The past year was a pivotal one, with many important achievements across the disruptive dimensions of mobility: autonomous driving, connectivity, electrification, and shared mobility (ACES). In 2019, electric-vehicle (EV) sales set another sales record globally, and EVs became much more prominent in the public awareness in major automotive markets, such as Europe. Many more cities have announced and already partially implemented further regulation of private-car-based mobility. Some players demonstrated truly driverless cars without backup drivers, setting new milestones in autonomous driving. Uber and Lyft—the two big disruptors in the ride-hailing space—went public in spring 2019. Also in 2019, regulators began granting approval to drone deliveries and to electric vertical takeoff and landing crafts, with these types of vehicles flying for the first time.
However, 2019 was also a year of reality checks, as congestion and public-transportation woes reached new heights for cities around the world, realization timelines for technology like autonomous vehicles (AVs) were postponed, and some new mobility business models failed to win over investors. Economically, global automakers had a tougher time in 2018 and 2019, with several headwinds: higher expenses required to meet stricter emission regulations, global trade tensions, and slowing sales in key end markets. These triggered profit warnings at several large OEMs and suppliers.
Given that key risks for the industry remain elevated and that competition from new mobility attackers is intensifying, the road ahead remains bumpy, as today’s reality delivers a mixed picture for the future of mobility. On the one hand, there are big expectations with regard to future technologies and business models; on the other hand, there is an urgent need for a “double transformation.” In other words, preparing companies for the mobility of tomorrow also means making today’s business crisis resistant.
Please join us as we reflect upon this past year’s milestones and look ahead to what we expect will be the continued momentum and additional wake-up calls that will keep on shaping the movement of people and goods going forward.
Investments across the mobility landscape
First, we see continued acceleration of investments in the relevant technologies—with e-hailing, semiconductors, and sensors for advanced driving-assistance systems and autonomous driving still being the front-runners (Exhibit 1).
On a regional level, activity in the United States is strongest, but tech-intense locations, such as Israel, also play important roles in the mobility ecosystem. (Read more in “Israel: Hot spot for future mobility technologies.”)
And the automotive industry actually is quickly turning into a true mobility ecosystem. OEMs have traditionally worked hand in hand with tier-one suppliers, but today, we are seeing the emergence of a broader ecosystem. This ecosystem is coalescing, as high-tech players enter the market, incumbents form new partnerships, and tier-two suppliers cut in line to offer products and services directly to OEMs, thus bypassing tier-one companies.
By our analysis, an OEM would have to invest nearly $70 billion to gain a defensible position across the critical ACES technologies. Hence, there is a renewed interest within the automotive industry for cooperation (Exhibit 2). For decades, OEMs have shared the financial burden in core areas like engine development and production. But given the challenges ahead, cooperation will become an even bigger success factor.
Let us now have a look at the 2019 highlights of each of the ACES trends.
For investors, executives, and enthusiasts alike, autonomous technology and self-driving cars have long been some of the most interesting areas within the future-of-mobility space. This continues to be so. But 2019 certainly was a year in which optimistic forecasts had to be scaled back to a certain degree. Progress in AV technology was not as fast as previously anticipated; both value and premium OEMs—as well as tech players—revised their schedule for level 4 and level 5 applications, sometimes by years.
Yet the underlying logic for autonomous driving, especially in cities, remains intact. We believe electric, shared AVs—also called robo-taxis or -shuttles—could address mobility’s pain points in cities (such as road congestion, crowded parking spaces, and pollution) while revolutionizing urban mobility, making it more affordable, efficient, user friendly, environment friendly, and available to everyone. If integrated seamlessly in the public-transportation system, it will be an important enabler in reducing today’s share of private-car traffic (Exhibit 3).
As our colleagues explain in “Change vehicles: How robo-taxis and shuttles will reinvent mobility”: “To reduce the levels of uncertainty surrounding shared AV mobility, the McKinsey Center for Future Mobility (MCFM) has developed a detailed and holistic model based on a thorough fact base, consumer surveys, expert estimates, and extensive discussions with relevant stakeholders.”
