Yes, if they enable future growth in market share in Asia. Over the next ten years, the explosion in urban populations in Asia will likely create the biggest opportunities for the industry. New integrated transportation systems based on automation advances will transform the movement of residents and goods throughout the world. The best opportunities with automated vehicles in the next ten years will likely be with heavy-duty trucks. Electric vehicles with models being produced by every manufacturer will slowly enter the marketplace, but they likely remain loss leaders for the next ten years. CEOs of multinationals involved in transportation will earn their pay for making so many major global decisions in the face of the many political, economic, cultural, technological, and competitive uncertainties. Multinationals with strong positions in China will be in the best positions to take advantage of future opportunities
RECENT SIGNALS OF CHANGE
Recent signals of change in how people and goods are moving around include the following:
Demand for Mobility
- The world’s growing population continues to move to urban areas. In 1950, 0.7 billion people, or 30 percent of global population, lived in urban areas. By 2015, 4.0 billion, or 55 percent, lived in urban areas. If current trends continue urban journeys that already account for two-thirds of all miles traveled by people will increase by 200 percent in 35 years (by 2050). “Transport as a service: It starts with a single app,” The Economist, October 1, 2016, p. 58. In the developed world, the growth of urban journeys is hardly growing; in developing economies, it’s exploding.
- Ford Motor Company estimates the global car market is worth $2.3 trillion per year, while the market for transport services (car sharing, mass transit) is $5.4 trillion per year. “Transport as a service: It starts with a single app,” The Economist, October 1, 2016, p. 59.
- In the United States, the percentage of people aged 20-24 with a driver’s license fell from 92 percent to 77 percent between 1983 and 2014. “Transport as a service: It starts with a single app,” The Economist, October 1, 2016, p. 59.
Automation and the Mobility of People and Goods.
- Tech companies and traditional auto and auto-parts manufactures are scrambling to develop the new hardware and software systems of future automated and self-driving vehicles. The competition is widespread among tech firms like Alphabet, Uber, Mobileye, Intel, Infineon, and Apple and among carmakers and suppliers like BMW, Ford, Volvo, Delphi, ZF Friedrichshafen AG, and Tesla. Tech firms are partnering with carmakers; tech firms are going it alone; carmakers are going it alone. It’s intense.
- Waymo LLC, the self-driving car group of Alphabet Inc., is developing a sensor-system package for automakers that includes an 360 degree-view radar, eight vision modules, and three different types of Waymo-built lidars. Waymo’s testing of sensor and software systems reached 2.5 million miles over the past 8 years. Waymo plans to have driven 3 million miles by May 2017. That’s a lot of data being gathered.
- Technology is also changing how people and goods move around urban areas. A number of new concepts are being tested for using technology (apps) that mixes and matches a variety of public and private means of transport. Helsinki is currently testing an app from MaaS Global (Mobility as a Service) to do just that. Around 70 percent of residents of London use apps with live travel information for movement planning.
- Transport-as-a-service is rapidly expanding around the world. New technology companies like Uber, Lyft, and Didi Chuxing already provide e-taxi services in most of the world’s cities. Didi Chuxing has 300m users in 400 cities. Besides taxi-competition, those same companies are using their technology to expand into car sharing, carpooling, and ride sharing with cars and mini-buses.
- Uber announced in January 2017 that it will start releasing anonymized ridership data from dozens of cities in which it operates. Urban planners can use the data to analyze traffic patterns and make better decisions about urban infrastructure.
- Car manufacturing is a global, yet local enterprise. Car manufacturers are continually looking to lower the costs of production by building plants where wages are significantly lower, work forces are more productive, or where countries have negotiated free-trade deals with other countries. Wages in Mexico are significantly lower than in the United States, on average 85 percent lower, and Mexico’s car manufacturing has been growing steadily. “Trump’s Auto Bluster,” The Wall Street Journal, January 7, 2017, p. A12. Mexican light-vehicle production increased from a little over 2 million per year in 2008 to about 3.5 million per year in 2016. A little over 75 percent are shipped to the United States. “Build Them and Ship Them,” The Wall Street Journal, January 1, 2017, p. A5. Still, about 82 percent of US automakers’ vehicle production remains in North America.
- Many politicians are advocating a more nationalistic economic system, challenging the current economist mind-set that globalization is natural and good for everyone. But many perceive the costs of globalization can be significant at the country level. After China’s entry into the World Trade Organization in 2000, it’s estimated Chinese imports eliminated 2 million jobs in the United States with no equivalent increase in US jobs linked to exports to China. Greg Ip, “We Are Not the World,” The Wall Street Journal, January 7, 2017, p. C2. At the same time, China has generally violated the WTO spirit by discriminating against foreign investors and products.
- The backlash against globalism in developed countries may not be economic but cultural. A large percentage of each nation believes a commitment to national identity will bring more long-term benefits than a commitment to an uncertain global system. They are upset about immigration and terrorism, and are worried about their economic future. They have no faith in global institutions. In 2016 two researchers at the London School of Economics noted a growing migrant population rather than rising unemployment made British voters more likely to vote to leave the EU. As President Obama noted after the 2016 presidential election that, “for the majority of the American people, borders mean something.” Greg Ip, “We Are Not the World,” The Wall Street Journal, January 7, 2017, p. C2.
- According to the Pew Research Center, at the end of 2016 around 25 percent of Republicans said free-trade agreements were good compared to approximately 55 percent who thought so at the beginning of 2009. Approximately 55 percent of Democrats thought free-trade agreements were good in 2016 compared to slightly less than 50 percent in 2009. 49 percent of the US general public say that US involvement in the global economy is a bad thing compared to 44 percent who say it’s a good thing. Josh Zumbrun, “Economists Grapple With Public Disdain,” The Wall Street Journal, January 9, 2017, p. A2.
