If all goes to plan, the benefits of launching autonomous, electric and shared vehicles are clear, but recent research has cautioned that this could in fact create a drain on government finances.
According to July 2018 research from Deloitte, titled Funding the future of mobility, vehicle-derived revenue in the US could fall significantly by 2040 if measures are not taken. The issue is also relevant on a global scale, with most developed economies seeking to sculpt their own smart cities.
Today, governments derive a significant amount of funding from transport-related fees. Parking penalties, tolls, fuel tax and license registrations, for example, all make valuable contributions, but those pools of revenue are at risk of drying up in future. At the same time, the pressure on urban mobility is only expected to grow;
Deloitte forecasts a US$7.5 trillion shortfall in global road infrastructure funding by 2040. While this is some time away, it does highlight an important issue: significant investments have been made by automakers, suppliers and municipalities worldwide, partly for societal benefit, but also for business reasons. As such, returns need to be seen across the board one way or another.
“There are many regional variations, but the way we fund transportation in the public sector is generally built on the existing transportation system, which is car and fossil fuel dependent,” Derek Pankratz, a Research Manager with the Center for Integrated Research at Deloitte Services, told M:bility. “Many of the dynamics of that transportation system are changing: electrification of vehicles, the eventual emergence of autonomous vehicles and increased use of shared mobility. Those three forces in convergence will push down today’s sources of funding.”
Inner-city parking brings in serious money for most developed municipalities. In 2016, New York City generated nearly US$1bn from parking fees and fines, for example. Spaces are often hotly contested, prompting the value of each spot to soar. Full utilisation of multi-story car parks is almost guaranteed during peak hours.
But in a world where drivers become riders, the need for public car parks could fall. “Estimates vary pretty widely on the demand for parking, but in a lot of cities it is a real revenue generator,” said Pankratz. “Autonomous and shared vehicles are in theory utilised more and need to park less, or at least need to park less in expensive, dense urban areas.”
If more people use shared mobility, vehicle registrations and the number of people obtaining drivers licences starts to dip
Funding could also fall as a result of new technologies that can prevent drivers from being stung by parking fines. Both private and public car parks typically set a minimum hourly rate for access, which must be paid even if the driver is stationary for just a few minutes. According to a 2017 study by traffic information expert INRIX, US drivers overpay US$20.4bn a year, while in the
UK and Germany overpayments total £6.7bn (US$8.7bn) and €4.4bn (US$5.1bn) respectively. Connected cars could work with infrastructure in future to provide an accurate fee for the time they are parked.
“Imagine if your vehicle understands the parking rules and auto-renews your parking if you haven’t returned in time, while notifying you in advance to ensure you leave before breaching any maximum stay restrictions,” says Ozgur Tohumcu, Chief Executive of Tantalum, a connected services provider that aims to ‘automate’ parking through its Pay.Car service. A loss in revenue is almost guaranteed, he suggests. “By automating parking through the connected car, fines can be made a thing of the past.”
Shared and electric vehicles
Then there are electric vehicles (EVs), which will gradually eat into the amount of gasoline and diesel fuel purchased at the forecourt. Deloitte estimates that by 2040, gasoline demand could fall by 30% in the US due to improving fuel economy standards and rising demand for EVs. Annual fuel tax income would fall by US$10bn as a result. As it stands, 86% of the US Highway Trust Fund comes from fuel taxes – bringing in around US$36bn each year.
Many EVs on the road today are part of a ride-share fleet, run by operators that have eyed an opportunity to reduce operating costs and bypass potential congestion or pollution charges within a city. However, Paris-based EV ride-share programme Autolib was recently axed after seven years of operation, with chronic underutilisation and soaring expenses seeing its contract (originally running to 2023) cut short. Local media had reported that the vehicles were widely used as a refuge for the homeless, and often found with smashed windows and dirty cabins.
Despite this, Renault believes it stands a better chance and has effectively launched a replacement service. In partnership with rental service ADA, the Moov’In.Paris scheme will see a fleet of EVs – 100 Zoes and 20 Twizys – hit the streets. Renault is certainly bullish, stating in September 2018 that “the number of vehicles put into service will quickly increase to follow the customer demand.” Parked in specific authorised locations, vehicles can be reserved with a minimum €3.90 charge for access (€0.39 per minute, with a minimum ten minute rental period). Users are exempt from parking and charging fees.
