BY CHRISTOPH MEYER
ME 302C - The Future of the Automobile - Mobility Entrepreneurship is a Stanford course taught by Reilly Brennan and Stephen Zoepf in Spring 2017. This course will feature a series of guest speakers across the spectrum of the mobility industry, with Pearl, Turo, and Lyft featured among others.
In order to provide an inside view to mobility enthusiasts not enrolled in the course, I will be publishing a weekly post on the CARS blog. These posts will feature a high level summary of a brief discussion with each of the guest speakers. While the content shared in the classroom will be kept confidential and off-the-record, I will interview them for 15-20 minutes afterwards. I may probe them on topics that were covered in class but the interviewee will have the discretion as to how they answer. The goal will be to learn more about their companies as well as delve into the speakers’ views on general trends in the industry and predictions of where things are headed.
Keep your eyes out for these weekly updates - full speed ahead!
Having worked extensively in the transportation and on-demand economy sectors, Ned shed light on a variety of topics during our conversation and in class. The first takeaway from our conversation was the fundamental role that vehicles serve in people’s lives on a daily basis. The use of cars goes far beyond a means of getting from point A to B — it becomes an extension of one’s living space and identity. In a post-ownership world, there will be a number of needs that will need to be addressed that are currently served by personal cars (storage being highest on the hierarchy of needs). Second, Ned emphasized a point that has come up in prior conversations. In a world focused on mobility services rather than transportation products, the direct relationship to the customer will be vital. Many businesses, OEMs in particular, will need to change their positioning if they want to cross the chasm. Finally, Ned highlighted how important the role of financing in this industry is and how it will need to evolve going forward. If vehicle fleets really are the business model of the future, financing will have a huge role to play in ensuring feasibility and scale.
How do you think about building a business on top of an existing business — particularly in transportation?
“When we first started, people viewed Breeze (ZephyrCar) as a derivative business and, as a result, thought it could only ever become a fraction of Uber or Lyft. Looking back, it’s clear you could have grown a large business built on top of the on demand economy. Market size wasn’t the concern. The problem was that we (and other businesses like ours) were dangerously reliant on businesses that were still in their hyper growth phase. These platforms can (and will) make business decisions that would be crippling to you, and it’s very difficult to project what the future holds when you’re reliant on another platform’s success.
One way to combat this risk is to establish a moat. We believed that both our technology and our operational processes were defensible and acted as a hedge against someone like an Uber or a Lyft from entering our space. It turns out that if what you’re working on is so strategically important to their platform that they feel the need to build it, they likely will. Supply was just too important to them, and they weren’t going to let the opportunity slip past them.”
How will auto financing change going forward?
“As consumer preferences change, auto finance companies will need to change the way they transact. Currently they approach their transactions as longer-term (multi-year). In a world with autonomous vehicles (AVs), they will need to shift towards shorter and more flexible time-frames: minute, mile, day, week, or month. It will be vital for these companies to create a new type of relationship with their customers and having the technology to do so will be paramount.
If cars aren’t personally owned in the future and we move towards a fleet ownership model, the whole auto financing model changes as well. There isn’t the same focus on consumer credit or the securitization markets. The emphasis will be different for fleets and it will be a function of utilization of the vehicles rather than credit performance.”
How do you see the evolution towards a post-ownership world unfolding?
“Ultimately a majority of US metros will move into this post-ownership world. I don’t think this change will happen drastically in the next 10–15 years, though. I think it will take longer. The change in behavior that is required to move away from personal ownership is considerable as well. People are very familiar with having their own vehicles. They are used to having a trunk and storing their things. The car has become an extension of the closet or living room. It’s going to be a big mental shift to move away from that. However, if AVs become ubiquitous, easily accessible, and the price of getting around really does decline as dramatically as predicted then people will react to incentives and shift away from personally owning cars very quickly.”
How do you think the car rental industry will change going forward?
“Rental car businesses are under incredible pressure from ride-hailing. The demand is hurting because substitutes are more widely available. Residual values of their vehicles are also dropping which is hurting their core economics. As a result, there is a lot of pressure and scrutiny on these business models. Long-term, Uber and Lyft will eat that business with the exception of event-driven rentals. Use cases that are longer than a day or require a change of location don’t make as much sense with Uber or Lyft. I also think that curated last-mile delivery services, such as Lugg, eliminate some of the known use cases for a ZipCar, etc. It doesn’t make sense to rent something short-term, even to go shopping or pick something up, if there’s a service that can do that for me.
However, rental car companies have built extensive infrastructure that will become incredibly important in an autonomous world. These companies employ thousands of people, recondition and service vehicles, and own parking lots. They have scale which will be important for AV operations.”
How do you think the shifts toward autonomy and electric affect Canvas’ business model?
“Our business model will certainly change. However, we are building a platform that is versatile. Our aim is to build things that are meaningful today for customers but also support the transition to autonomy. The underlying technology and infrastructure will the offer same value to customers even if our product looks different.
In terms of electric, I am convinced that this technology will take over in the long term. But, this will require significant infrastructure and networks. Going from a gasoline-powered to electric-power world will require a lot more than battery development. Even though our company does not think about this transition a ton right now, I don’t see how EVs won’t be dominant eventually. That being said, it is interesting to see customer preferences right now, in a low-fuel-cost environment. People are buying a lot more trucks and SUVs, which might reveal their true preferences.”
Will people own autonomous vehicles or rent them?
“I think AVs will be almost exclusively fleet owned. They will be consumed like Uber or Lyft rides are today. There simply needs to be a demand network — I’m not sure if that’s Uber, Google, or a Ford/GM… Even in an AV world, there will always be pockets of personal ownership because people value convenience so highly that they will pay the additional cost. If they value the ability to personally store their goods or always have a vehicle at their disposal, they will pay the price.
Even though I believe in a future world where there are fleets of AVs, I don’t see a world where AVs operate as independent economic entities, potentially on the blockchain. I also don’t see a world where individuals make money off of their personal vehicles. Maybe this will happen in the interim, such as with Tesla’s program, but I don’t see it in the long term. It will skew to commercial and fleet activity who can operate and support that model most efficiently.”
What are the biggest obstacle for OEMs to become mobility companies?
“There are two key obstacles for OEMs to become mobility companies.
First, the mindset needs to change. To become a mobility company you have to constantly pursue creative products that consumers want. You need to be very nimble in order to adapt to customer needs.
Second, the technology requires a big change. These companies have to create consumer facing and back-end technologies that don’t currently exist. Shifting from a world of personally-owned vehicles to AVs will require a different underlying technology infrastructure.”
What is the biggest misconception in the automotive/transportation industry?
“I’m biased, but there is an under-appreciation for the role of auto financing in the space. OEMs are very reliant on their financing arms to sell vehicles. As we think about shifting from personal ownership to AVs, there is so much underlying infrastructure that needs to change. That includes technology, but this shift will also affect the way they think about financing their own businesses.
Perhaps the biggest hurdle that OEMs face in their transition to mobility companies is that they need to be able to support a direct-to-consumer relationship. They’ll need to offer a menu of mobility products and their core focus will need to be meeting shifting customer demands. Arguably, more needs to change on the transacting side than on the manufacturing side. Getting AV technology right is obviously key, but transacting with consumers directly is going to be vital in making the business models of the future work.”