MARKET INSIGHT

Future of Mobility: Connected Mobility andthe Changing Role of Vehicle Manufacturers

By Martyn Briggs - Mobility Programme Manager

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FUTURE OF MOBILITY: CONNECTED MOBILITY & THE CHANGING ROLE OF VEHICLEMANUFACTURERS

With continued urbanisation and the rise of “digital natives”, the changing landscape of mobilityproducts and services is causing vehicle manufacturers to rethink their positioning in this space.

The role and perception of the automobile in our lives continues to evolve. With increasing populationdensity and connected lifestyles, we're witnessing a new wave of products and services improving theefficiency of the transportation network, and facilitating seamless integration of several services to makeit easier for people to get from A to B, which is beginning to make people question the need to own asmany cars in their household.

This trend is commonly referred to as Mobility - a mixture of products, concepts, services, partnerships,and digitally enabled platforms that improve a cities transportation offering - a trend that is disruptingthe automotive and transportation sectors, and leading to every vehicle manufacturer looking to capitalise on this opportunity and analyse any potential threats to their business.

I was fortunate enough to attend the 84th Geneva Motor Show in Switzerland this month, one of myfavourite motor shows due to the array of luxury vehicles and supercars on show to satisfy my innerpetrolhead (or perhaps in future: range extended plug in hybrid supercar head!), in a beautiful settingand in a relatively compact area compared to other shows. However, what we've witnessed in the lasttwo years in particular is the confirmation of several of the mega trends impacting mobility being putinto practice with new products for the automotive industry. I

Small Is The New Big

Whilst the aforementioned supercars were great to admire, the standout highlight for the rest of usnormal folk was the array of compact vehicles targeted principally at Urban Mobility, to give city dwellersthe means of getting from A to B with the benefits of being easy to park, and environmentally friendly,equipped with several premium infotainment features to replicate a drivers connected lifestyle in thecar as well as improve their mobility, such as connected navigation systems to identify traffic and rerouting, and locate and book.

This was demonstrated with new models from Toyota (Aygo) Citroen (C1), Opel (Adam Rocks/S), andRenault (Twingo) in particular, all predicated on enticing customers with a desire for connectivity andpersonalisation, and boasting impressive in car technology replicating smartphone functionality, as wellas numerous ways to customise the vehicle to retain a sense of individuality to each customer visually,but with a reduced number of Eco friendly engine variants.

What this tells us is that despite some tough times for the European automotive sector, with six consecutive years of declining annual total vehicle sales, all of the volume manufacturers are targetingthis customer segment, likely to be predominantly younger buyers, with cost conscious mobility optionswithout a compromise on technology.

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Technology

Whilst this is still a key differentiator for several of the manufacturers, the common trend continuallyemerging is connectivity, which is in turn enabling improved infotainment and safety to the drivers, andproviding manufacturers an increased understanding of the vehicle after the point of sale. This increasedvisibility, commonly referred to as big data, provides several new business models such as automotiveapp stores and services, and has the potential to lower costs by issuing over the air updates (avoidingrecalls) for example.

There were several telematics and connected service partnerships announced at the show, such as GMlaunching their OnStar platform in their European vehicles from 2015/16 focused around safety andlinked to forthcoming eCall regulations. However the headline grabber was certainly the launch of AppleCarPlay, on display in the new Volvo XC90 going on sale late 2014, fully integrating their iOS softwareand logic into vehicles. This will also be implemented in Mercedes and Ferrari vehicles (with a rumouredimplementation from a further 13 OEMs set to follow), and sets the scene for a race between Appleand Google (already integrating their android software into several VW brands and Tesla) to be thedominant provider.

Growth of Carsharing

The global carsharing market continues to grow, with the members of such services increasing by 52%between 2012-2013 to over 3.5m members, 1.4m of whom are in Europe. Frost & Sullivan research hasshown this market opportunity could rise to over 26m members by 2020 if the current adoption, expansion and increasing awareness continues.

This has led to most vehicle manufacturers having implemented, piloted or considered carsharing as anew mobility business model opportunity. However the two most prominent to date have undoubtedlybeen Daimler and BMW, both offering free floating (one way) carsharing. Both outlined bullish plans ongrowth of their successful operations, car2go and DriveNow respectively, in Geneva.