It is not an obvious or foregone conclusion that these technologies and services will yield something that is better for everyone
The nature of this service differs to that of a hail-a-cab model, popularised in the US by the likes of Uber and Lyft, but both approaches are expected to continue gaining traction. The effect of this is simple: fees that would typically be associated with private vehicle ownership will fall. “If more people use shared mobility, vehicle registrations and the number of people obtaining driver’s licences starts to dip,” said Pankratz. “We’ve already seen in the United States and some other markets a kind of peak in younger people getting driver’s licences.”
According to Deloitte research, income from vehicle licenses and registrations could fall from US$41bn in 2016 to US$29bn in 2040. While ride-sharing is far from the accepted norm today, the trend could begin to erode the appeal of owning and running a vehicle. However, it is difficult to gauge the overall success of future mobility trials so far, and thus forecast how the trend will progress over the next couple of decades. Not all schemes have been successful. BMW’s DriveNow service was scrapped in Stockholm, Sweden, and Ford’s Chariot Service was temporarily suspended in October 2017 after failing inspections from California regulators. The service was also criticised for following existing public transport routes and creating congestion on otherwise efficient journeys.
Between 2016 and 2040, revenue derived from traffic enforcement is expected to fall from US$6bn a year to US$2bn. Part of this is due to the potential reduction in driver error as certain elements of driving are delegated to a computer. Driving speed can be set to match the local limits, and dangerous manoeuvres that could result in a fine should be reduced. This is of course dependent on the capability and error-rate of the self-driving system in question, among other factors. “In theory, autonomous vehicles will not run red lights or drive above the speed limit,” noted Pankratz, “so all of that traffic enforcement revenue goes down too.”
It is almost impossible to forecast quite how legislation in the US will have developed by 2040, and there are various hypothetical elements that could make or break the planned deployment of so-called robo-taxis. Will the Society of Automotive Engineers (SAE) levels of automation remain the benchmark for which functions are certified, for example?
If all goes to plan there could be a huge shake up in city transportation thanks to autonomous driving technology. Deloitte’s experts believe all eventualities need to be planned for and carefully considered sooner rather than later. “It is not an obvious or foregone conclusion that these technologies and services will yield something that is better for everyone,” mused Pankratz. “They certainly have that potential, but it will take active management by all participants – the public and private sector, regular citizens – to make sure that we achieve that better outcome.”
Utopia or dystopia?
Despite the uncertainty, there are positives to take from these future mobility trends. Revenue from tolls is expected to continue rising, for example, as vehicle miles travelled increase; vehicle utilisation is expected to be higher than ever, and then there is the simple effect of urbanisation. “There’s just a natural increase in demand,” said Pankratz. “Part of it may come from people shifting away from public transportation and towards ride-hailing or ride-sharing, but for many other reasons that’s not necessarily an optimal outcome.”
Shared mobility, autonomous and electric vehicles are just over the horizon… It is critical for governments to think seriously about the implications, and to start planning for those changes now
Michael Flynn, co-author of the report and Deloitte’s Global Financial Advisory Public Sector Leader, agrees. “As mobility becomes more convenient and less expensive with shared autonomous vehicles, people will travel more. When you’ve got more readily available autonomous vehicles, the elderly, the disabled and younger generations are able to get around far more easily, and that contributes to more travelling.”
Based on its research, Deloitte proposes a handful of potential measures that could help cities work with the trends of the future. Usage-based charging could help to account for the drop in licensing fees, for example, and benefit from the rise in vehicle utilisation. Mobility data could be monetised to create new and potentially lucrative revenue streams, although privacy concerns could prove a sticking point. New public-private partnerships (PPPs) could also create long-term relationships between the public sector and private businesses to catalyse investment into cities. As Deloitte’s research argues, “the private sector can bring speed, efficiency, a drive for innovation, and reduce the amount of upfront capital required to perform a project.”
With so many variables in play and over such a broad time frame, this research is not intended to paint a concrete picture of how future mobility will play out. Instead, it is a pragmatic snapshot of how these business models and technologies must be paid for. “Shared mobility, autonomous and electric vehicles are just over the horizon. The timing is a little uncertain, and exactly how they’re going to play out is not completely clear, but it is critical for governments to think seriously about the implications, and to start planning for those changes now,” concludes Pankratz. “It needn’t be an apocalyptic situation, but it does require some fresh thinking and to be open-minded about some of the alternative mechanisms outside of traditional tax-based approaches.”
“Savings and efficiencies are achievable, but there is a lot of planning required in order to get there,” adds Flynn. “The sooner cities start the journey to deliver that, the easier and more beneficial it will be.”