2016 saw prolific, and perhaps unexpected, investments in the automotive industry. In Q1, GM’s $1.5B+ investments in Lyft, Sidecar, and Cruize set the stage for what’s become a battlefront for billion dollar war chests.
Since then, Apple (yes, the phone and computer company) invested $1B in China’s leading ride-sharing company, Didi Chuxing. To which, Didi’s fierce rival in China, Uber, quickly retaliated with $3.5B of fresh financing from Saudi Arabia’s PIF fund.
So what gives? Are companies fascinated with ride-sharing? Is this all a proxy battle for China?
Yes and yes. But there’s more to it.
Car manufacturers recognize that the car is being unbundled and nontraditional competitors are vying for their $7 trillion market.
According to the Bureau of Labor Statistics, US households spend 17% of their income on transportation ($12.5K/ year) second only to spending on home expenditures (31%). With 70% of the automotive industry’s revenue coming from passenger owned vehicles, and with vehicle ownership plummeting, it’s no surprise transportation challengers have emerged.
As if drops in new car sales wasn’t enough of a challenge, traditional car manufacturers have to deal with that pesky upstart, Tesla. In less than 10 years, Tesla has debunked assumptions of the 130-year-old auto industry. While the innovations in Tesla’s distribution (direct not via dealer), target market (wealthy vs. cost-conscious), and engine performance (faster acceleration than most gas-powered engines) are impressive, it’s the innovation in manufacturing that incumbents should fear the most.
With over the air updates of a car’s mechanical features, Tesla is quietly proclaiming that the software layer is more important than the hardware itself. This has spawned innovative features like its autopilot, a harbinger of the future of driverless vehicles. The belief that the software layer is more important than the hardware layer are also shared by Apple and Google as their rumored car endeavors continue. (See more about Apple’s “Project Titan” and Google’s partnership with Fiat Chrysler.)
So what will happen to transportation in the future?
- Brave new world of transportation titans
Tomorrow’s leading automotive manufacturers will look more like a blend of software and services companies and less like the heavy industry manufacturers of the past. This has already started. Tech acquisitions in the automotive sector have been plentiful across maps technology, computer vision, ride-sharing, etc.
It also means that today’s large tech companies will have billion-dollar business lines or subsidiaries in the future. Are we ready to see people trade in their Toyota, Ford, or Chevy for an Apple car?
- Autonomous will arrive
In less than 10 years, you can expect to visit a major metropolitan city and be transported with a driverless car. Several car manufacturers have stated that self-driving cars will be off the production line in 2020. And regulations are not as far behind as you’d think. In fact, the National Highway Safety Transportation Administration (NHSTA) has committed to releasing policy guidelines by July.
Several progressive cities are following suit. Singapore will be rolling out “thousands” of self-driving cars by 2019. By 2030, Dubai has committed to having driverless transport powering 25% of their rides.
Car manufacturers and start-ups alike are heeding the call. GM and Lyft announced they’ll be testing autonomous driving within a year. NuTonomy, RoboTaxi, WePod, and CityMobil2 are all at the forefront of these trials in several countries.
- Roads are for people, and bikes too
According to the Economist, 9% of the world’s population will live in just 40 megacities (meaning a population of 10M+) by 2030. With the rise of these megacities, city landscapes will transform.
Cities have wrestled with the challenges of traffic congestion, pollution, and last mile transportation for decades. Cities like London and Madrid already tax cars entering a central city district. Last year, Paris instituted a Car Free Day (#ParisSansVoiture ) and Oslo announced they will permanently ban cars in 2019
With today’s technology, these mobility problems becomes easier to solve in the future. Smartphone penetration, high bandwidth availability, sensor technology, and computer vision are making it possible to efficiently use roadways, parking, and drivers’ time.
Certain areas of a city will prohibit drivers altogether. Self-driving vehicles, public transportation, and bikes will be the dominant forms of transportation. Parking in the cities will become scarcer (hopefully replaced by parks). And more thoroughfares will convert roads to walking and biking lanes only.
With fewer cars on the road and transportation applied more efficiently, cities will become more walkable and livable.
- Enter zero gravity (almost)
While few things will be more impressive than autonomous driving and the advances in computer vision, there are dreamers won’t be confined to gravity’s restrictions. Transporting someone from L.A. to NYC in 45 minutes used to sound like science fiction. Now, that is inching closer to reality. Using magnet powered levitation and frictionless transportation, two companies (HyperLoop One and HyperLoop Transportation Technology) are vying to make it a reality. Last month, Hyper Loop One demonstrated its first test in Las Vegas. It lasted less than 5 seconds and accelerated from 0 to 60 mph in 1.1 seconds across 100 yards. Not bad for a 2-year old company.
But why go through the hassle of entering a shared transportation pod like HyperLoop? Wouldn’t it be better to fly your car to a destination of your choice? That’s what Google’s co-founder, Larry Page, is “secretly” trying to do with 2 startups. Yep, flying cars will be the next big thing. George Jetson, here we come…
At Graphene Ventures, we look for paradigm shifts and seek investment opportunities as markets change. Our investment in Lyft is one indicator of our belief that the transportation industry is changing dramatically.
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