You do not need a car, you need its function

Sat 13, 2019 / By Fabrice Sorin

The basic version of the Tesla model 3 mid-scale sedan electric car for our age is here for the sticker price of 35 000 USD (45 000 EUR), before government incentives.

This is a landmark achievement for the Californian company in a notoriously competitive and capital intensive industry.

Tesla’s mission to accelerate the to accelerate the world’s transition to sustainable energy seems not that far-fetched after all.
Looking at the major auto makers flurry of electric vehicles unveiled at the Geneva moto show in March, it appears that Tesla already succeeded in shaking the established main auto players and is pushing them to answer a key question:

Can they produce equal or better vehicles at similar price points?
The consumers will find out as early as 2020 it seems.

Taking a step back from Tesla’s achievements, and shortcomings, of recent years, more important questions are barely asked to established and new entrants auto manufacturers by car enthusiasts and business analysts alike:

  • What if urban dwellers do not need to own a car anymore?
  • What if we could access better personal transportation services without the burden of large personal capital expenditures and rapidly depreciating vehicle assets implied by car ownership?

A look at the European urban transportation context provide interesting elements of answer.

An ineffective transportation paradigm.

A growing European urban population impacts transportation infrastructure development and translates into exponential increases in mobility needs (1).

Such needs are arguably not well served by the current urban transportation paradigm of personal mobility based on motorised vehicles under private ownership (1;2;3).

Spatial limitations, road capacity constraints, congestions and negative externalities, most notably GHG and particulate matter emissions are increasingly central issues for urban planners, regulators and city dwellers alike (4;3).

While the average car utilisation ratio is as low as 4 %, with an occupancy ratio of 1.5 seats, European households spend 20 % of their total expenditure on this private vehicle transport mode (3;5). By all metrics the current personal transportation paradigm is an inefficient system well overdue a substantial ‘upgrade’.

A variety of factors point to a new, more effective, customer centric urban transportation paradigm switching from a rationale of transport modes ownership to one of transport services consumption.

Figure 1 summarizes this urban transportation evolution and possible system future.

Figure 1

Owning a mode of transport or using mode(s) of transport services?

To own or to use, that is the question….

The circular economy framework provides some elements of answer.

The circular economy challenges the established linear production and consumption economic model by proposing an economic system intentionally restorative of natural and social capital in which resources and materials circulate in regenerative production and consumption cycles (28).

Walter Stahel’s ‘Performance Economy’ is one of the circular economy framework core school of thoughts.

The Performance Economy posits that the prevalence of goods’ services over goods ownership create value through production and consumption primary resource use decoupling while incentivising quality jobs creation and production, processes innovation (26).

Applying this core principle of usage over ownership to the current personal transportation system leads to disruptive innovative transportation propositions such the MaaS concept, short for Mobility As A Service.

MaaS Alliance defines the concept’s value proposition as “the integration of various forms of transport services into a single mobility service accessible on demand” (6:2).

It is an open system that integrates the infrastructure, transport providers, operators, and regulators to provide a user centric, on-demand transportation search, reservation, payment and service delivery solution (6;7).

The urban modes of transport choices have substantially increased in recent years, particularly with on-demand private hire car, 2 ways and one-way bicycle rental in major and secondary European cities complementing, and sometimes cannibalising, established public transportation infrastructures.

This increase in transport modes choices remain however under a silo approach.

Public and private transport services are delivered through various separated verticals such as taxis, fixed schedule coaches/bus/metro/trains/trams, car clubs, car rental and pre-booked private transports (15;16).

Figure 2 illustrates this increase in transport mode choices and innovations through separated verticals.

Figure 2

(Source: 15)

The MaaS concept proposes a disruptive system level innovation.

It switches the transportation paradigm from a silos approach to a cooperative, integrated, multi-stakeholders approach offering, on-demand, multi modal transportation services as highlighted in figure 3 (8).

Figure 3

(Source: MaaS Global 2017a)

As mentioned above, the MaaS concept encourages various types of circular economy inspired innovations.

