The urban transport sector is on the cusp of great change, thanks to a confluence of new technologies. From self-driving cars, to Mobility-as-a-Service (MaaS), to shared mobility and convenience apps – the potential is truly extraordinary.
“MaaS is the concept of being able to use mobility tools to buy a number of different trips on a variety of transport modes, but in one place,” says Pietro Strada, managing partner at Silverpeak. “You could leave home in a taxi, then jump on a tube, take a train then finish your journey with another taxi. That’s four separate trips, in four different vehicles, which you pay for four different times”.
“But with MaaS, you would simply pay once for the entire journey.”
With this technology starting to get deployed in major cities, there is a very clear need for more investment, innovation and regulation in the urban transport market.
The world is becoming increasingly urbanised. In 1970, just 30 per cent of the population lived in urban areas. This figure had risen to 54 per cent by 2014, and the UN estimates that a massive 66 per cent of the world’s population will live in cities and urbanised areas by 2050.
Meanwhile, concerns around air pollution are growing, emphasising the need for clean technology in densely populated areas. According to the World Health Organisation, 90 per cent of people living in cities are not breathing clean air, and we know that transportation emissions are responsible for more than a quarter of all greenhouse gases.
We are also more connected now than ever before, thanks largely to the advent of affordable mobile technology. There are five billion mobile phone users in the world today – that’s 68 per cent of the total population. By 2023, it has been predicted that one billion of these mobile users will have a 5G subscription, which would allow them to connect to the internet anytime, anywhere.
As a result of these developments, the urban transport market is primed for disruption. This could come in many different forms, from MaaS; to the advent of autonomous driving; to the wide adoption of shared mobility services.
Silverpeak has analysed data on financings and acquisitions in this market, and it has concluded that the next few years will see a sustained level of investments and M&A activity.
1. Mobility as a Service (MaaS)
At its core, MaaS is a mobility distribution model which brings together multiple services in one place, allowing the user to streamline their journeys by planning and booking trips via a single platform.
Across Europe, a number of integrated mobility services are being rolled out, from UbiGo in Sweden, to Qixxit in Germany, and Whim in Finland. Also, car manufacturer Daimler has gotten in on the act, with its Moovel ride-booking service, which is currently being tested in the U.S. and Europe.
There is still some way to go before MaaS becomes mainstream, but the early signs are promising.
“We’ve done a number of deals in different areas of what we are now calling the mobility sector,” says David Ford, director at Silverpeak. “It’s relatively new right now but we think there’s a lot more activity that’s going to go on.”
Transit information providers have raised hundreds of millions of dollars in investment over the past ten years, underlining the enormous value embedded in these services. Germany’s GoEuro, for instance, has raised $296m since it was founded in 2012. It provides a multi-modal search tool that compares and combines rail, car, bus, train and aeroplane routes and prices
In some cases, transit information providers have already started to take the first steps towards becoming fully-fledged MaaS providers. Public transport tracking app CityMapper is using the travel data it gathers from millions of user-planned journeys to run an on-demand, shared rides service in city areas that the data has shown to be underserved by existing transport links.
While these developments are still very much in their infancy, there is a clear first-mover advantage to be won, both in the UK and across Europe.
“There is a lot of activity in the MaaS space,” says Matteo Pozzi, director at Silverpeak. “Many companies are raising significant capital to position for the dramatic anticipated growth in revenues.”
2. Autonomous vehicles
Mass-market self-driving cars have yet to become a reality, but some huge strides have been made in the area of autonomous vehicles.
At Oxbotica – an Oxford University-based firm which is run by professors from the Oxford Robotics Institute – self-driving software is already being used in cars, trucks, forklifts, pods, shuttles, mining and construction vehicles.
“Their technology is amazing – world class,” says Paddy MccGwire, managing partner at Silverpeak. “Last year, they were approached by a huge international car company and another tier one supplier, but they found that these deals would never get to completion. They realised they needed somebody to help them get from A to B, so we started to work with them in March 2018, and five months later we completed a £14m funding round.”
