Shiva Kumar, Managing Director and Head of Mobility Technology Investment Banking at Piper Sandler talks about the financial side of the mobility industry and how investing in the right solution at the right time can keep fleet-based businesses moving forward with happy customers and a healthy bottom line.
Welcome to The Mile Marker podcast. My name is Stacey Papp, and I will be your guide, taking you on a journey into the world of fleet automation and shared mobility, focusing on innovations for businesses with fleets.
Joining me today is Shiva Kumar, Managing Director and Head of Mobility Technology Investment Banking at Piper Sandler. Shiva previously served as Ridecell's Chief Financial Officer, where he combined his passion and prowess for mobility with his deep knowledge of investment strategies to create growth plans focused on evolving within an ever-changing industry.
Today, he sits down to talk about the investment side of the mobility industry, what technology fleets should be investing in, and where fleet-based businesses can see gains that ultimately keep their customers and bottom line happy.
Shiva, thank you so much for joining us today. It's so great to have you here.
Thank you, Stacey. Thanks for having me on your podcast. Looking forward to the conversation.
Let's jump right in. And the first question I want to ask is, can you provide some insight into the current state of the mobility market? A lot is changing and a lot of trends are emerging, so curious about what your insights and best practices are on what that industry is doing today.
Absolutely, Stacey. I'll break it down into three components for the question. The first one is just the M&A activity because as I sit in my seat as an investment banking practitioner, I look at M&A activity. And M&A activity has been robust over the last couple of years. It has slowed down a bit in Q3, Q4, but if you look at year-to-date, there are about 184 deals being done in the mobility space, and about $115 billion of capital has gone into M&A. If you split that further, you will see about $55 billion have come from OEMs, about $35 billion from semiconductors, and the remaining from the automotive and other fleet-based businesses.
What also you have seen in Q4 is the strategics have specifically remained active in Q4. However, private equity, deal-making, or M&A has slowed down considerably. If you look at from year to date, capital raises, obviously everyone knows the IPO market has slowed down quite a bit. So on a year-to-date basis, there were 27 deals done, raising about $6 billion dollars. VC market continues to be very active, but they are active either on a smaller scale, the [inaudible], or on the larger kind of pre-IPO rounds. So there were about a thousand deals done, raising about $32 billion. And on the private equity growth side, about 36 deals and $16 billion. Again, very robust market. I expect the M&A market and capital raises to be resilient in 2023 and 2024. Obviously, there will be a tail of two cities where better-run companies with sustainable revenue growth will continue to get funded and then the companies that are burning up a ton of cash will face challenges.
In terms of just the operations piece, it's an interesting trend that we are witnessing now. If you recall about four or five years ago, everyone used to say data is the new oil, but now what we are seeing is metal is the new oil. So if you look since the summer of 2021, the price of lithium is up by about 6X and it continues to climb. And the main reason is because lithium goes into EV batteries. There is still a lot of efficiencies that needs to be harnessed in the EV space to actually EV batteries to offset some of the price premiums that people are paying for EV vehicles.
The other thing that we are seeing in the space, which is more on the hardware side is the supply chain remains a key concern. A lot of private companies, public companies are facing production issues as they attempt to scale manufacturing. So if you look at... And the reflection is in the capital markets. If you look at the year-to-date decline in some of the EV OEMs, they have limited by about 80% to 85%, which is staggering compared to what they were about a year ago.
So you threw out some really powerful numbers at the beginning of your response to that question, which to me indicates there's a lot of power in the mobility industry as a whole. So what trends are you seeing that are popping up that have staying power and which do you think are on borrowed time, so to speak?
Absolutely. I think instead of... I would say instead of saying staying power or borrowed time because it's a function of where we are today. But there is a short-term trends and a long-term trends and things can change pretty quickly. The number one thing that is going to cause a trend to be more sustainable is the liquidity or the capital infusion. The businesses that exist today make sense from a product-market fit perspective, but the choice of capital or the ability to raise capital is going to be the key differentiator.
Let me talk about some of the trends. So what we have seen is in the last three years, the last mile delivery, there is about 75% of that is created in-house. Previously, all the companies were focused on outsourcing it to a third party, but now more and more companies are sourcing it in-house. There is an increased demand as well as a desire for flexible fleets.
So when you think about the asset ownership models, whether it's a short-term lease or subscription or even on just an operating lease, and there are a lot more fleet-based companies are coming where... Or fleet-based businesses are popping up that provide a one-stop solution in terms of vehicles, operations, charging infrastructure that is creating an alternate way of ownership. If you look at the big trend that is happening right now is sustainability and de-carbonization and that has a number of drivers that are driven typically by the government through incentives and regulations. For instance, in California has mandated that all the new vehicles sold by 2035, a hundred percent of those vehicles have to be zero-emission vehicles.
