In this episode of the Mile Marker podcast, our special guest, Sam Abuelsamid, brings his expertise as a research analyst of mobility ecosystems at Guide House Insights to discuss the potential impact of emerging mobility solutions.
https://ridecell.com/
https://www.linkedin.com/company/ridecell/
https://twitter.com/ridecell
In this episode of the Mile Marker podcast, our special guest, Sam Abuelsamid, brings his expertise as a research analyst of mobility ecosystems at Guide House Insights to discuss the potential impact of emerging mobility solutions.
https://ridecell.com/
https://www.linkedin.com/company/ridecell/
https://twitter.com/ridecell
Announcer:
Welcome to the Mile Marker Podcast where we explore fleet automation and shared mobility focusing on innovation for businesses with fleets.
Angela Simoes:
Welcome everyone to another episode of the Mile Marker podcast. My name is Angela Simoes and I'll be your host today. And we are here with a very special guest, Sam Abuelsamid, who is a principal research analyst of mobility ecosystems at Guide House Insights among many other hats that he wears. Trained as a mechanical engineer, Sam has over 20 years experience in the automotive industry working on advanced electronic control systems and embedded software and architecture. And his focus on mobility services, telematics, connectivity, and cybersecurity helps him provide strategic direction to his clients while lending intensive experience to industry publications such as Forbes, Automotive Engineering, and others. And Sam is also the co-host of a very popular podcast called Wheel Bearings. So welcome, Sam. Thank you for joining us.
Sam Abuelsamid:
Pleasure to be with you today.
Angela Simoes:
And Mark, thanks for joining us as well. We have Mark Thomas here, EVP of Strategic Alliances at Ride Cell, serving as a co-host today. Hi Mark. How you doing?
Mark Thomas:
Great, thank you.
Angela Simoes:
Good, good. All right, so let's jump in. The shift away from personally owned vehicles and moving to shared transportation is pretty well underway and that certainly has a trickle-down effect on several industries. So what's your assessment on the current landscape of mobility as a service?
Sam Abuelsamid:
Yeah, the mobility service industry really took a hard hit during the pandemic, during the lockdown period. We saw a lot of migration away from pretty much all aspects of it, from ride hailing, car sharing, to public mass transit particularly during the first year or so of the pandemic lockdowns 2020, early 2021, people were not inclined to be in close proximity with strangers. And so we saw major, major declines in all of those areas and we haven't really seen full recovery in any of those areas yet. Certainly if you go to some major cities, you go to places like New York and elsewhere, you'll find a lot more people riding subways and so on than you did a couple of years ago. There's more people using ride hailing services than there were a couple of years ago, but it's still not back to where it was in 2019.
Another aspect of that, particularly in the ride hailing business, which was the biggest area of growth in the last decade, has been a substantial increase in prices. One of the big growth drivers for ride hailing through the 2010s was the fact that you could typically get a ride in an Uber or Lyft or other vehicle at a cheaper price than you could get for a traditional taxi. That's no longer the case. In most cases now it's more expensive to use those services as those companies have struggled to try to eventually maybe possibly reach profitability or at least a breakeven point. So it's been a tough period for those businesses. Uber in particular has shifted a lot. They've put a lot more emphasis on deliveries, which has been economically at least a better area for them, and there's been a lot of growth in the delivery business over the last three years.
And then car sharing has also had its challenges. A number of the companies that were in the car sharing business have left, have gone away, including, let's see, what were the various names that BMW had over the years, Ride Now or Drive now? They formed a joint venture with Daimler, that sort of mostly has gone away. There's still companies out there that are doing this stuff. Zipcar is still around and they're part of, I believe Avis Budget now and Stellantis is still experimenting with some various models with their free to move business unit. So I think there's still opportunities there, but the big challenge for everybody is trying to find the business models that will actually be economically viable.
Angela Simoes:
So you mentioned Covid and of course that certainly had a large impact and then followed that the challenges with the economy, and you mentioned some of these companies changing their pricing structure so that maybe they can become profitable. But the economy's had a much larger effect, I think also on automakers as well. So can you talk about that evolution and how yes, we had Covid and now there's the economy and what have been the impacts there on mobility overall?
Sam Abuelsamid:
Yeah, so the auto industry as a whole has faced some very unusual challenges over the last three years, starting with the beginning of lockdown when they had to shut down production, but then once they did resume production, then they started facing other challenges that they hadn't really seen before around the supply chain. And they've come to the realization that the direction that the global supply chain has gone over the last 30 or 40 years with much more consolidation, centralization, both among the companies in the supply chain as well as the locations where systems and components are being produced and sourced, being consolidated to fewer and fewer locations. It turns out to be unsustainable.
When it works it provided some great economic benefits to the companies in terms of reducing costs for components. But the downside has been that we've discovered the brittleness of that supply chain. Having so much concentration means that the supply chain is very susceptible to any kind of disruption, whether that be a global pandemic, natural disasters like earthquakes, fires and floods or geopolitical trade wars. And so as a result, we've had a significant reduction in global automotive production over the last two and a half years that drove many automakers to shift their product mix.