Car2go aim on increasing their 26 city presence by a further 5-10 locations, targeting over 1millionmembers in 2014 (up from 600k in 2013), and introduced their new car2go black product at the show.This will for the first time enable station based (two way) carsharing using larger Mercedes B Class vehicles, aimed at providing longer rental durations and targeting new customer use cases, initially with100 cars each in Hamburg and Berlin. DriveNow are looking to increase their presence from six citiesto up to 25 in 2014, underlining their assurance on the carsharing business model as a viable and potentially profitable premium mobility service going forward.

Taxis & Demand Responsive Mobility

One of the core drivers of the increase in one way carsharing in particular, is the on demand aspect ofthe business model, whereby customers don't need to book the vehicles in advance, but can literallyrequest rental access on demand to undertake their journeys, and conclude the rental at any locationwithin the defined carsharing operating areas, fulfilling a role similar to taxis. With location based servicesa key enabler of this business, in a similar vain so to has the taxi and private hire industry been revolutionised by location aware technology, leading to the rise of hail-a-cab applications, better linkingsupply and demand.

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The business model operates by taking commissions on each fare, which is attractive to buyers especiallyin off peak times, where up to a third of their day can be filled just searching for a fare. As such driversare willing to pay for this kind of service; the application providers typically charge 3-15% of the farebased in several parameters.

This lucrative business model has already seen considerable investment from vehicle manufacturers,private equity houses and venture capital firms alike, raising over $500m amongst the top 4 providersalone, most notably google ventures $300m stake in Uber technologies. Indeed, Uber had a collaborationwith Cadillac at this year’s Geneva motor show, offering a customised version of their service to providecomplimentary shuttles to and from Palexpo; great marketing for both the Uber concept and Cadillacalike - showcasing their respective cutting edge technology and premium vehicles. With Uber operationalin over 70 cities and looking to continue expanding in 2014, and several other on demand mobilityproviders emerging in chauffeur/taxis and ridesharing models in particular, the revolution and disruptionof this market is set to continue.

Autonomous Driving

Equally it is rumoured Google's intent in investing into on demand technology providers such as Uberis to create a business model application for their autonomous vehicle technology, something that idlikely to revolutionise the way in which consumers consider urban mobility in future. This is likely to beimplemented in a phased approach starting with applications in closed environments such as the personalrapid transit pods we see at Heathrow and Masdar City, to semi and fully autonomous applications onour roads in the future.

This was also prevalent in Geneva, with Mercedes positioning the new S class as the most highly auto-mated vehicle on the market today, jokingly drawing comparisons to the iconic Knight Rider vehicleand TV series from the 1980s. Equally the concept from Rinspeed (ExchangE) showcased the potentialof a fully autonomous car, in this case a Tesla Model S, in enabling entertainment and relaxation of thedriver, and the potential this opportunity can bring; the concept showcased being able to move thesteering wheel to the centre of the vehicle to allow driver/passenger the use of a touchscreen entertainment console, or to swivel the seats to watch a flatscreen tv in the back of the vehicle forexample.

Impact to Automotive Industry and Outlook

All of these business opportunities will have considerable impacts to the automotive and mobilitylandscape going forward, from changing the consumer mindset towards more shared usage of transportand equally Increasing their expectations for connected services within mobility. There are several waysin which this can be monetised, from creating a product directly, partnering with service providers, orenabling new digital and data related revenue opportunities.

All of these themes will be covered extensively at Frost & Sullivan's Urban Mobility 3.0 workshopin London on 26th June, with top speakers confirmed from across the mobility ecosystem, such as Daimler Mobility Services, General Motors, Zipcar, Cisco, Truecar, and Avis. For more information go tohttp://urbanmobility.gilcommunity.com/.

Get involved

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Frost & Sullivan | Market Insight

Frost & Sullivan’s mobility research team will be undertaking a detailed market research study on corporate mobility requirements and business models in 2014, in addition to a “Voice of the customer”survey amongst fleet and corporate mobility decision makers, to ascertain their current and future preferences towards all aspects of corporate mobility. To contribute in this research, and to find outmore about our mobility and automotive research, please contact me at please contact the author, Martyn Briggs at martyn.briggs@frost.com.

Join our LinkedIn group: Future of MobilityFollow us on Twitter: @FS_Automotive

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