Of the global markets for AVs, China catches the eye (Exhibit 4). It has the potential to become the world’s largest market for AVs. As colleagues outlined in “How China will help fuel the revolution in autonomous vehicles,” “in our base forecast, such vehicles could account for as much as 66 percent of the passenger-kilometers traveled in 2040, generating market revenue of $1.1 trillion from mobility services and $0.9 trillion from sales of autonomous vehicles by that year. In unit terms, that means autonomous vehicles will make up just over 40 percent of new vehicle sales in 2040, and 12 percent of the vehicle installed base.”
While the new technologies will surely generate enormous value, no one can say where the economic profit will flow—or when.
Connected cars are poised to become potent information platforms that not only provide better experiences for drivers but also open new avenues for businesses to create value. Conventional vehicles, once heralded as “freedom machines,” will evolve into information-enveloped automobiles that offer drivers and passengers a range of novel experiences, increasingly enhanced by artificial intelligence and intuitive interfaces that far surpass today’s capabilities. The key success factor for connectivity services is the clear value proposition the offering has, either to an external customer or to an internal stakeholder. It seems that this value is very often created only by combining data assets and capabilities from various partners.
As our colleagues lay out in “The trends transforming mobility’s future,” “we have identified five levels of connectivity, each involving incremental degrees of functionality that enrich the consumer experience, as well as a widening potential for new revenue streams, cost savings, and passenger safety and security. These levels reflect the potential for connectivity to stretch from today’s increasingly common data links between individuals and the hardware of their vehicles to future offerings of preference-based personalization and live dialogue, culminating with cars functioning as virtual chauffeurs. Our research suggests that by 2030, 45 percent of new vehicles will reach the third level of connectivity [Exhibit 5], representing a value pool ranging from $450 billion to $750 billion. Our surveys also indicate that 40 percent of today’s drivers would be willing to change vehicle brands for their next purchase in return for greater connectivity.”
Connectivity in cars is predominantly driven by the proliferation of a more centralized software and of electrical- and electronic-component architecture. As noted in “Mapping the automotive software-and-electronics landscape through 2030,” this trend “will drive the market’s expected expansion through 2030 (projected at a 7 percent compound annual growth rate). Significant variation is expected across the market’s segments” (Exhibit 6).
While the signals are somewhat mixed for autonomous technology, the “E” in ACES—electrification—certainly gained momentum in 2019. This development was triggered by two trends: tightening regulation—for example, in Europe—and rising customer demand.
As our colleagues explain in “Expanding electric-vehicle adoption despite early growing pains”: “EV sales grew to more than two million units globally in 2018: an increase of 63 percent on a year-on-year basis, and a rate slightly higher than in prior years. Nevertheless, with a penetration rate of 2.2 percent, EVs still only represent a fraction of the overall light-vehicle market. The ratio of battery EVs (BEVs) to plug-in hybrid EVs (PHEVs) held relatively steady from 2017” (Exhibit 7).
Projections for Europe indicate that automakers would need to sell up to 2.2 million EV units in 2021 alone to meet their fleet CO2 targets. That would be a steep ramp-up of EV sales in fewer than two years and equivalent to global EV sales in 2018. This is a big task not only for the automotive industry but also for adjacent industries. To power two million new vehicles, Europe would need the equivalent of about four gigafactories for the battery supply—and the additional raw materials. To meet charging demand, 300,000 to 400,000 public charging stations would be required. As observed in How automakers can master new mobility, “OEMs are therefore moving quickly: to meet both regulator and customer demand, OEMs are significantly ramping up their battery electric vehicle (BEV) portfolios. Incumbent OEMs will bring more than 300 new BEV models to market by 2025” (Exhibit 8).
The challenge of making EVs profitable remains, but OEMs and their suppliers are working hard to address it successfully.
Advancements in battery technology, economies of scale in EV production, native EV design, and cooperation among OEMs can help bring down costs—which are currently still higher than for comparable internal-combustion-engine (ICE) vehicles (Exhibit 9).