If you look at Europe, there is ice vehicles will phase out by 2040. There are also reduced urban parking spaces and speed limits and you've seen especially it came from the COVID times when the city centers, especially the main ones were blocked off from consumer vehicles. So there is an increase. The commercial vehicles could still utilize the roads, but the city centers are essentially more focused on providing safe avenues for pedestrians, for micro mobilities to actually come and play because they want to reduce the traffic.
There is an increased need for the connected car solutions market. Now, if you look at four years ago people were expecting data solutions to be about $800 billion by 2030. I think the expectation is still there is the market is going to be large, but the quantum of the market has shrunk from $800 to about $500 billion. And this is all driven by network availability like 5G networks and edge computing. What we are seeing is there are a lot of trends that are popping up. Some have remained the last couple of years through the pandemic and some have picked up, especially on the EV charging side.
As you can imagine when you think about EV infrastructure, there are about 15,000 chargers getting installed and built every week and this number is going to continue to increase as we go through the rest of this decade.
You mentioned downtown metropolitan areas closing off city streets to make way for more micromobility or even just pedestrian traffic. When I was in San Francisco last time, I noticed a lot more of those and some of the folks that I was talking to in the Ridecell offices mentioned that they don't want it to go back to what it was before the pandemic where it's... There are now safer streets for kids to play in or just foot traffic walking here and there.
So it's interesting that you mentioned that because I think that's something... As you said, it was a pandemic trend, but it's something that's definitely sticking around as we look to create life outside of that pandemic around the other side of that pandemic. But that also is changing the face of mobility at the same time.
Absolutely. So if you look at the post-pandemic, there are about 51% of the consumers have indicated a clear preference to travel less and travel less, especially for work. Now, they would be spending more time with their families and with friends, but less with work. Now, obviously, there will be an offset with all the companies or at least some of the companies are asking their employees to come back to work at least work partially; three days a week.
But that trend that consumers or employees have clearly indicated they want to have a flexible work schedule so they can spend more time at home and that will ease a lot of traffic congestion. But also at the same time, given that they're traveling less, what we have seen is consumers are opting for more flexible transportation systems whether it's public transport or whether it's micro-mobility or it is shared vehicles.
A lot of people gave up their cars, right? Because you figured during that time, which was horrific in so many ways, families gave up a car if they were a dual car or a tri-car family because they realized they didn't need it because we were all working from home. The home became the office and became the school. Some families are finding it hard to go back to that because of the added expense, but they've also, at the same time adapted to find other modes of transportation.
So I think you touched on something really important from a flexibility standpoint is they don't have to be a car owner to drive a car. With the likes of car sharing and mobility, it makes it a little bit easier to get to where you need to go without having that monthly payment of fuel and insurance and car payment sitting in your garage that you may or may not be using.
Absolutely. You're going to see more of the trend in the US compared to Europe. As we know, Europe has always been a fleet-based economy. If you look at the percentage of new cars sold in Europe, that's north of 65%, whereas if you compare the same stat in the US it's about 10%, but we are seeing increased growth in the number of vehicles sold to the fleets. There is an increased need, not only from the consumer side, but also from the commercial aspect as well, which includes delivery for example.
From an investment perspective... And you touched on these a little bit previously, but I think that they're worth diving into. Where are fleet-based businesses currently investing and if they're not, where should they be?
That's a great question. I think if you look at where it is currently investing, it has been investing in general, the last, I would say, two to three years, it's a basic... For example, basic compliance regulatory tech solutions, and this primarily was driven by the ELD regulation that kicked in about four years ago. Now, that's sort of the ELD regulation was in the US and now it's in Canada as well starting in 2021.
The second thing that we probably have seen more on the US side was the connectivity video telematics, which is essentially going to move towards GPS and beyond to analyze driver behavior, optimized routes, reduce idling, coordinate dispatching, et cetera. If you look at the fleet managers specifically, 70% of them are leveraging fleet tracking technology.
And then the third piece where... But I would say the fleet operators have spent a lot of time and effort and capital is essentially digitizing. So 88% of the physical operations right now is, I would say, a higher critical priority of digitizing it. There are a lot of folks who are just focused on implementing digital solutions. Now, where it is going to go in terms of the investment, which is essentially, historically where they have invested, but more importantly what can be done now? For instance, with ELD, the fleet operators are sitting on mountains and mountains of data, but they don't necessarily know how to utilize that data to improve operations. Advanced analytics integration is going to be extremely important.
The second aspect I would say, which is going to continue to be the case, which is an increased investment in AI solutions to proactively surface safety and compliance risk. And the key here is going to be is how do you use AI and machine learning to provide sustainable growth at an increased profit margin for the fleets.