When they couldn't get chips or they couldn't get other components that they needed, they decided to prioritize their highest margin, most profitable products and if they couldn't get enough parts, the vehicles that they produced fewer of were the more affordable vehicles. And so that pushes people to use other forms of mobility if they can't purchase an affordable vehicle, whether it's new or used because with limited availability of new vehicles, that significantly pushed up prices of used vehicles as well. So for the majority of the public that actually only buy used vehicles, it was a problem for them as well.
And so that in turn had a positive impact on the mobility business. That has helped get some of the recovery that we've had, although as I said, we still haven't really fully recovered to 2019 levels. But that's also been offset by the growth of remote work or at least hybrid work so that a lot of people found that they could perhaps get by with one fewer vehicle in their household. If they didn't need to necessarily commute to an office job every day they could perhaps share vehicles more readily within the household and get by with fewer vehicles. So even if they weren't using a mobility service, that's also been, I think in some respects, a positive benefit, at least from a societal level, if not necessarily from a business perspective for the automakers.
Mark Thomas:
Let's get back to the OEMs for a minute too. A lot of the newest research that's come out this year has talked about how the auto OEMs need to enhance their business models to capitalize on the entire vehicle lifecycle. Because with today being build a car, sell a car, build a car, sell a car, build a car, lease a car, sell a car. Now the recommendations have been, Hey, get your subscription service, do a second lease, do a third lease, and then take those highly depreciated assets and put them into a car sharing fleet so that you could start to offer your customers a range of choices that aren't just long-term vehicle ownership or usership. How are you seeing that concept landing? Because it certainly pushes the OEMs closer into some of the mobility territories because it gives them a full fleet of assets that are highly depreciated rather than trying to start a car sharing fleet with new vehicles, which as you mentioned is a pretty tough thing to do economically.
Sam Abuelsamid:
Yeah, it's a really interesting point you make there. Part of the challenge we've had with the mobility or the supply side of the auto business has pushed automakers to look at how can they evolve their business model. I mean, that's not the only factor. There's also the development of more advanced driver assist systems, automated driving systems, and also the transition to electrification. Those things, the development of advanced driver assist, automation and electrification are hugely expensive. There's a lot of R&D that has to go into that, and the automakers are trying to figure out how are we going to fund these changes?
And one of the ways to do that is to grow their revenues. And as you said, move beyond the 130-year-old model of build a vehicle, sell a vehicle. Once you've developed a vehicle and put it on sale, you stop working on that particular vehicle and you move on to the next generation of that product or the next product, and you're not continually updating the products that are in the field.
That's something that Tesla pioneered the idea of having the software-defined vehicle that can be updated relatively easily to at least within the constraints of what the hardware could support, adding new capabilities to a vehicle and getting consumers to pay for it. The rest of the industry is now trying to do that, and again, they're experimenting with various models on the leasing side or the sales side. Traditionally with leases, you would have a two or three year lease term on a new vehicle, then you turn that in, you get another vehicle, the automaker turns that around, maybe does some refurbishment on it or sends it to an auction house where it gets sold off as a used vehicle or if it's been refurbished as a certified pre-owned vehicle where they get a little higher margins on it.
But even that's only a second sale. The idea of multiple generations of this is a relatively new one. And one of the interesting things that we're seeing is with those traditional leases, usually at the end of the lease term, the customer had the option of if they liked the car, they could just buy it. At the beginning of the lease there was a buyout option. At the end of the lease term if you want to keep the car, this is the price you pay, and if they wanted to, they could pay that price and keep the car.
Now, in many instances, partly driven by the supply constraints, we're seeing automakers like Ford for example, if you lease a new Mustang Mach E, now you cannot buy that car at the end of the lease that goes back to Ford and they will determine what they're going to do with it next, whether that is have a secondary lease on it or do a CPO and get their higher margins on that or put it into a car sharing fleet or a ride hailing fleet. So that's one of the areas they're looking at.
The other is around subscriptions for features. Again, traditionally when you buy a vehicle, you go through the options list, okay, here's the features I want. That's what you got for the remainder of the life of that vehicle. Now you have potentially the option to subscribe to features on an ongoing basis or turn them on and off like many of us do with our media streaming services. If there isn't something on Hulu or Netflix or Paramount that I want to watch this month, I just cancel it and then restart it when a new show comes up that I want to see. The same thing is now possible with vehicles. If you live in an area... And BMW has been experimenting with this for a couple of years with heated seats as the best known example, it's only cold three months a year. I don't need heated seats in July. I'll pay for the heated seats during December, January, February, and then cancel that subscription.
The problem with that is it's not necessarily a great value proposition for consumers the way it's been done so far. In order for that to be a good value prop for the customer, you have to lower the upfront price of the vehicle. If a manufacturer sells a vehicle for $50,000 one model year and includes heated seats in that, and the next year they're still selling it for $50,000, but now you've got to pay 14 bucks a month for heated seats, that's not a good value for me. I'm not going to buy that. But if the following year when they make these features available on demand, they lower the upfront price of the car to say $45,000 or $40,000. Now it starts to make sense, and the customer has some flexibility. The automaker potentially has some new revenue streams.