  • The concept relies on open innovation principles with the sharing of each transportation stakeholders’ search, booking, operation data feeds and systems interoperability at its core (8;9).
  • It provides a service concept innovation with customer centric mobile applications acting as the key on demand, mobility consumption enabler (5).
  • The much higher transport modes tangible assets (vehicles) utilization, and load factors, implied by the concept changes the rationale for vehicle producers.
  • It incentivizes the production of vehicles with longer and multiple product life cycles, in turn driving material, design, products and production processes innovations.
  • Established and profitable circular economy remanufacturing business models, cycling and cascading materials in numerous “production TO consumption TO production” loops, become central to vehicle producers value creation (10).
  • Additionally, higher transport modes asset utilization results in positive externalities, lowering GHG emissions (Co2, particulate matter) per travelers, thus improving transport users and city dwellers air quality.
  • The electrification of private and public transport vehicle reinforcing such positive externalities.
  • Vehicles producers’ business model innovations are encouraged to evolve from the established single transaction and products ownership model to fleet, leasing management and vehicles assets / materials repair, reuse, remanufacturing under product-service system models (11;12).
  • The consumption of shared, multi-modal, on-demand, mobility services drive public and private transport operators’ services innovation.
  • Car sharing, one-way and two-way car/bicycle/scooter, etc… rental, crowdsourced shared transport, are examples of transport products’ services innovations encouraged and enabled by an on-demand, user centric mobility offer (13;14).

Under a mobility as a service concept, the whole urban transportation ecosystem stakeholders’ relationships and dynamics are changing.

The current transport mode siloed ownership model maximizes value for a narrow set of stakeholders (car manufacturer, car owners).

To the contrary, an integrated multi-modal, on-demand transportation ecosystem falls into a system thinking approach, aiming at optimizing value for all stakeholders (various public and private transport mode manufacturers / operators, consumers, city dwellers, regulators, infrastructure providers).

  • From the urban planning, regulatory and public transport perspectives the MaaS concept promises lower public transportation distribution and operating costs while embedding the public transport mode as the backbone of the ecosystem thus encouraging a low carbon, effective, affordable transportation service offer to the public (6).
  • In exchange, the infrastructure providers and regulators need to open their services distribution to market based private operators allowing the public actors to focus on infrastructure development and service level setting and monitoring (17).
  • Private operators need to open their system, pricing and customers data to participate openly in the mobility marketplace (6).
  • Information technology, logistics, payment providers play increasingly important roles as enablers of the mobility market through traffic, customers, data, management and transactions processing as highlighted in figure 5.
  • The interoperability, key for a mobility as a service concept deployment, relies on all stakeholders’ access to open, real-time and high-quality data from all actors of the value chain.
  • This requires multi-stakeholder cooperation on regulations, service level agreements, data management, product service and customer service delivery (17;6).

Figure 4 details such novel stakeholders’ interactions.

Figure 4

MaaS rationale, arbitrage and opportunities.

According to an ERTICO study (21), by 2025 the typical European urban dwellers will have vastly different transportation needs and expectations:

  • 37% will use an electric car
  • 32% will use a self-driving car
  • 51% will decide where to live and work based on transport
  • 50% will use one app for all transport needs
  • 41% will not use cash to pay for transport

With a projected 1 trillion global USD revenues by 2030, the urban mobility segment presents vast business opportunities for all current and future transportation actors and is rapidly gaining traction (21).

The open innovation principle encourages more cooperative relationships between the mobility system’s established actors and enable new, innovative entrants to participate, offering broader transport choices to consumers (12).

Winners and losers will emerge from these products, services and system level innovations.

Some possible development scenarios involve the integration of regional ground transports modes to and from the urban ecosystems for personal and commercial mobility creating regional and potentially transnational mobility as a service systems (6).

The incorporation of passenger air, cruise, rail industries present substantial disruption and opportunities potential especially for Tour operators, Travel agents and Business Travel management companies.

These travel operators value propositions rely to a great extent on aggregating and delivering the ground transportation, accommodation and ground activities to the leisure and business travellers.

With the opening of the European domestic rail network to competition in 2020, a substantial opportunity emerge for travel operators to offer a true one stop shop multi-modal urban, regional, cross country integrated transport service through customer centric mobile applications.

The inroads being made by the Copenhagen based company MaaS Global are interesting developments to watch. Inbound travel operators would benefit from investigating in depth the feasibility and rationale of MaaS Global Whim mobile application (or similar) and its deployment to ground travel services distribution (22;6).

Should the MaaS concept scale to include regional and cross-national ground transport (train/coaches), river cruise and flight providers, then the ‘holy grail’ of true dynamic on-demand, cross-country multi-modal transports and in destination travel services search/Book/Payment aggregation seems reachable.

