Wednesday 20 March, 2019
One of the hottest themes in global investment markets at present is the growth in mobility-as-a-service (MaaS).
It’s a broad term that encompasses everything from ride-hailing apps and robotaxis to e-bikes and those headline-hogging Lime scooters. But at the heart of these modern transport solutions is a central idea: owning and driving a car is becoming increasingly impractical and uneconomic in major urban centres around the world.
Change is happening
There are several factors at play here, but rapid urbanisation is the root cause. The UN estimates that two-thirds of the global population will live in megacities (cities with more than ten million people) by 2050. This creates two major headaches for policymakers: the lost productivity associated with traffic congestion, and the negative impact on pollution levels and air quality.
China has already acted on this front, controlling vehicle numbers in cities through a lottery system for licence plates. In Beijing, the odds of a new applicant getting a licence plate are worse than 1 in 2000, and many would-be drivers are kept in limbo for years.
China has also implemented policies to aggressively boost electric car production. But while electric vehicles might be better for the environment, they still take up the same amount of space as fossil-fuel cars. They don’t address the congestion problem.
Other cities have adopted congestion fees to reduce inner-city traffic. In London, such charges have cut the number of vehicles entering the central city by almost a third on weekdays, and similar policies have been adopted in Stockholm, Singapore, and Milan. In New York, a congestion fee has been proposed on traffic entering Manhattan’s CBD, due to be implemented in 2020. The war on cars is starting to heat up.
We are seeing similar changes in New Zealand’s own supercity. While Auckland is hardly on the scale of Beijing or London, it has the congestion problems of a much larger city. And in keeping with global policy trends, Auckland Council appears determined to reduce the number of cars entering the CBD. Given the propagation of bus and cycle lanes, petrol tax increases, and price hikes in council-owned parking buildings, drivers can be forgiven for thinking they are being unfairly targeted. Auckland’s limited public transport network doesn’t give them many other options.
But while Auckland’s empty cycle lanes and persistent congestion seem indicative of policy failure, it really is early days. And there is an important demographic shift taking place. Millennials and Gen Zers are less likely to own a vehicle than their parents, partly due to financial reasons (cars are too expensive to buy, operate, and park), but also because driving a car is no longer considered an essential part of adulthood.
What does the future hold?
It’s the younger generations that will ultimately fuel the MaaS theme. The dream goes something like this: a commuter uses an app to hail a driverless shuttle to her street, which takes her to a train leaving for the CBD, where she then hires an e-scooter for the final leg to the office. While that might sound crazy to traditional car commuters, many young people think sitting in traffic for two hours a day is even more insane.
It will be a slow and painful transition for cities like Auckland, where public transportation options are currently limited or non-existent. However, it’s easier to imagine a future city where people are getting around using ride-sharing shuttles, buses and scooters than it is to have the bulk of the population still driving and parking privately-owned vehicles.
And as thematic investors, it’s the future we’re interested in. We’re not saying Auckland Council’s approach is right or wrong, only that change is happening, and there’s likely no turning back. Mobility is a global trend, and it’s almost certain to continue. Even Toyota, the largest car company in the world, is attempting to rebrand itself as a mobility company.
We will have a better idea of how investors value MaaS when two ride-hailing companies list on the US share market this year. First up is Lyft, little known here, but a significant player in the US where it has a 30% market share. Next comes the global leader, Uber, which has quickly become a household name in New Zealand since it launched in 2014.
Both companies are currently loss-making, and their respective management teams will be expected to draw a clear path to profitability, a path that may ultimately hinge on the successful deployment of self-driving cars. Regardless, we expect many investors will be willing to sacrifice short-term profitability for a share of the irresistible mobility trend.
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