The third piece that I would say, which is not been addressed so far, but has remained a key challenge, especially when we see from a trucking industry perspective, is if you look at the trucking industry, there is a driver shortage of about 75,000 going up to about 150,000 drivers by 2030. If you look at the demographics, only 8% of the truck drivers are women and about 6% or less are younger than 25 years old. It costs $10,000 to actually find a new driver if you can find a new driver.
So when you think about it from an investing perspective, there are a lot of... People are looking at creative ways to solve those issues. There are human capital management solutions, which is, I would say, historically under-invested in terms of driver retention, driver recruiting, and there are a lot of things that are going to happen, which is how do you actually create a workflow around driver management that at the end of the day will create this increased experience, but also increase retention.
The sub-part of that is also linking the third-party task in a single workflow, which Ridecell has been doing it for a while, but there is a lot of physical operation that goes in and requires digitalization. But that has a huge impact on driver retention because now the drivers are not just waiting around for a vehicle. They essentially... They are paid and essentially working around the clock.
Also, the tech solutions, which go into your human capital management solution is how do you provide remote safety and training courses to drivers? So those are, I would say, the three things from a fleet perspective that we will see tremendous or significant investments in coming years. And the more general, not just the fleet, but also on the consumer side is where the investment will go into is the battery. How do you actually optimize battery solutions? So as the fleets begin to transition to EVs, the fleet-based businesses can increase their bottom line by implementing battery degradation optimization solutions to incentivize the drivers to behave more efficiently.
So you talk a lot about the investment portion of it, and I think there is a really key piece of that that you touched on was profitability, and that's always where you're investing. You're always going to look, what's my ROI on this? How fast am I going to make my money back? What initiatives of what you mentioned or even outside of what you mentioned really have the power to boost the bottom line for fleet-based businesses?
Yeah, I would say it's somewhat the similar key drivers that I mentioned before, but if you look at the organizations or the fleet operators, about 90% of the organization or the fleet operators say that the investments in digital technology for physical operations have increased their net profit, which is tremendous, right? And when you look at what is the payback period on ROI? Thirty percent of the fleet managers reported a positive ROI within six months of adopting fleet tracking technology.
Some of that actually comes from a reduction in fuel cost, a reduction in accident cost, and a decrease in labor cost. One of the things that I always look at is what's the efficiency in utilization, whether it is for a vehicle or for the employees within the fleet operators. So if you look at the average cost of vehicle downtime, that is almost as much as about $700 to $800 per vehicle per day, which is pretty significant if you think about it.
And when you think about the ELDs and other telematics use cases, it definitely enhances driver retention and safety. It reduces liability. It provides real-time data to optimize fleet routing and utilization. The problem is digitalization has happened, but it has happened in silos and there is an increased need for a single platform that can digest information from various sources and can increase efficiency and utilization. The main cost in my mind is just coming... If you look at reducing idle time, increasing or improving route optimization, reducing false claims, and reducing insurance costs, those all can be solved using, I would say, a comprehensive software platform.
So you talked a little bit about digitization earlier when we were talking about trends and how the mobility market is moving forward in these key areas. What impacts have you seen automation solutions have on fleet-based businesses when it comes to improving overall fleet operations?
Let me talk about some of the stats here. So if you look at the drivers spend about 20 hours per year to fill out the driver logs and obviously, the ELDs can automate this task. If you look at it from the fleet operations perspective, the idle time cost about an eighth of a gallon of gas per hour, and if the vehicles are being idled for more than 50% of the time, so think about stop-and-go and delivery.
If it is idling for more than 50% of the time, it increases the maintenance cost. Overall, if you look at it from a safety perspective, especially on the trucking side, there is an increase of about a hundred percent in the last 10 years in terms of deaths or acts of fatalities. There is a significant, I would say, focus on the safety and compliance side as well. And so going back to one of the solutions or AIs that actually will do, or the solutions, I do believe that we have to solve not just the retention problem, but the three-pronged strategy that the fleet operators are pursuing at this point in time, which is a safety efficiency, utilization, and retention.
One of the utilization or efficiency, which we have always talked about is autonomous vehicles. Now, autonomous vehicles, level four or level five will happen, the question is when. At this stage of the market, there were companies who have gone out of business because of funding needs, but the market exists and the value prop exists. Now, it might take a longer time than what we had anticipated in the past, but given the product market fed, autonomous vehicles will happen and that will solve some of the challenges.
In the meantime, the solutions that are focused on, as I mentioned, increased safety and compliance, whether it is ELD, whether it is telematics, GPS tracking, all the way to a single platform that can allow the vehicle to automatically get routed to a particular worker so their worker can come and fix the vehicle in time. There is a distal proof of record, which worker did what, what kind of maintenance was done, and then can that particular vehicle can be used for a particular route or a particular dispatch. And so I think there is... We will see an increased trend of where fleets will be auto-piloted and there are less and less of human interactions or human intervention that will be needed.
