Smart mobility

Transport is getting more intelligent.

Smart mobility

The world of tomorrow is still in the making and the opportunity to shape it has never been greater. As population increases and urbanization takes a stronger hold, new challenges will inevitably emerge. We believe smart mobility will transform the future of transportation and one thing we can count on – people will always be looking for the simplest way to get from where they are to wherever they want to be.

Long-term investments

To ensure access to resources and services for current and future generations, we must address environmental and social challenges. Our themes are aimed at investing in long-term solutions to these challenges.

What is smart mobility?

In short, it's the answer.

In order to preserve day-to-day functionality in the population-dense future, we will have to become smarter about the way we move – from how we power vehicles to how we drive and travel in them. Smart mobility means cleaner transport, smoother and safer commutes and more conscientious use. We estimate that by 2025, the annual addressable market of smart mobility themes will be around USD 400 billion, or 10 times today's size. Trends in smart mobility will be driven by three key developments: smart powertrains, smart vehicles and smart use.


Smart powertrains

Electrification has already begun but we expect growth to be exponential from 2020 onwards with battery full-electric, partly-electric replacing traditional pure internal combustion engines over time.

Key drivers: 

  • Increased regulations on energy use and emissions 
  • More cost-efficient and energy-efficient batteries
  • Improved material demand

Smart vehicles

The automation of driving is likely to occur gradually with increased connectivity and vehicle-to-vehicle and vehicle-to-infrastructure communication changing the features and expectations of automobiles.

Key drivers: 

  • More mandatory safety features 
  • Demand for connected cars
  • Improved navigation and machine learning 
  • Importance of data derived from vehicle use

Smart use

As private vehicle ownership stays less cost-effective and less efficient, we believe a change in the auto-usage model with the adoption of car sharing and robo-taxis, will happen over time.

Key drivers: 

  • Lower cost per mile
  • Shorter payback periods for car-sharing concepts
  • Increased use of driverless robo-taxis

Top 10 questions

See some loopholes? We've thought of them too. Get answers to some of the most frequently asked questions about smart mobility and related topics.

Smart mobility report

Download and read the full smart mobility report, a part of our long-term investments (LTI) series, for more information and analysis of topics related to smart mobility investment.

Smart powertrains

Current combustion engine technology has its limits. In the future, we believe tougher regulations on CO2 emissions and fuel consumption will lead to increased use of electricity in the form of hybrid, plug-in hybrid and battery electrified vehicles. This, coupled with improved and more cost-effective battery technology, will result in significant market growth. 

By 2025, we expect around 25% of new cars to be electrified and the battery value chain alone to be worth USD 100–215 billion (from low-double-digit USD billions today).


Driving the growth of smart powertrains

Increased regulations
 

Over time, regulation will force, or encourage, producers and consumers to switch to electric, particularly in China and Europe. Already, China is aiming for greater than 10% of all vehicles to be battery electric or plug-in hybrid by 2020, and 20–25% by 2025. The UK, France, Germany and potentially Norway also plan to phase out traditional combustion engines by 2040. Given these developments, we expect the growth in alternative powertrains will take place in China and Europe (which together should account for 80% of the market by 2025), while the US is likely to lag on the full-electric front.

Lower battery costs
 

Battery costs have already fallen and are expected to drop further. We assume a 30% fall in battery pack prices by 2025, resulting in what started off as a luxury car market trend becoming more mainstream. Moreover, as demand for graphite, lithium, cobalt, manganese and copper rise, auto and battery industries will be forced to look for alternative materials making investments in certain commodities or commodity-related sectors one of the most volatile parts of our smart mobility theme.

Weighing in

Risks

  • Relies on battery developments (e.g., lower costs, higher energy density and shorter charging times)
  • Requires consumers' acceptance and willingness to pay for additional costs of electrification technology
  • Hinges on the supply of raw materials or development of alternative technologies to improve production and cost of batteries
  • Necessitates improved electricity generation, distribution and charging

Rewards

  • Increasing to an estimated USD 75–100 billion in annual revenue opportunities by 2025 (source: UBS estimates October 2017)
  • Increasing to an estimated USD 100–215 billion in battery chain value by 2025 (source: UBS estimates October 2017)
  • Offers long-run business opportunities (e.g., via exclusive licenses) to build up charging infrastructure for a return on investment
  • Contributes to emissions reduction and with government regulations aimed at reducing emissions, demand for electric and hybrid vehicles will continue to grow

More on smart mobility


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Smart mobility report

Download and read the full smart mobility report, a part of our long-term investments (LTI) series, for more information and analysis of topics related to smart mobility investment.

Smart vehicles

The vehicles of the future will look very different from those of today – cars that receive real-time traffic updates, come equipped with sensors and cameras that significantly increase safety and send you text messages when they need their battery replaced. Technological developments will make this future possible while also opening new investment opportunities.