For more, see “Making electric vehicles profitable.”
The battery is by far the most valuable part of an electric car. With demand rising, players across the value chain need to scale up sustainable battery production. Across uses, from EVs to backup power generation—not to mention mobile phones and other consumer products—we estimate that current momentum will increase battery demand 14-fold between now and 2030. In a more optimistic target case (with even lower battery costs), the increase could even be 19-fold.
Read more in our joint report with the Global Battery Alliance and World Economic Forum, A vision for a sustainable battery value chain in 2030: Unlocking the full potential to power sustainable development and climate change mitigation.
As in the other dimensions of future mobility, we see divided areas within shared or smart mobility as well. No doubt, mobility—especially in cities—needs to become smarter to become sustainable (again). Cities need to combine multiple modes of transport—including private cars, public transport, robo-taxis, robo-shuttles, micromobility, cycling, and walking—into integrated transport systems in order to fight congestion and pollution and hence increase quality of life.
In this respect, 2019 certainly has been the year of many cities’ announcements of their future mobility visions, including micromobility. With micromobility being a nascent market in Europe, many start-ups introduced shared e-scooters in European cities.
As our colleagues shared in “Micromobility’s 15,000-mile checkup,” “our base-case estimate of the shared micromobility market across China, the European Union, and the United States is … $300 billion to $500 billion in 2030 [Exhibit 10]. To put that into perspective, it equals about a quarter of our forecasted global shared autonomous-driving market potential of roughly $1,600 billion in 2030.”
In the United States, the growth of e-hailing services certainly brought challenges, such as congestion. E-hailing is already having a major impact on cities and suburban areas. “Ridesharing is not simply a substitute for traditional modes of automobile transportation, such as personal vehicles, taxis, and rental cars,” as our colleagues laid out in “How sharing the road is likely to transform American mobility.” “On the contrary, fully one-half of all ridesharing trips would not have been taken but for ridesharing [Exhibit 11]. In the face of such challenges, some cities are taking aggressive action, including capping total hailing licenses and setting wage floors for drivers.”
The 2020 outlook
One thing that is certain is the fast-changing world of future mobility. We do expect that 2020 will be at least as interesting as 2019 along several dimensions:
- Consumers. As CO2 regulations in Europe kick in next year and more EVs need to be pushed onto the road, 2020 will be an important year to measure the reinforcing power of electrification. Early adopters love their EVs, but will followers as well? Will OEMs and their suppliers manage to make their EV supply chains as efficient, robust, and sustainable as those of their conventional vehicles? And will the charging infrastructure keep pace with the growing EV demand? Not to forget: How will automakers and suppliers manage to smooth the transition of their workforces and investments from an ICE world to one with partially or fully electric power trains?
- Technology. Might 2020 be the year in which more attention is given to the transport of goods? The commercial-mobility segment could catalyze some noteworthy developments. The first of two examples here is autonomous driving in the context of shared mobility. Specifically, the replacement of the driver cost is a significant element of the total cost of ownership. Hence, we see significant activity from established players and start-ups in order to make this happen. The second example is alternative power trains. With close to 20 countries now having announced national road maps for hydrogen and major investments announced across industries—including in the heavy-duty, long-distance transport sector—the fuel-cell technology begins to become a more feasible alternative.
- Market and competition. 2020 will be characterized as the year of the intensifying “double mobility transformation,” with players operating in an economic slowdown but, at the same time, needing to rethink their business models in a time of heightened city regulation, technology disruptions, and changing consumer needs. How will the financial market look at industry players? It’s a broad range, from the discounted OEMs on one end to the celebrated tech players on the other. For more, see “Down but not out: How automakers can create value in an uncertain future.”
- The growing role of regulation. For many players and for many technologies, cities will be the most important stakeholders. From “sticks” (such as parking fees, low- or no-emission zones, and city tolls) to “carrots” (such as piloting new robo-taxi or -shuttle service-mobility solutions), it will be cities where the future of mobility will be decided. And 2020 will likely see bold announcements by cities to change their mobility systems.