US leads global investment in mobility start-ups

The US accounts for a significant portion of mobility investment and innovation, but it faces stiff competition from other major global markets, writes Asutosh Padhi

Each day, new stories are reported about an electric and driverless future. Globally, many car industry players have made some big moves to secure a leadership role in this future, and in the US, investment in future mobility technologies has accelerated. Though some consumers may fear this change, others struggle to believe such change will really come to fruition.

We’ve been here before.

In 1894, the London Times predicted that with the accelerating growth in horse traffic, the next generation would find nine feet of manure on every street in the city. It became known as the Great Manure Crisis.

The people of the time could not imagine how cars, which were historically for the wealthy, could ever transform their lives by shrinking the world and making it more accessible. When cars became affordable, they became popular and gave rise to a new type of economy—first in the US, and then around the world. The birth of this car-based economy signalled a great inflection point in mobility.

Today, technology companies, start-ups and automotive manufacturers are in a global race to unleash the next great era of mobility. They are making unprecedented investments in ACES (autonomy, connectivity, electric and sharing) technology. Indeed, since 2012, they have invested more than US$325bn into ACES opportunities. Already, they are seeing extraordinary advances in computing power, data generation through sensors and cameras, battery life, and much more.

McKinsey chart - Total disclosed investment in mobility start-ups since 2010 - top 10 countries

These transformational technologies will change society and the world economy as profoundly as the move from horses to cars, signalling Mobility’s Second Great Inflection Point and a much better consumer experience.

American innovation in a global mobility moment

Mobility’s first great inflection point appeared initially in the United States, around 1910. The fundamental dimensions of transportation—cost, convenience, user experience, safety and the built environment—evolved so ‘mobility’ and ‘cars’ became nigh on synonymous. Over the course of the 20th century, this paradigm shift spread from the US to the rest of the world.

The second inflection point is likely to follow a different path; while the United States is likely to be the crucible for innovation and competition in the mobility ecosystem, the mobility revolution will take hold in more global markets, and more quickly. Home to some of the world’s most prominent premium car brands, Europe is likely to play a prominent role in redefining the nature of premium brands.

China’s vast scale will also make its role particularly prominent. For almost a decade, China has been the world’s largest automotive market. In 2018, Chinese customers purchased nearly 30 million light vehicles, about 70% more than Americans. As the car industry shifts to selling electric and autonomous vehicles (EVs, AVs), China is likely to remain dominant, but in a very different way. Standing at 1.1 million units, or 51% of global EV sales in 2018, China’s EV market is now about three times the size of the European and US markets each, according to the latest McKinsey Electric Vehicle Index. More than 60 new brands focusing on e-mobility have attracted customers, media attention and investors’ money.

Since 2010, more than 1,000 companies pursuing automotive ACES technology have received more than US$210bn in external investment. About 40% of the companies and investment dollars have taken root in the United States

The early days of the automobile industry saw a remarkable outpouring of entrepreneurial energy in the United States. Hundreds of automakers and thousands of parts and components suppliers sprang up in the early 20th century, all of them seeking to capitalise on what Alfred Sloan, in his book, My Years with General Motors, referred to as “the great opportunity.”

Particularly in the United States, the approach of mobility’s second great inflection point has brought forth a similar outpouring of innovation and entrepreneurship. McKinsey’s Start-up and Investment Landscape Analysis (SILA), a proprietary Big Data engine, shows that since 2010, more than 1,000 companies pursuing automotive ACES technology have received more than US$210bn in external investment. About 40% of the companies and investment dollars have taken root in the United States.

Investment has been accelerating. Average investment levels across the ACES technologies jumped sevenfold in the period 2014 to 2018, compared with 2010 to 2013.

Today’s automakers are making massive investments in the future of mobility, including some big acquisitions, such as GM’s 2016 purchase, for about a billion dollars, of Cruise Automation, a self-driving-car unit. Overall, though, their participation in the start-up landgrab has been relatively limited. More than 90% of the mobility investments tracked by McKinsey’s SILA analysis were made by players not traditionally seen as automotive companies.

Mobility at this second great inflection point will be significantly, not just marginally better than the one Henry Ford ushered in more than 100 years ago with an affordable car. This new mobility could be the greatest change in the way we live since the smart phone

However, we see bold moves by established automakers working together on future technologies such as electric powertrains or autonomous driving—just see headlines from recent weeks. These large-scale co-operations have an inherent logic: our analysis shows that no one player alone can span all relevant core competencies and easily invest a minimum of US$70bn to stand out on all four disruptive trends.

Societal and business benefits that will transform the car industry

By 2030, autonomous vehicles, powered by electricity, will populate roadways. Communities, colleagues, and neighbourhoods will share vehicles. “Old” infrastructure—like streets and parking lots—will shrink in shape and volume. Connected vehicles will communicate with the world outside the car doors and become hubs of data. Consumers will pay a fraction of their current travel costs, especially as cars become a viable alternative to short-haul air travel.

Manufacturers are anticipating consumers’ expectations and are already developing vehicles with all the conveniences of home. They are designing vehicles to improve our lives with sofas, beds, refrigerators, and screens for video and gaming. With technology advancements, the riding experience—ambient light, music, seat positions, driving style—will be personalised by ‘virtual chauffeurs’, made possible by artificial intelligence (AI).

New age sensors will allow vehicles to communicate with traffic lights, street signs and each other, allowing cars to travel closer together and much, much faster. At the end of a day’s journey, what need is there for a traditional hotel room, if the vehicle has it all and can conveniently park at a location where rest and recharging is possible?

Expect fierce competition among the mobility providers to win this race. Consumers will prioritise not only costs but interior designs, service quality, and a sophisticated connected-car experience. Today, automakers are making about one cent in profit per mile driven. New mobility services can increase profit by ten to 25 times.

While the United States is likely to be the crucible for innovation and competition in the mobility ecosystem, the mobility revolution will take hold in more global markets, and more quickly

These exciting features are largely possible with the technology of today, so we are just at the beginning. The pace and timing of the change, however, is still under debate by vehicle and technology experts alike. Still, industry has reached a consensus that the impact of truly autonomous vehicles will be huge. Contrary to popular belief, autonomous vehicles will be safer and more affordable.

The potential business benefits are why technology giants and traditional vehicle companies are investing aggressively in frontier mobility opportunities. Already, global electric vehicle sales are projected to exceed 4.5 million units by 2020, an increase from 2.1 million in 2018.

We also see astounding societal benefits from the new technology, including US$800bn saved annually from safer roads, fewer fatalities, more productive commuting time and the transformation of parking spaces into parks and other redevelopment.

The bottom line is that mobility at this second great inflection point will be significantly, not just marginally better than the one Henry Ford ushered in more than 100 years ago with an affordable car. This new mobility could be the greatest change in the way we live since the smart phone.


Asutosh Padhi is a Senior Partner at McKinsey and Co. and Global Co-Leader of both its Automotive Practice and Advanced Industries Practice

This article first appeared in Automotive World’s September special report, The future of mobility in the USA, which is available now to download

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