subsidiaries (covering ~770k vehicles); with end of term lease re-sale values falling precipitously.

We hypothesise that the pandemic will, in fact, accelerate rather than stymie the transition from car ownership to car use; primarily as a result of economic considerations:

• The largest negative financial impact will be felt by the younger and the less educated, whose jobs are often in the service and hospitality industries; which in many instances, businesses have shuttered, and will need to reorganise operations to reopen.
• Vehicle ownership is increasingly no longer considered aspirational for younger generations.  The reasons are multi-faceted and include increased debt levels, underemployment, inability to afford payments, petrol, insurance, maintenance and repairs.
• The proliferation of App platforms allow many, at short notice, to utilise transportation that is flexible and affordable; in the long-term, this presents an alternative to car ownership; and 
• If ~80% of the current total per kilometre cost in non-autonomous ride-sharing vehicle is effectively associated with the driver[6]; then the promise of a fully autonomous vehicle has the potential to utterly transform the economics of urban personalised transport.  Making car ownership both an unviable and uneconomic proposition.

Timing of Autonomous Carpool Transition?

Tesla, BMW, Daimler, Audi, Ford and General Motors all have fully autonomous vehicles that have either been, or are about to be released. Although the concept has been largely proven, several high-profile high-speed fatalities (five out of six involved Tesla) has delayed widespread adoption, primarily around the lack of sensor algorithm’s to fully consider anticipation of events which occur outside its forward scope of vision.  There is consensus, however, that at lower speeds of under 40km/hr, fully autonomous vehicles have the potential be match human operators within like speed environments, adapting to changing traffic conditions where its sensor arrays are able to more accurately, anticipating likely objects and stop. 

In short, autonomous technology exists, its operational, and potentially safe at lower speeds.  A substantial proportion of inner Londoners already do not own cars, relying on public transport and other intermittent modes of transport.  The implication being, if local governments want to enforce mobility restrictions without adversely impacting economic viability by creating localised transport ghettos, they have to co-invest with selected partners to ensure carpooling is available.  That can take a number of forms, from designated parking spaces, recharge stations, and in the case of autonomous vehicles, the realisation that for a period of time, they could travel in bus/taxi lanes up to 40km and 30km speeds within urban environments.  The political impetus, therefore, requires some level of additional infrastructure investment.  The fact that carpool vehicles can be summoned on-demand, routed efficiently, potentially shared among hundreds of members, will decrease overall numbers of single-passenger cars on streets, reduce the number of single-passenger trips and lessen overall kilometres travelled.

The UK’s current PM, when he was mayor of London, introduced a cycle lease scheme, which has fundamentally changed the way Londoners get about.  The success of the cycle scheme was reliant, in large part, on establishing sufficient infrastructure, building docking stations, specialised routes, changed traffic conditions and substantial capital investment.  Now there are plans to take this further, establishing dozens of new ‘Mini-Holland’ schemes, in order to create low-traffic neighbourhoods, making streets safer to walk in and cycle, whilst maintaining some motor vehicle access.

The current Mayor is pursuing to raise the congestion charge to ￡15pd (~￡5.5k pa), closing several bridges across the Thames, closing numerous streets and widening pavements; creating more “co-working” and “co-living” spaces.  This new greener, less congested London is taking inspiration from cities such as Copenhagen and Amsterdam.  But as the Economist dryly comments, “…those are hardly world-beating metropolises”.  To maintain its competitive edge, London will have to reimagine transportation on a massive scale.

The great irony, of course, is that a collectivist leaning Mayor introducing such restrictions, was also the Mayor who stripped Uber of its licence in order to protect the Black Cab industry.  Therein underlies the political dichotomy, implementing social changes require substantial financial investment, and costs.

Key Trends

We ask the question of whether the recent sluggish global demand for vehicles sold is somehow related to the almost exponential growth of these transaction platforms?  Have we reached an “event-horizon” for global vehicle sales?