Since then, Silverpeak have helped them raise another round in July 2019, which will be used to accelerate Oxbotica’s growth plans in the coming years. And while we are still a few years away from self-driving commutes, MccGwire points out that on private turf such as airports or docks, this technology can be rolled out far more quickly.
“For instance, one airport found that they could cut the number of vehicles air-side by a third if they were autonomous,” says MccGwire. “And that’s everything from the bus to bring people to baggage handling, to the tug that pushes aeroplanes. So, it’s exciting and there are quite a lot of different benefits for what vehicle automation can do.”
3. Shared mobility
Ride-hailing apps already take up plenty of space on the average smartphone, and the shared mobility market is only just getting started.
Since the Uber and Lyft IPOs, in the ride-hailing sector alone, nearly $70bn (£57bn) has been raised between the top 4 companies: the American players Uber and Lyft as well as their Asian rivals Didi and Grab. Meanwhile, established brands such as GM and Toyota have begun investing in new car-sharing technologies from the likes of Turo and Getaround, with a view to expanding their business model to become service providers as well as vehicle manufacturers.
According to Silverpeak’s research, 2019 investments in ride-hailing, car sharing, and carpooling services rose to an all-time high of $21.7bn. These figures reflect a demographic shift in how transport is viewed in urban areas.
“Millennials in particular live more in cities and buy fewer vehicles,” explains Strada. “They are more likely to rent a vehicle, use a rideshare scheme or take public transport and that’s threatening the business model of the automotive OEMs.”
In fact, in preparation for the “death of car ownership”, BMW and Daimler have pooled their mobility assets into five new joint ventures (now three) to give them additional scale and create vertical mobility powerhouses focused on urban areas.
Scooter sharing and bike sharing schemes have also been gaining traction in the investment community lately. Over the last five years, approximately $9.4bn has been invested into bike and scooter sharing or rental schemes. China is very much in the lead on this trend, with the top three Chinese players raising a significant proportion of the combined fundraising in the market.
Uber, Didi and Lyft have already acquired some of the most promising bike-sharing and scooter-sharing innovators, in a clear indication that urban transport is going green. However, without regulation, this has led to unfavourable unit economics due to a large proportion of bikes and scooters getting damaged, resulting in players such as Ofo verging on bankruptcy.
“Car ownership in urban areas is going to die sooner than outside of urban areas where people need their own vehicles,” adds Strada. “We’re still tens of years away, but once the trend becomes mainstream it’s obviously too late to take a position. You want to be prepared and starting much earlier than that.”
“There are a lot of different players who want to get into the mobility sector for a lot of different reasons and hence, there’s likely to be a lot of consolidation and activity in this space.”
Chinese market dynamics and the future of urban transport
China is a market that is experiencing its own dynamics and in some areas is leading. As well as taking the lead on bike-sharing and scooter-sharing innovation, China is poised to become a global leader in the autonomous car market. Since 2015, China has spent at least $24bn more than the US on 5G technology – an essential component for autonomous vehicle manufacturing. Both Alibaba and Baidu are in the advanced stages of testing self-driving cars, and Alibaba is even looking into the creation of ‘smart roads’ which feed data to cars as they travel.
“China is investing in a lot of AI at the moment,” says Strada. “But there is not a lot of transparency in China. It’s hard to discern what is being done for political purposes and what is being done for economic value.”
Having said this, Strada believes that everyone can learn from China’s commitment to innovation in the urban transport space. And one thing is certain – the urban transport landscape is changing fast.
“We expect that over the next five to ten years, there is going to be sustained activity in investment acquisition in the automotive sector where the traditional players will either have to team up with technology companies that provide a piece of the new infrastructure or they will face competition from new entrants who have completely different business models,” says Strada.
“There is so much change happening in this growing area. Players cannot afford to stand still.”