I still like my own car…

This optimistic picture of the MaaS concept’s disruptive potential, superior user service offering, emissions reductions and assets use maximization potential, is not guaranteed to provide the expected beneficial effects.

Monopolistic incumbents’ operators, such as taxis/ pre-booked ride hailing apps and public transport providers are likely to resist rapid and sudden changes to their established positions and business models while consumers’ uptake of the MaaS service concept is not guaranteed.

The power of established transport consumption routines is a powerful barrier not to underestimate (16;23;24).

Gerardo Marleto’s prescient paper, published in 2013, illustrates possible urban mobility development scenarios and related rebound effects

Scenario 1 on figure 5 highlights strong rebound effects in increased private car consumption that could diminish positive resource productivity gains and GHG emissions reductions.

Figure 5

(Source: 24)

Scenario 3: on figure 7 describes a best-case scenario under a MaaS concept deployed at scale.

Figure 7

MaaS: a Circular Economy system level innovation

A mobility as a service transportation system is a paradigm change that fits a circular economy framework application on various points.

  • It maximises assets utilisation and incentivizes transport modes producers to design, produce, cycle products and materials in long usage loops and closed production loops through re use, remanufacturing and materials cascaded use.
  • Such production, distribution, materials retained ownership, reverse logistics approaches reduce primary resources extractions and subsequent negative externalities.
  • The assets use maximisation changes the rationale for transportation vehicle producers and transport service providers with the vehicles becoming the enabler of the transport service promise to the customers instead of being the service promise itself (10).
  • Broader options, increased transportation modes’ assets use maximisation, reduced material use and externalities as well as improved urban space utilisation all benefit the urban environment from economic, environmental and social capital restoration standpoints.
  • Seen through a circular economy lens, the concept celebrates the diversity of the transportation options and modes while providing multiple beneficial outcomes for transport consumers, transport assets producers and transport modes operators and city dwellers at large.

While I conclude this post, Polestar press release is just out.

Polestar is the electric car brand of the Geely group, the owner of Volvo.

What is striking is not the press release, nor the Polestar 2 vehicle design, specifications, autonomy, pricing (all very similar to the Tesla model 3), but this sentence on the company’s website (25):

“Polestar will take a new approach to market with subscription as the primary offer. The cars will be offered as an all inclusive single monthly payment, aiming to take the hassle out of traditional car ownership.

The monthly fee will include everything from maintenance, insurance and roadside assistance to pick-up and delivery services that will redefine the owner experience”

Why would a consumer willingly add friction to their transportation search / book / payment processes, switching from a train, to a car rental, to a city bike rental, to an on-demand taxi / ride hailing app?

Why would a large, established car manufacturer (Polestar / Volvo) offer subscription to a single transport mode, knowing that their current and most importantly future consumers prefer multi-modal transport choices over single mode of transport ownership?

It does not appear that far-fetched to imagine Polestar pricing evolving from a single mode of transport subscription to a multi-modal, on-demand transport choices offer, keeping consumers within their transport modes portfolio (owned and affiliated) while solidifying their brand awareness and products market penetration.

Could we soon flick through our phone and book / use Volvo electric bicycles? Volvo electric scooters? ‘Eurostar’ Volvo rail partner? ‘Easyjet’ Volvo flight partner?

Again, who needs to own a single mode of transport?

References:

(1) Goodall, W., Dovey Fishman, T., Bornstein, J., Bonthron, B. (2017) The rise of mobility as a service Reshaping how urbanites get around. Deloitte University Press 2017. Deloitte. https://dupress.deloitte.com/dup-us-en/deloitte-review/issue-20/smart-transportation-technology-mobility-as-a-service.html Accessed 20 September 2017

(2) Spickermann, A., Grienitz, V., Von der Gracht, H.A., (2013) Heading towards a multimodal city of the future? Multi-stakeholder scenarios for urban mobility. Technological Forecasting & Social Change. 89 201–221.

(3) Ellen MacArthur Foundation EMF (2015) Growth Within: A circular economy vision for a competitive Europe. Ellen Mac Arthur Foundation. pp. 54.

(4) Wegener, M. (2012) The future of mobility in cities: Challenges for urban modelling. Transport Policy. 29 275–282.