• Critically, if carpooling costs could drop 50-80% in real terms, by becoming fully autonomous, given that we are relatively early in the overall adoptive phase of the technology cycle, it is not inconceivable that this sector of transportation could service a substantial portion of the global population in the decades to come.
• Increasing number of instances, whereby cars are no longer perceived as assets, but as a liability.  Paradigm shift metamorphosing from car ownership to car use.
• Key growth markets in Asia and Europe, and in the future, South America.
• Forecast ridesharing membership to be in-excess of 500m within a decade.
• Carpooling/Ridesharing will be a major driver in declining vehicle sales globally.
• In the advent of semi-autonomous one-way trips, travel costs could fall >50%, accelerating transition.
• Rather than inhibiting this transition, the negative economic effects from the Covid-19 pandemic could push car ownership for many, out of negative economic reach, increasing carpooling reliance.

Investment Implications

Firstly, forecast that first-mover EV/hybrid car companies (e.g. Toyota, Tesla, possibly even Nio) will partner with, or acquire, App platforms such as Uber and Didi, to produce a vertically integrated short distance solution.  The applicable technology solutions already exist.  Being the first mover is sometimes not critical, we remind that Amazon arrived a decade after a number of search engines were already established (e.g. Yahoo!, Magellan, Lycos, Infoseek, Excite, etc.) with substantial market share, and yet, were able to put effectively everyone else effectively out of business within five to six years.  Likewise, we believe that the first fully autonomous integrated solution could act as an effective economic moat to virtually all other competitors (outside of China).

Secondly, the macro view suggests that there will be further inevitable consolidation among existing car makers, primarily driven by BEVs (possibly drones) in the commercial sector.  Equally as important as the carpooling trend, and not discussed in any depth in this note, is the structural adjustment about to engulf the commercial side of the transport sector; encompassing advanced robotic courier platforms, incorporating delivery, app and aerial-based services.  The growth of E-commerce businesses is inevitably leading to an increase in demand for individual address deliveries, replacing heavy delivery vans with numerous smaller electrified drones, especially in urban areas.  Range and charging times are significantly larger issues for commercial transportation hubs (when compared with retail carpooling platforms), because of issues associated with just-in-time inventories.  The effect on PGM demand, and in particular platinum, will be significant, given virtually all current vehicles utilise diesel combustion.

Thirdly, the corporate demise of Hertz is the canary of the entire car-hire industry, which cannot hope to compete with ridesharing platforms such as Uber and Lyft; with debt, inventory and cost structures a fraction of the existing players.  A thematic that will only grow in time.

Lastly, e-vehicles have the ability to be a future disruptive technology.  If legalised in the UK, they will probably utilise existing bike lanes and be limited to speeds under 30km/hr (~20mph).  Cheap to buy and rent, they could soon dominate close interurban transport among younger generations, further dissuading future car purchase intentions.

[1] Shaheen, S. & Cohen, A. (2020) “Innovative Mobility: Carsharing Outlook; Carsharing Market Overview, Analysis, and Trends”.  UC Berkeley, DOI 10.7922/G2125QWJ. 6 p.  https://escholarship.org/uc/item/61q03282

[2] Shaheen, S. & Cohen, A, (2020) Op cit.

[3] Ibid

[4] Shaheen S., et al. (2018) Innovative Mobility: Carsharing Outlook.  DOI 10.7922/G2CC0XVW. 7 p.  https://cloudfront.escholarship.org/dist/prd/content/qt49j961wb/qt49j961wb.pdf?t=pa6fa3

[5] Autovista Group (2017) “Global auto revenue pool to almost double by 2030, with recurring revenue surging to 20% share, says McKinsey.”  https://autovistagroup.com/news-and-insights/global-auto-revenue-pool-almost-double-2030-recurring-revenue-surging-20-share

[6] Frost & Sullivan (2018) Global Autonomous Driving Market Outlook.  82p.  https://info.microsoft.com/rs/157-GQE-382/images/K24A-2018%20Frost%20%26%20Sullivan%20-%20Global%20Autonomous%20Driving%20Outlook.pdf

Appendix A