By 2020, we expect around 50% of all new cars to have basic autonomous equipment and the annual revenue market for advanced driver assistance systems to be worth USD 70 billion from approximately USD 10–15 billion today.


Driving the growth of smart vehicles

Demand for connectivity
 

The need for connectivity, be it smart watches or home devices, is already significantly transforming everyday life. The extension of this trend into the auto industry is inevitable. Integrating smartphones and watches for last-mile navigation in order to provide multi-modal mobility services is already developed. Improvements in vehicle and infrastructure connectivity will enable communication systems that warn other vehicles of accidents or traffic and interlink cars with traffic lights and speed restrictions. By 2022, we believe connectivity in new vehicles will reach a penetration rate of 100%, corresponding to nearly 50% of cars in use by then.

Improved navigation and machine learning
 

In August 2015, Audi, BMW and Daimler announced the joint purchase of Nokia’s HERE digital mapping business. Between them, using HERE technology, they generate 28 terabytes of data per day. And they are not the only ones. Bosch and TomTom are collaborating to pinpoint cars’ exact positions within a few centimeters. This is just the beginning. Combining sensors, cameras and navigation will enhance safety features like pedestrian prediction, traffic sign recognition, environment mapping and surround view. So the cars of the future won't just learn speedbumps and adjust shock absorbers – they might also know more than you about where you want to go and how to best get there.

Weighing in

Risks

  • Depends on how regulation of data privacy in relation to GPS sharing develops
  • Could be affected by setbacks or reports of serious autonomous-driving-related accidents resulting in the loss of consumer trust

Rewards

  • Increasing to an estimated USD 70 billion in annual revenue for advanced driver assistance systems, (source: UBS estimates October 2017)
  • Contributes to better urban infrastructure and reduced gridlock as connected vehicles will be easier to route
  • Improves driving safety with the development of software that analyzes traffic data and road conditions

More on smart mobility


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Smart mobility report

Download and read the full smart mobility report, a part of our long-term investments (LTI) series, for more information and analysis of topics related to smart mobility investment.

Smart use

Globally, there are more than one billion cars , driving a total of about 10 trillion miles each year. But the world is not getting any bigger. Urban areas are becoming more condensed and private car ownership is becoming increasingly inefficient. Car-hailing concepts like Uber or Lyft, and car-sharing concepts, wherein a single vehicle is owned and used by multiple people, have already seen substantial growth and this will only continue.

By 2025, 10–12 million cars will be used for car-sharing or car-hailing purposes,


Driving the growth of smart use

Lower cost per mile
 

The current model of private car ownership matches one or two people to one vehicle and leaves a lot of capacity underutilized. Car sharing and car hailing capitalize on this underutilization by allowing one car to serve many different drivers and passengers. We don't expect private car ownership to completely disappear but it will become more expensive and more inefficient for the average commuter. Higher capacity utilization from car sharing and car hailing will spread the initial price of a car over more miles. We think this, together with the growth of autonomous driving and electrification, should reduce the cost per mile by around 70%, ending up substantially below private car ownership.

Increased use of robo-taxis

The move toward robo-taxis (i.e., driverless vehicles) has already begun. Major auto companies have announced plans to increase vehicle automation to bring more robo-taxis onto the road and are partnering with companies like Uber to do so. We believe this idea will stick and as technology progresses, it will become more prevalent. Not only do driverless vehicles represent a more cost-effective strategy for car sharing and car hailing (with 100% of revenue ending up in the hands of company owners as they'll no longer need to rely on drivers) but it also could be even more cost-competitive for passengers than public transportation. By 2025, of the 10–12 million cars used for car-sharing and car-haling purposes, we expect some 1–2 million to be robo-taxis.

Weighing in

Risks

  • Could be affected by regulatory restrictions or changes of licenses
  • May face limitations imposed by overcrowded cities to limit individual traffic, including car-sharing concepts
  • Relies on development of driverless robo-taxis in order to become more profitable as car-sharing and car-hailing companies are currently forced to constantly reinvest in pricing strategies and drivers

Rewards

  • By 2025, 10–12 million cars will be used for car-sharing and car-hailing purposes
  • Represents significant cost savings for car owners and commuters
  • Reduces the number of vehicles in urban areas that are becoming increasingly congested
  • Results in a decrease in overall emissions levels due to optimized vehicle usage

More on smart mobility


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Stay in the know by subscribing to our newsletter that covers key market events and our most important reports.

Smart mobility report

Download and read the full smart mobility report, a part of our long-term investments (LTI) series, for more information and analysis of topics related to smart mobility investment.

Top 10 questions

See some loopholes?

We've thought of them too. Get answers to some of the most frequently asked questions about smart mobility and related topics.