(5) Maas global Helsinki 2016 (2016) Insam, 11 January 2017. https://www.slideshare.net/insam/maas-global-helsinki-2016

(6) Karjalainen, P., Javornik, M., Sochor, J., Martin, J., Lintusaari, J. (2017) Guidelines and recommendations to create the foundations of a thriving MaaS ecosystem. MaaS Alliance 2017

(7) MaaS Global (2017a) MaaS as a concept Better than your own car. MaaS Global, 2017. http://maas.global/maas-as-a-concept/

(8) Karjalainen, P., Javornik, M., Sochor, J., Martin, J., Lintusaari, J. (2017b) Guidelines and recommendations to create the foundations of a thriving MaaS ecosystem. MaaS Alliance 2017. pp. 9-12.

(9) ERTICO ITS Europe (2016b). Mobility as a Service the new transport paradigm.

. YouTube. https://www.youtube.com/watch?v=3qMg3oRzyUs

(10)Ellen MacArthur Foundation EMF (2015b) Growth Within: A circular economy vision for a competitive Europe. Ellen Mac Arthur Foundation. pp. 59-67.

11) Gao, P., Kaas, H-W., Mohr,D., Wee, D.(2016) Disruptive trends that will transform the auto industry. McKinsey, January 2016. http://www.mckinsey.com/industries/automotive-and-assembly/our-insights/disruptive-trends-that-will-transform-the-auto-industry

(12) Firnkorn, J., Müller, M. (2011) Selling Mobility instead of Cars: New Business Strategies of Automakers and the Impact on Private Vehicle Holding. Business Strategy and the Environment 21 264–280.

(13) The Economist (2016) Transport as a service It starts with a single app. The Economist, 29 September 2016. https://www.economist.com/news/international/21707952-combining-old-and-new-ways-getting-around-will-transform-transportand-cities-too-it

(14) Ellen MacArthur Foundation EMF (2015a) Growth Within: A circular economy vision for a competitive Europe. Ellen Mac Arthur Foundation. pp. 55-58.

(15) ERTICO ITS Europe (2016). Mobility as a Service the new transport paradigm.

. YouTube. https://www.youtube.com/watch?v=PkpyvQgkWL4

(16) Hilgert, T., Kagerbauer, M., Schuster, T., Becker, C. (2016) Optimization of Individual Travel Behavior through Customized Mobility Services and their Effects on Travel Demand and Transportation Systems. Transportation Research Procedia. 19 58 – 69.

(17) Heikkilä, S. (2014b) Mobility as a Service – A Proposal for Action for the Public Administration Case Helsinki. Aalto University school of engineering. pp. 73-78.

(18) ERTICO ITS Europe (2016d). Mobility as a Service the new transport paradigm

. YouTube. https://youtu.be/PkpyvQgkWL4?t=33m37s

(19) MaaS Tekes (2016) Insam, 5 December 2016. https://www.slideshare.net/insam/maas-tekes?next_slideshow=1

(20) Heikkilä, S. (2014c) Mobility as a Service – A Proposal for Action for the Public Administration Case Helsinki. Aalto University school of engineering. pp. 23-31.

(21) Patel, A. (2016) Mobility as a Service: A revolution in transport? InMotion Ventures ltd, 24 October 2016 https://www.inmotionventures.com/mobility-service-revolution-transport/

(22) FOD (2017) Fleet on demand Ground breaking Mobility as a Service technology for business journeys. Fleet on demand , 2017. https://www.fleetondemand.com/

(23) Finger, M., Bert, N., Kupfer, D., (2015) Mobility-as-a-Service: from the Helsinki experiment to a European model? Florence School of Regulation, Transport Area 01

(24) Marletto, G. (2013) Car and the city: Socio-technical transition pathways to 2030. Technological Forecasting & Social Change. 87 164–178.

(25) Polestar (2019) https://www.polestar.com/about-us

(26) Stahel, W. (2011) The business angle of a circular economy higher competitiveness, higher resource security and material efficiency. In A new dynamic, effective business in a circular economy. Webster, K., Bleriot J., Johnson, G. Ellen Mac Arthur Foundation. Cowes: Ellen Mac Arthur Foundation. 45-60.

(27) European Parliament (2016) Agreement on opening up of the EU passenger railway market. European Parliament, 20 April. http://www.europarl.europa.eu/news/en/press-room/20160420IPR24132/agreement-on-opening-up-of-the-eu-passenger-railway-market

(28) Webster, K. (2013) The decline of the linear economy and the rise of the circular a story about frameworks and systems. In Webster, K., Bleriot, J. and Johnson, C. A new dynamic, effective business in a circular economy. Second edition. Cowes, Isle of Wight: Ellen MacArthur Foundation. 7-18.

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