In A Shared Economy, Who Will Own Cars? - Automobility
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In A Shared Economy, Who Will Own Cars?

Forbes Asia, January 21, 2018

by Russell Flannery

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Shared mobility can mean less traffic, cleaner air and better public transit

Cracks in the business model that has guided the auto industry in the past century are becoming more visible by the day.  Individuals in the future are less likely to buy and own their own cars; they are more likely to share and rent them. Vehicle occupants aren’t as likely in the coming years to be behind the wheel themselves, and, as a result, may be more indifferent to snazzy brands. The appeal of the shared model will get a big boost by the increasing ease of digital payments.  The “closed model” of an auto industry dominated by several giants is giving way to one in which Internet businesses will play a bigger role.

China businesses are ahead of the world in key segments of that evolving “shared industry landscape,” explains 30-year auto industry veteran Bill Russo, who today is the founder and CEO of Shanghai-based consultancy Automobility.  Among them, with its registered fleet of 20 million cars in China and over 300 million registered users, ride-hailing platform Didi Chuxing is far ahead of U.S. counterpart Uber; Mobike and Ofo, buttressed by deep-pocketed investors, are also ahead of anyone else in the shared bicycle business. China mobile payments and finance businesses, led by Tencent and Alibaba, also operate on a much bigger scale than overseas rivals. Even smaller Chinese search leader Baidu is among several international giants, including Nvidia, that are investing in the technology that will operate the cars of the future.

“The auto industry doesn’t want to call itself a transportation services industry,” said Russo in an interview in Shanghai this weekend. “They are being pulled in by the Internet industry’s close relationship with individual consumers in China,” which is home to the world’s largest auto market.  “Amazon and other Western Internet companies operate very different business models than the Chinese internet giants Alibaba and Tencent, and these are the companies that are investing in the future” of mobility and transport, he said.

One big unresolved question about the future, Russo said:   With consumers opting for transport as a service, who is actually going to own the industry “assets” – cars and the like — and maintain them?

One possibility could be today’s big auto dealers.  In a business that will increasingly be brokered by digital companies and in which individual car owners will be a smaller percentage of users, the auto dealers could be “an endangered species,” said Russo.  Another possible group of owners are the “mobility service providers” such as Didi. Didi has ties with millions of drivers, and could try to lease out vehicles, too.  It has already said it will invest in charging stations for electric vehicles.

Another possibility, however, is that automakers will move into owning and managing fleets of their own vehicles, which in turn would then deployed by mobility service providers.  An example of that happened last week: Geely Zhejiang, the China owner of Volvo and a domestic Geely brand, kicked off 2018 with word that it had raised 1 billion yuan, or $154 million, in financing for its electric vehicle ride-sharing platform, Cao Cao, giving the two-year-old business a valuation of more than 10 billion yuan.  Cao Cao currently has a network of 12,000 eco-friendly, Geely branded cars.

“I think it’s a really smart move,” says Russo. “It allows Geely to recast itself into service (company) and sell vehicles to its own branded mobility service platform.”   Geely, headquartered in the eastern Chinese city of Hangzhou and led by billionaire Li Shufu, is also likely to be gaining more financial payments savvy and firepower through its investment of $300 million to take control of Denmark’s Saxo Bank last year.

And yet another possibility when it comes to fleet ownership: None of the above. “There could be a new class of professionally managed fleet services company” that emerges in the space between the manufacturer and the mobility services provider, says Russo.  In any case, it looks to be wild ride ahead for the transportation industry, as well as its consumers and investors.

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