The global transit and ground passenger transport market is expected to decline from $479.4bn in 2019 to $472.9bn in 2020 due to the economic slowdown induced by the pandemic and stay-at-home orders around the globe, according to the “Transit and ground passenger transport global market report 2020-30: Covid-19 impact and recovery” report by the consultancy Business Research Company (BRC).
The same report, however, also suggests the market is also expected to recover and grow at a CAGR of 8% from 2021, reaching $588.1bn by 2023. The report emphasises the role of “shared transportation” (the combined use of ride-hailing, bikes and buses) thanks to the cost benefits it provides to users. However, with the pandemic still very much in sight and a second wave of it sweeping through Europe, positive trends in usage rates are, at best, somewhat uncertain.
Leading up to the pandemic, much of the interest in the corporate-backed innovation scene in the transport and mobility space was concentrated in autotech – including autonomous, connected and electric vehicles – as well as ride-hailing services. Corporate venturers’ interest in connected car technologies and the hype around ride hailing had largely subsided before the pandemic and after the Uber and Lyft initial public offerings (IPOs) took place last year. Autonomous driving and electric vehicles, however, were still an attractive investment target for corporates due to their potentially profound disruptive impact. This trend appears to have continued (and not only in public markets where Tesla’s stock rose dramatically), despite the recessionary pressures from the pandemic slowdown and the inherent cyclicality of the automotive business.
According to the “Global Autonomous Car Market Report 2020”, the market for autonomous vehicles (AV) is projected to grow at a CAGR of 47% between 2019 and 2024. The report notes specifically opportunities in the “passenger cars, light commercial vehicles and electric vehicle markets”, identifying also strong drivers like supportive government initiatives, high levels of research and development investment in self-driving technology and the development of infrastructure in the form of roads or telecom technologies like 5G.
Despite the cyclical headwinds for the automotive industry, the global AV market demand, estimated to be around just 6,500 units in 2019, is forecast to grow at a CAGR of 63.5% during by 2027, according to a recent report by Precedence Research. It also highlights regional trends, noting that North America has dominated this market with significant share of global revenues. Precedence Research also predicts that Europe is likely to boast the most “lucrative growth rate for autonomous car market in the coming years”, mostly because of shifting consumer preference.
Large-scale technological disruption is likely to bring along some negatives, such as turning many existing jobs obsolete or reductions in government revenues from fines thanks to safer roads. While beneficial in the long run, this is almost certainly bound to lead to some short and medium-term socio-economic tensions.
Advances in fields such as artificial intelligence (AI), sensors and battery technologies are enabling autonomous driving technology’s technical viability and making the market prospects for it alluring. But some of the automotive sector’s incumbents may drop out of venture investing, as they face significant economic challenges.
Electric mobility also promises growth and deep disruption. According to the Global EV Outlook 2019 report, from the International Energy Agency, sales of electric vehicles reached 2.1 million globally in 2019, surpassing the previous year, which was also a record.
“Electric cars, which accounted for 2.6% of global car sales and about 1% of global car stock in 2019, registered a 40% year-on-year increase. As technological progress in the electrification of two and three-wheelers, buses and trucks advances and the market for them grows, electric vehicles are expanding significantly. Ambitious policy announcements have been critical in stimulating the electric-vehicle rollout in major vehicle markets in recent years.”
Despite the promise of a cleaner and safer future on the road, electric and autonomous mobility face stumbling blocks on their way to mass market. Many of those lie in consumer perception. According to data from the “2020 Deloitte global automotive consumer study”, while consumer interest in self-driving vehicles in the US is rising, it lags in other parts of the world: “Consumers in most global markets remain equally split regarding the perceived safety of autonomous vehicles.”
Another problem is the monetisation of autonomous and electric mobility tech, as consumers’ attitudes and intentions often differ from their actual buying behaviour. “Even as [original equipment manufacturers] continue to spend billions on research and development in advanced vehicle features, questions remain regarding consumers’ willingness to pay for them,” summarises the report. In many of the major markets for automobiles, there is a large percentage of consumers who are unwilling to pay a premium for advanced autonomous or EV technologies – Japan (60%), Germany (58%) and the US (54%). This is in contrast to some emerging economies like India (39%) and China (37%).
As premiums are subject to consumer hesitance and, without them, the costs of developing the technologies cannot be recouped, this may threaten their economic viability. This is, after all, the reason incumbent manufacturers turned to corporate venturing and startups, aiming to source external innovation while spreading the risks.
Another challenge for incumbents is the declining number of consumers, according to the Deloitte study, who indicate that they would most trust traditional automakers to bring fully autonomous technology to the market – in the US only 31% of consumers said they would in 2020 (versus 47% in 2018 and 2017). In Germany the figure is 35% (from 48% in 2018) and Japan, with 65% of consumers, from 76% two years ago. However, it is not clear whether this shift in consumer sentiment is permanent, so it is uncertain if the vehicles of the future will be produced by the automotive brands consumers are already familiar with or by emerging ones.
But demand for cars in general is dwindling. According to Fitch Ratings, global passenger car sales had declined to 80.6 million new units in 2018, down from 81.8 million in 2017. This was the first annual drop since 2009. Fitch also forecast a drop to 77.5 million units in 2019. According to a “Global Passenger Cars” by ReportLinker, the market for passenger cars was estimated at 74.5 million units in 2020 amid the pandemic. However, the report projects a CAGR of 2.8% and more than 90 million units by 2027.
A major area of disruption in mobility has been ride hailing – which has seen significant amounts of capital invested and a lot of attention from venture capitalists. The new business model in this space has contributed to reducing CO2 emissions and traffic congestions in urban settings but has also disrupted incumbent ride service providers, such as taxis, which has come with regulatory and legal challenges. There have also been concerns about the profitability of this business model, given the level of competition. According to data from web service Statista, total global revenue in the ride-hailing and taxi businesses is expected to reach $30.84bn by the end of this year and its growth rate in the coming years is forecast to slow down at CAGR of 18.8% by 2025, resulting in a market volume of $73.12bn, with user penetration to stay practically flat around 28.2% by 2025 versus 28.1% in 2020.
The sector in charts
For the period between November 2019 and October 2020, we reported 151 venturing rounds involving corporate investors from the transport and mobility sector. Many of them (48) took place in the US, while 23 were hosted in Japan and 13 in China.
On a calendar basis, total capital raised in corporate-backed rounds rose from $7.6bn in 2018 to $9.67bn in 2019, representing an 27% increase. The deal count, increased only slightly to 162, up from the 160 rounds reported in 2018. These figures dropped to $82bn and 127 in 2020. The 10 largest investments by corporate venturers from the transport sector were concentrated in the transport and mobility space.
Overall, corporate investments in emerging transport-focused enterprises went up from 189 rounds in 2018 to 209 by the end of 2019, suggesting a 11% increase. The estimated total dollars in those rounds, however, declined by 25%, from $25.46bn in 2018 to $18.9bn in 2019. By the end of October 2020, GCV had already tracked 149 rounds, worth an estimated total of $13.65bn – a drop clearly illustrating the impact of the pandemic-induced downturn.
The leading corporate investors from the transport sector in terms of largest number of automotive manufacturers Toyota, BMW and Porsche. The list of transport corporates committing capital in the largest rounds was headed by vehicle retailer AutoNation, automotive component manufacturer Magna and car maker SAIC Motors.
The most active corporate venture investors in the emerging transport businesses were telecoms and internet conglomerate SoftBank, Toyota and energy company Shell.