1. What makes smart mobility sustainable investing?

We think our theme fits nicely into the sustainable investment framework as it addresses various aspects of sustainable transport. This includes improving safety, reducing deaths through autonomous driving, reducing local pollution through electrification and more fluid traffic flow, providing opportunities for social inclusion through autonomous driving and reducing resource use and pressure on road infrastructure through shared mobility.

2. Why do you predict battery prices will be reduced? 

Graphite demand for batteries is estimated to multiply to more than 800,000 tons a year by 2030 from just 13,000 tons in 2015 according to Bloomberg New Energy Finance's Long-Term Electric Vehicle Outlook 2017. Production of lithium, cobalt, manganese and copper is also expected to rise. Recently, raw material prices have soared – e.g., cobalt more than doubled to USD 55,000 per ton between October 2016 and October 2017. Increased prices will incentivize the auto and battery industries to look for alternative materials. Looking at the latest announced changes in chemistry, the shift from so-called NMC 111 batteries (1 unit of nickel, 1 unit of manganese, 1 unit of cobalt) to substantially cheaper NMC 811 batteries confirms that the auto and battery industry is trying to bring costs down. Investing in certain commodities or commodity-related sectors may be the most volatile part of investing in our smart mobility theme.

3. How can electrification growth be feasible given the current state of charging infrastructure?

While there has been a strong increase in the number of charging points in China, it is still in its infancy in Europe. In Norway, which has the highest electric vehicle penetration in Europe, recent press reports have illustrated that ongoing investments in charging infrastructure have not been able to keep up with the demand. For many countries, there is still a long way to go. This will not only require additional investments by governments, but also offer business opportunities in the long run (e.g., via exclusive licenses to build up charging infrastructure for a decent return on investment). Further opportunities may also lie in wireless-charging infrastructure for private households over time.

4. Why do you think consumers will get on board with the autonomous driving trend?

To increase safety on the road and reduce fatal accidents, we believe more features will be made mandatory in the future. Our ongoing discussions with companies suggest that the importance of advanced driver assistance systems will increase significantly over time, with its adoption exceeding the overall growth of the car market by far. Moreover, our discussions with auto manufacturers confirmed consumers’ willingness to pay for such comfort and safety features.

5. Will car-sharing / car-hailing concepts bring private ownership in the new-car market to an end?

No. While these concepts could lead to a substantial reduction in the global car park in the long run, it need not necessarily impact annual global car sales due to rising car usage and the resulting increased wear and tear of shared vehicles. Consumers might want to share in order to reduce costs, but they are probably less willing to compromise, i.e., they do not want to sit in an unkempt and run-down vehicle. After an initial rebalancing, we believe the absolute level of new car sales bounce back as replacement cycles will be shorter. We estimate the churn will be three to four times higher than private purchaser demand.

6. Will car-sharing / car-hailing concepts end private car ownership?

No. In our view, they will complement private ownership. In our recent discussion with Uber we noted that in London around one-third of all Uber trips start or end at a tube (subway) station, confirming the complementary character of the various forms of transportation. Furthermore, car-sharing concepts might also face potential bottlenecks during rush hour, which possibly not even robo-taxis could solve.

7. Is there one single car-sharing solution?

No. We believe we will see a combination of car sharing and car hailing, and even a combination of both concepts by the same provider. Private consumers may also become more engaged in peer-to-peer car sharing, i.e., renting out their privately owned cars during the day or while they are on holiday. Peugeot Group, in partnership with TravelCar, is already bringing to the US a traveler-to-traveler service, wherein car owners make their car available while they are on holiday.

8. Why should car sharing lead to substantially lower costs?

It’s about spreading fixed costs. Electric and autonomous vehicle technology costs are expensive and their high upfront battery-related costs are fixed, while variable costs are much lower (cheaper electricity vs. gas, 60–70% less maintenance costs). Utilization is key; higher utilization via car sharing and car hailing will spread out the initial price of the car over more miles. We expect that adding the replacement of the driver in the long run will reduce the payback period for car-sharing concepts to less than three years.

9. Is the traditional auto industry involved?

Yes. Auto manufacturers are also trying to grab the opportunity and several companies are actively engaged in this field, deploying different approaches to participate in car sharing. In our view, Daimler holds the leading position in car sharing (car2go). BMW (DriveNow; ReachNow) is also involved. Others have a different strategy and pursue strategic partnerships (e.g., VW / Gett, GM / Lyft, Toyota / Uber), or collaborate (e.g., VW / Zipcar).

10. Why is the auto industry collaborating with Uber and the like?

Because it makes sense. On the technology side, Volvo Cars runs a project with Uber to test autonomous vehicles. Also, Daimler and Uber announced in January 2017 that they are joining forces to bring more self-driving vehicles (robo-taxis) to the road. These alliances benefit both parties – Uber can command a price premium by offering premium brand vehicles, while Daimler can keep large car-sharing companies from running only non-branded (white-label) cars, which would leave traditional car manufacturers in the role of pure hardware provider.


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