Transportation Transformation

How Autonomous Mobility Will Fuel New Value Chains

Evangelos Simoudis

• Publisher: Corporate Innovators, LLC
• Year: 2020
• ISBN:
  9780998067735
• Edition: 1
• Topic: Business
• Subtopic: Industria dei trasporti
• Index: Business

Transportation Transformation is an indispensable GPS for every automaker, transportation startup, investor, policymaker, or regulator who is planning the future of urban and suburban transit, and anyone else with a need to understand the changing ways in which consumers and goods will get around. When an industry this large changes this rapidly, strategy becomes complex and challenging. Transportation Transformation provides the crucial vision necessary to navigate those changes with confidence.

Comprehensive, global, and meticulously researched, Transportation Transformation presents a vision of next-generation urban mobility arising from the interplay among three major groups: the automakers, the mobility services companies, and the cities. Transportation's future is subject to consumer shifts, driven by disruptive technology and business model innovations including autonomous or automated, connected, and electrified vehicles; on-demand mobility services, such as ride-hailing and micromobility; and rapidly multiplying new ways to deliver consumer transportation and goods. The book describes the transformations that automakers, mobility services companies, and cities must undertake, the new value chains that will form as a result of these transformations, and the business models that will enable the transformed organizations to monetize or otherwise benefit from next-generation mobility. Transportation Transformation details the central role of data, AI and other data-driven technologies in next-generation mobility and explains the key risks we must address in the process of transforming transportation.

Even as traditional models of vehicle acquisition and ownership weaken, new business models are emerging, including subscription-, merchandising-, and advertising-based revenue streams. Such innovations will remake the staid and traditional value chains that dominate today's transportation markets and create new ones. Transportation Transformation discusses these new models under a variety of implementation scenarios involving automakers, Tier 1 suppliers, mobility services companies, and Internet technology providers. It analyzes the resulting new revenue streams and the value chains that will remake the economics of the automobile industry as well as the broader transportation and goods delivery industries. And it discusses in revealing detail the opportunities and risks ushered in by these shifts and disruptions.

CHAPTER 1

THE FUTURE OF CONSUMER MOBILITY

Traveling in the clogged streets of megacities like New York, Los Angeles, and Mumbai helped me envision a future defined by a radically different urban transportation experience for people and goods. That future is based on well-orchestrated fleet-based transportation networks, many of which include a wide variety of autonomous vehicles (AVs).¹ Privately owned vehicles are part of that future, but not at its center.

In order to realize that vision and reap its many rewards, we will need to undergo a transportation transformation. This transformation will require “systems thinking” rather than “component thinking” because it will bring together into a single system public transportation, on-demand mobility services, and privately owned vehicles, instead of considering each of these transportation elements as a standalone silo. Its fabric will be woven from clean-energy automated and autonomous vehicles; intelligent transportation, communication, and energy infrastructures (some of which will be provided by smart cities); and sophisticated digital platforms that manage the transportation networks that will be created. These advances will all come together with the extensive application of artificial intelligence (AI) and big data. The purpose of this book is to describe that future and prepare you to thrive in it.

As you’ll see throughout this book, the realization of this future will not just create new and exciting ways to get around—it will also pit two huge industries against one another. On the one side are the existing automakers like GM and Daimler, who will be stretched in challenging directions by the future of mobility. On the other side are the well capitalized and rapidly growing global on-demand mobility services companies like Uber, Didi, and Instacart. The companies in both of these industries are working hard to define the new world of mobility, stake out their role in that world, and assert dominance in the new sources of value it will create. The future I describe relates to the movement of both people and goods, specifically in urban and suburban settings. The key players in this movement are automakers, mobility services companies, and city governments. This book presents the decisions they face, the transformations they themselves will need to undertake before they can effectively participate, and the outcomes they can expect as transportation transforms. Goods delivery will undergo an analogous transformation, largely due to the impact of the same technologies that are changing how people move. Let’s take a look at how we got here . . . and where we might be going.

The transportation transformation will start in metropolitan areas on a city-by-city basis. Urban dwellers globally have always wanted safe and convenient transportation at an affordable price. As cities grow and continue to transform, few have achieved this goal consistently with their public transportation systems. (Stromberg, 2015) (Berman R., 2018) Growing prosperity, often combined with neglect of public transportation systems, has enabled people to start taking responsibility for their own transportation. They use privately owned vehicles to make up for what public transportation systems cannot provide. For example, during the Industrial Revolution, city dwellers used horse-drawn carriages. At the turn of the twentieth century, cities like Paris, London, and New York were extremely congested—at that time, pollution was mostly due to horse manure.