- Chinese companies dominate the sales of electric cars worldwide. China electric car production grew by 50 percent in 2016 to 300,000. Outside of China, electric-car production was 260,000. The Chinese cars are small and generally have a poor-quality reputation. So far no market leaders in China have emerged. Primarily Chinese companies are producing electric cars in China because the government only subsidizes local companies and foreign manufacturers have been reluctant to share their technology with local venture partners. The government is trying to force foreign carmakers to participate in making electric cars in China through a new carbon credit-based trading system that will motivate carmakers to increase production of electric vehicles over the next five years. Anjani Trivedi, “China Shaky on Electric Vehicles,” The Wall Street Journal, January 6, 2017, p. B12. Volkswagen, already well established in China with partners SAIC Motor and FAW Group, is exploring a venture to make electric cars with a state-run company, China Anhui Jianghuai Automobile. General Motors plans to launch alternative-energy cars with its partners, SAIC and Wuling, by 2020. While Nissan Motor and its partner introduced an electric car in China in 2014. Rose Yu, “Volkswagen Is in Talks to Make Electric Cars in China,” The Wall Street Journal, September 8, 2016, p. B7.
- All the major German manufacturers, including Daimler, Volkswagen, and Porsche, are introducing electric cars by 2020. The current auto market leaders all appear to be targeting Tesla.
- The commercialization of automated heavy-duty trucks is proceeding fast—at least at the pace of automated cars. The return on investment opportunities are clearer in trucks than in cars, and driving on highways is much easier to automate than driving around cities. Self-driving trucks are already used in mines. All the big truck makers, including Volvo, Daimler, and Iveco, are working on driverless trucks.
- German vehicle manufacturers are beginning to dominate the North American heavy-duty truck market. Daimler already owns Freightliner and engine supplier Detroit Diesel, giving Daimler 40 percent of North American truck sales market. In September 2016, Volkswagen AG acquired a 17 percent share in Navistar, a US-based truck maker. Navistar currently has about 11 percent of the North American market. The total North American market is around $30 billion per year.
- Daimler announced in September a new venture to develop drones for its new electric delivery vans. Daimler purchased a minority stake in the US startup Matternet to help enable the venture. Amazon.com, China’s JD.com, and Germany’s Deutsche Post DHL are attempting to use drones in package delivery, while the US Postal Service is considering using drones from delivery vehicles as well.
- Data from the American Transportation Research Institute shows insurance costs for truckers in the United States increased by almost 30 percent in 2015, compared to an increase in driver wages of 8 percent, and a decrease in fuel costs of around 30 percent. The number of accidents is declining, but the payouts for accidents have increased substantially. “Insurance Costs Soar for Truckers,” The Wall Street Journal, October 15, 2016, p. A1.
PLAUSIBLE DEVELOPMENTS WE MIGHT SEE IN THE FUTURE
The transportation is rapidly changing around the world. There are many large uncertainties about how people and goods will be moving around in ten years.
Urban developments in ten years:
- In developed economies, only modest changes will occur between urban and rural populations numbers. In a sense the current divide between urban and rural populations will become permanent.
- In developing economies, including China, the development of urban settlements will continue to be dramatic.
Mass transit in ten years:
- A number of new mass transit system projects will start in developing countries.
- In developed countries however very few new large systems will be built. Most mass transit investments will in upgrades and retrofits and buses.
Global demand for cars in ten years:
- There will be an explosion in demand for small cars in Asia to serve rapidly growing urban populations.
- However, the demand for new cars in developed economies could begin to slowly decline. Electric cars won’t make up the difference at all.
Transportation services in ten years:
- Transportation services are going to expand in both developed and developing economies, stimulated by big data, new transportation-as-a-service business models, and urban mobility needs. Great opportunities will be realized.
- Families will use third-party transportation services in lieu of owning a second car.
Automated vehicles in ten years:
- While driverless vehicles won’t be a reality in ten years, heavy-duty trucks with driverless capabilities could be implemented. These trucks with attendants could be self-driving on highways. The attendants would take over in an emergency and when not on highways.
Electric vehicles in ten years:
- It’s unlikely electric vehicles will become mainstream and have any real impact on the use of petroleum around the world.
- Most electric vehicles will be made and sold by Chinese companies.
- And most of them will be small, particularly in developing economies.
- The Chinese companies could eventually dominate the foreign markets for new energy vehicles with their much lower-cost small models.
- Electric cars will likely remain a niche product in North America, primarily purchased by those with high disposable income.
Vehicle manufacturers and transportation services providers in ten years:
- But the industry is changing rapidly. Demand is changing significantly; new competitors are entering; new technology is required; and new transportation markets are emerging.
- While manufacturers will continue to diversity globally, parts and vehicle manufacturing centers will remain close to large demand areas. In other words, vehicles sold in the United States will generally be built in the United States, Canada, or Mexico.
- Traditional manufacturers will compete in transportation as a service markets, but will likely find it unprofitable.
- The industry will remain relatively fragmented with many international manufacturers and models.
- A shakeout of existing large manufacturers will occur.
- German manufacturers have the potential to become even bigger.
- Who could buy Fiat Chrysler?
- Some Chinese manufacturers will become very large because of Chinese market demand and demand in other developing countries.
- Some Chinese companies could begin to challenge international companies in developed economies.