Car sharing or ride hailing is set to become a huge industry during the next two decades.
Disruption has become the investors’ worst enemy over the past few years. Thanks to advances in technology, disruptive technologies are now gaining traction faster than ever, and venture capitalists are throwing money at start-ups, which is only accelerating the trend. Almost no industry is immune from disruption and the bottomless pockets of seed investors. The auto industry, which has been historically dominated by just a few players thanks to the industry’s high barriers to entry, is an excellent example of how technology is breaking down barriers to increase competition, innovation, and variety for consumers.
According to a new research report from Bank of America on the auto sector, over 1700 start-ups are currently trying to disrupt the automotive industry, and while most of these start-ups will likely fail, the ones that succeed could result in a tectonic shift across the industry.
Ride Hailing And Car Sharing Could Reduce Auto Sales By 436 Million Units
According to independent surveys, one car sharing vehicle can remove or suppress 7 to 25 privately owned vehicles. One ride hailing vehicle can remove an estimated 5 to 10 vehicles from the road. With over $35 billion invested in ride hailing start-ups cumulatively, it’s clear that this one industry is going to be a huge thorn in the side of automakers. Even though the industry’s premier companies Uber and Lyft, reported combined losses of $4 billion in 2016, the disruptive impact they’ve already had on the market looks set to be here to stay.
Two detailed recent customer surveys from the University of Berkeley (TSRC) in the US and Carplus in the UK demonstrate the direct impact carsharing has on reducing privately owned vehicles. The findings show that 3% of one-way car sharing members sold a car and didn’t replace it, compared to 14% of station based car sharing customers. Further, 9% of members claimed to defer purchase of a car due to one way car sharing, with 34% of station based car shares giving the same reason.
Overall, this data implies that one car sharing vehicle has the potential to directly remove 7 cars from the road through members selling their vehicles, and suppress a further 18 vehicle sales. Evidence of this trend is not just limited to UK consumers. In the US, a recent survey by Ipsos / Reuters (May 2017) showed that of those selling a car, 63% went on to buy another vehicle the 9% said they were selling their car to be reliant on using ride hailing services and a further 9% stated that they were becoming reliant on other forms of mobility services (public transport or cycling).
By extrapolating these trends, Bank of America’s analysts calculate that the current behavior change for ride hailing and car sharing services could lead to a foregone growth in the vehicle parc (population) of 158 to 436 million vehicles by 2030, that’s 158 to 436 million fewer vehicles sold by the major auto manufacturers.
It’s not just auto producers that will suffer. Along with the reduced number of vehicles required, the number of miles traveled in vehicles will also reduce. According to the TSRC report, as highlighted in Bank of America’s report, the net reduction in miles traveled per ride hailing and car share customer declined by an average of 610 miles per year when faced with the marginal pay per trip cost.
Aggregating of this reduction in vehicle miles traveled across the whole user base of vehicle sharing indicates a reduced vehicle mileage 45,000 miles a year. Aggregated and extrapolated through 2030, this trend could see a net reduction of 1.4 trillion miles per year traveled, a 9.5% reduction in vehicle miles traveled per year when considering the growing car population. All in all, Bank of America estimates this reduction in miles traveled could cost the entire auto value chain $1.4 trillion in revenue every year (using an estimated dollar per mile average).