Automobiles and many other types of gasoline-powered vehicles have, of course, replaced those horses, and transportation infrastructures were built to accommodate them. (Schmitt, 2017) Since the Second World War, privately owned vehicles have been viewed as the answer to the need for safe, convenient, and affordable transportation. As a result, cities around the world are as congested now as they were in the past—and the pollution is in the form of CO₂ emissions. For all their benefits, privately owned vehicles are just part of the answer for the future. A better answer requires a transportation transformation.

In recent years, the emergence of transportation network companies (TNCs) like Uber signaled the beginning of the transformation of urban transportation. Using privately owned vehicles, below-cost rides, and innovative digital platforms, TNCs started by offering on-demand ride-hailing. Some have since expanded to provide additional mobility services. But even with TNCs’ discounted prices, many people cannot afford ride-hailing or do not feel safe using an unregulated mode of transportation. In cities where ride-hailing is popular, it is adding to rather than alleviating congestion because rides are not shared. Ride-hailing is also leading to further deterioration of public transportation, because it is pulling people away from it. Newer on-demand transportation services such as micromobility—rental bikes, e-bikes, and e-scooters—provide another partial solution to certain demographic groups by primarily addressing short-distance transportation under certain environmental conditions. While cheaper and at times more convenient than ride-hailing and ridesharing, micromobility has its own safety issues.

Autonomous vehicles of various form factors have the potential to address part of the goal to provide safe, convenient, and affordable urban transportation and goods delivery, but, again, by themselves, they are not the complete answer. As I will show in the next chapter, the wide deployment of autonomous vehicles in urban settings remains several years away because of technological and other obstacles. Their broad consumer adoption will remain hard to predict for some time because their deployment will progress from small geofenced environments with many constraints (little traffic, consistently good weather) to larger and more dynamic ones such as an entire city. Even though transportation services companies see autonomous vehicles as providing the answer to their profitability problem, their acquisition and deployment require these companies to make large capital investments and change their operating model, becoming fleet operators.

Next-generation mobility that will emerge as a result of the transportation transformation will require the adoption of fleet-centric operating models. These new models will result in new value chains. The incumbent automotive and ground transportation industries, the startups entering these industries, and the cities where the transformed transportation will first be used need to understand how to function in these value chains, participate in the emerging ecosystems, adapt their operations accordingly, and formulate the right strategies. This mindset will become an existential necessity.

What does the future of transportation look like? Let’s take a peek.

THE EXPERIENCE OF A TRANSPORTATION CONSUMER TEN YEARS FROM NOW

Fred hasn’t driven his car to work downtown in years. For that matter, he hasn’t driven to and from the airport, to dinner or movie dates with his wife, or even to the grocery store. The city where he works has banned the use of privately owned vehicles in the city center. His 2019 Mercedes E300, now more than 10 years old, still has less than 40,000 miles on it and looks brand new. He rarely visits the dealer for service. In fact, the dealer where he bought the car closed down a few years ago, and only one of the four Mercedes dealers in his area remains in business. Because he drives his car so little, his insurance has decreased substantially.

Every day Fred receives a personalized transportation plan created by his Mobility-as-a-Service (MaaS) provider. The plan takes into account his daily calendar, the state of various transportation systems, traffic conditions, weather, and other parameters. The plan addresses Fred’s transportation needs by seamlessly combining on-demand mobility services with public transportation.

This morning, just as on most workdays, Fred’s MaaS provider sends one of its autonomous two-passenger pods that arrives at precisely 7:00 am in front of his suburban house, ready to take him the two miles to the train station. Once Fred gets in, the pod drives to Dave’s house, a few blocks away, to pick him up at 7:07 for their shared ride. The MaaS provider’s AI system matched Fred with Dave for their shared ride, thus maximizing the pod’s utility while maintaining a high quality passenger experience.

On the way to the station, the pod receives a message that the 7:20 am train to the city is running three minutes late. Because of the delay, Fred and Dave now have the opportunity to pick up coffee at the station’s café before boarding the train. The pod, accessing their personal profiles, pre-orders a double cappuccino for Fred and English breakfast tea for Dave. It drives to the train station in ten minutes. As they pick up their beverages the train arrives, and they settle in for the 30-minute trip to the city.