So going back to the topic of ROI, what steps can fleet-based businesses take to ensure they are properly investing in the right solutions without overspending, which is so easy to do when you get excited that all of these things can help you do all of the things, but it comes at a cost and they want to be able to see a healthy bottom line at the end. You threw out some amazing statistics earlier about driver retention and how much it really does cost. How do they just navigate that investment versus ROI battle?
That's a tough question because when the fleets, especially... And this is always a challenge between a legacy well-established company versus a new-age company. Legacy companies always tend to operate because they are risk [inaudible]. They tend to operate in a way that they have been operating forever. They do understand the benefits and advantages of adopting technology, but it is an extremely slow process.
What I've seen or observed is companies typically try to do it in-house for a variety of reasons and they fail, and they spend either both the time as well as their effort, and capital to be honest, before realizing that they need to outsource it to someone else. So it takes a long process for fleets to truly adopt and embrace technology to make a significant improvement. I do believe that the way some of the companies have penetrated the fleet-based businesses is to essentially start small and then continue to demonstrate ROI.
And so ROIs can come from showing vehicles utilization going up, showing the number of vehicles needed to do a certain job or a certain task is reduced quite significantly, and also at the same time, showing some of the metrics such as revenue per vehicle, utilization per vehicle, and TCO per vehicle. I think those are the KPIs that companies have to track to demonstrate ROIs.
As I mentioned, 30% of the fleet operators, once they start adopting, they immediately see a positive ROI within six months, which is pretty significant because these fleet operators operate on a very thin margin.
Sure. So the last question for you before we go, and this is my favorite question to ask. It's the crystal ball question. If you had a crystal ball, what do you think the mobility industry look like in the next five years or so?
Great question. I think outside of... Just in general, I think what we are seeing is the development and adoption of machine learning and AI, and that has a significant impact in the mobility space as well. A lot of recent focus has been on automation that replaces the human, particularly in the context of driving. But I think the much more interesting and impactful application of AI are the ones that will augment and extend the capabilities of a human. I think we will see that more and more in the future.
So think about fleet management. When I think about fleet management, there is IoT hardware coupled with the AI-powered application that automates the vehicle and equipment tracking whether it's driver safety, compliance maintenance, and so on. On the backend, there is the spend management integration, which will auto automatically be integrated with the fleet management.
So tools to eliminate excess spending to eliminate fraud. And then what is going to continue to happen is physical security. So when you think about large mines or large sites where big equipment are sitting idle or they've been used, but lesser monitoring is happening, there is a significant need for that sort of monitoring of safety and security of the vehicles and physical equipment. Outside of that, when I think about... Look, we have seen the rise and the fall and the rise and the thaw again of crypto, but the underlying technology with blockchain I think will be utilized more in the mobility space. And here is again the digitization, our connectivity across different ecosystems. So when you think about fair collection: tolls, parking, title, and driver identification management, I think blockchain will play a big role. Now, obviously, the adoption will take a longer time.
In my mind is five to 10 years, but it's going to happen because that actually the authentication and the technology will allow us to do a seamless transition from a zip code to a state, to a country, to essentially going through different types of tools and different types of parking. So I'm pretty excited about blockchain.
The other thing which also will come with that is the integrated mobility ecosystem, which as I mentioned about the IoT as well as the embedded sensors. So these are the trends that I think will continue to take place or shape in the next few years. Obviously, we know about EV adoption and infrastructure. I do believe in the entire spectrum or across different industries, not just mobility, I think the industries where there will be significant government regulations, subsidies, and grants, those are the industries that will continue to attract capital as well as experience growth. So by that, I mean the EVs and EV infrastructure space.
Well, I have to tell you, Shiva, it has been such a pleasure to have you. I'm so sad our time is up because you've completely blown my mind with some amazing numbers and trends and statistics. So no doubt those listening probably feel the exact same way.
This was really fantastic and I really appreciate you providing the level of insight that you did into the investment side of the mobility industry, which is not something that often gets talked about. It's something that if there is a dollar side attached to it, it is important. But when you start talking about investing and what the future holds, that is a really important side of the coin that we need to be showing.
So I really, really appreciate all of what you shared with us today. Again, again, as I said, my mind is blown, I'm amazed, and I'm so impressed. So thank you again. It was truly a joy to talk to you.
It was my pleasure, Stacey. Thanks for having me on this podcast.
Absolutely. Until the next time, keep moving the world better.
Thank you for listening to The Mile Marker podcast. Stay tuned for another episode full of insights and ideas to keep the mobility industry moving forward. In the meantime, follow us on social media, and be sure to like, comment, and share today's episode.