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?
Production and demand of graphite, lithium, cobalt, manganese and copper is expected to rise and with it the cost of these raw materials – over the past two years, raw material prices have soared, and now represent around 50% of battery cell costs, or around one-third of the overall cost of a battery pack. In our view, this will nudge the auto and battery industry to seek out alternative technologies and materials, not least due to supply concerns. Looking at the latest announced changes in cathode chemistry, the shift from so-called NMC 111 batteries (1 unit of nickel, 1 unit of manganese, 1 unit of cobalt) or NMC 622 batteries 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 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.
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 and mobility-as-a-service.
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.