Upon arriving in the city, Fred boards his mobility services provider’s waiting autonomous shuttle, which will take him, and seven other train passengers, to their offices. That ride typically takes 10 minutes. The 50-minute pleasant and productive ride on the pod, the train, and the shuttle has replaced the hour-and-a-half commute to the city that he endured when he was driving his own car. At the end of the day, he experiences a very similar routine in reverse: shuttle-to-train-to-passenger pod. Today as the pod was dropping him off at home at 6:50 pm, a six-wheel autonomous robot was approaching his house to deliver automatically ordered groceries from the food retailer his family subscribes to.

While at work, if he needs to travel to a meeting outside his office, Fred uses one of his mobility services provider’s shuttles or pods. Because of having access to Fred’s personal information and preferences, as well as similar information from its entire subscriber base, the mobility provider efficiently determines what type of vehicle to send, when to send it, and when and where Fred will need to pick it up. By analyzing Fred’s personal transportation habits and workloads as well as historic traffic and weather patterns, the provider is even able to advise Fred on when to schedule each future out-of-office meeting to allow adequate transportation time to and from the meeting.

For a monthly subscription of $250—about $8 per day—plus his train fare, Fred has access to a shared vehicle to satisfy both his commuting and his in-city transportation needs. And he doesn’t have to worry about finding parking and paying the constantly escalating parking fees. His insurance rate has dropped substantially, and he hasn’t thought about buying a new car for a while. His son, who currently studies in a European megacity, subscribes to a cheaper monthly plan that relies much more on autonomous e-scooters and public transportation.

Today, in several cities around the world, we have already started laying the foundations for making this scenario a reality. Over the next 20 to 40 years:

• The privately owned vehicle (POV) will stop being at the center of personal transportation. Many cities will outright ban the use of POVs in major parts of their territory. The rise of increasingly instrumented smart cities, together with coordinated transportation that seamlessly blends public transportation with on-demand mobility services, will address nearly all the daily urban mobility needs. The transportation networks that will emerge will be multimodal—they will include not just cars, vans, buses, light-rail, and subways, but options like e-scooters, passenger pods, and even passenger drones.
• Ground-based and flying autonomous vehicles will be incorporated in these transportation networks to provide passenger transportation and goods delivery services in well-understood urban settings.
• New business models (including subscription and advertising) will emerge to supplement today’s transaction-based models.
• Digital platforms with big data and advanced artificial intelligence (AI) capabilities will control fleet operations, manage transportation infrastructures to maximize their utilization and lower their operating costs, control autonomous and connected vehicles to ensure passenger safety, provide an exceptional transportation experience, and increase vehicle sharing in order to lower congestion.

The scenario described above will play out daily countless times in cities globally. It will become a reality because of a major consumer shift that is already unfolding, one that I expect to accelerate over the next few years.

A CONSUMER SHIFT THAT WILL DEMAND THREE MAJOR TRANSFORMATIONS

Urban consumers’ expectations regarding the characteristics of their daily ground transportation remain unchanged. They want transportation that is safe, convenient, affordable, and personalized to their needs. For many years, and particularly in many parts of the Western world, the requirement for safety, convenience, and personalization has been addressed by the use of personally owned vehicles. But as metropolitan areas have grown and some activities relying on transportation have changed (e.g., goods delivered to the consumer rather than the consumer making shopping trips), these consumers are starting to realize that the cost of overreliance on personally owned vehicles outweighs the benefits. They also are realizing that POVs do not completely address their expectations. For this reason, their approach to mobility is starting to shift to what will eventually become Mobility-as-a-Service, as illustrated in our scenario.

The consumer shift has profound implications for two industries and, by extension, for several others that interact with these three in the area of transportation. The automotive industry will need to transform itself to survive. Current generation on-demand mobility services companies will need to rethink their offerings and business models. And governments will need to grapple with the role they will play in next-generation mobility to meet their citizens’ transportation expectations and facilitate frictionless goods delivery. The consumer shift will drive the transformation to next-generation mobility, including Mobility-as-a-Service.

In the sections that follow, I will describe the consumer shift and the three transformations it will kick off.

The Consumer Shift: From Car Ownership to Transportation Access

For a variety of social, economic, and demographic reasons, consumers, and particularly those living in and around cities, are re-examining their transportation habits. The personally owned vehicle, which since the end of World War II has been a symbol of middle-class prosperity, provided freedom of movement, and enabled the develop...