But of course, there's also the balance there of in order to enable these kinds of on-demand features, you still have to build in the hardware into the car. So you've added to the manufacturing cost of the vehicle, and trying to find the right balance and what are the features that we can build the hardware in and actually get consumers to pay for. Ford is now experimenting with subscriptions for their hands-free Blue Cruise driver assist system. I think we're going to see different models play out over the next several years as they try to figure out how can we boost our revenues to pay for this transformation to electrification and automation and still get customers to be willing and able to pay.
Angela Simoes:
It's a great point. And just kind of going back to the supply chain issue too, a lot of dynamics happened there with so many new OEMs with makers of EVs entering the mix now suppliers have more customers to choose from, and the constrained relationship of the past between OEMs and suppliers, suppliers can now be a little more picky and maybe go with some of these newer players. And then of course, there's the materials shortage, which affected the supply chain. So there's so many different dynamics and there's a lot more choice, and so everyone's trying to figure it out. But you were talking about business models changing and how all these things are affecting that and people are trying to figure it out. So how have you seen, or have you seen fleet based businesses incorporating some of these changes and making adjustments to their business model? Are you seeing that at all kind of in the same way that OEMs are looking at changing their business models?
Sam Abuelsamid:
Yeah, absolutely. And a lot of this, again, has to do around the increased availability of electric vehicles for fleets and also connectivity. The way that fleets look at their vehicle purchasing decisions is very different from consumers. Consumers typically, one of their primary focuses is, what is my monthly payment going to be and does it fit? I know what my budget is, I know how much I earn every month, and here's what my rent is or my mortgage, here's how much I have to pay for food. Here's how much I can afford to pay for transportation every month. And they look at it from that perspective. And that doesn't necessarily always include all those ancillary costs like insurance and fuel and maintenance. Most consumers don't necessarily factor all of those pieces in.
For fleets that are buying many, many vehicles, could be from a handful up to hundreds or thousands of vehicles or tens of thousands in some cases for large fleets. Like Amazon ordered a hundred thousand delivery vans from Rivian, their math is very different. They're looking at total cost of ownership. So for them, these technologies that we're talking about from a consumer perspective are actually much more beneficial for them.
This is why, for example, Ford established their Ford Pro business unit and why GM set up Bright Drop and now they're GM involved business unit, and I think we'll see some other companies that are involved in the fleet business doing some of this. What they're doing is, and this is where the OEMs really are starting to see some real benefits from the as a service kind of business models, because for a fleet manager, a fleet operator that has anywhere from dozens to hundreds or thousands of vehicles to manage, they've got to look at, okay, how much is it going to cost me for the electricity to charge these vehicles or if they're internal combustion vehicles how much is it going to cost me for fuel? How much am I paying for maintenance? What is the availability of the vehicles going to be? Are they going to be available when I need them because they depend on them to generate their revenue. For a delivery fleet, for example, they have vehicles that need to be out on the road certain hours of the day making those deliveries.
And so they have to juggle, all right, how much am I going to invest in charging infrastructure at my depot to support these vehicles? And obviously they want to keep that to a minimum. You don't necessarily want to have one charger for every vehicle that adds to your costs. So finding the balance there and then now, how do I juggle that?
And so what organizations like Ford Pro and GM involved are doing is they're providing services that leverage the connectivity in these vehicles. So the fleet management systems provide the fleet manager an opportunity to see, okay, here's where my vehicles are, here's what the state of charge is of all my vehicles, I know it can highlight when certain vehicles need to be out on the road, so I need to charge this vehicle at this time. And managing all of that, that's hard to do on a manual basis. But these systems that fleets can subscribe to, and that's what they're doing is they are subscribing to these services.
And I think Ford has said that for Ford Pro, they're now averaging something like $2,000 a year per vehicle in services revenue from Ford Pro, which is phenomenal. That's a lot of revenue. But when you look at the costs for the fleets, it's actually a savings for the fleets to do that. So the kinds of things that we've talked about for consumers like those heated seats and heated steering wheels, that's more of in some ways a gimmick for them. It's a non-essential thing. It's a nice to have maybe for the consumer, but for the fleets, these fleet management systems are essential for them to do their business profitably. And so that's I think where we're going to see a lot of growth in the coming years, especially as these fleets move more and more towards electrification and managing when vehicles are getting charged, where they get charged to keep their charging costs down, manage their maintenance, and while also making sure that they have availability of the vehicles when they're needed.
Angela Simoes:
And so fleet based businesses, they don't really care too much about heated seats and steering wheels, but they're finding new opportunities for revenue around these services specifically, it looks like you talked about OEMs getting into this business. Can we talk about how do you see that evolving? I mean, are we going to start seeing more fleets in general? I think when people think of fleets, they think of the Amazon fleet or the FedEx fleet. They typically don't think of a GM fleet of some sort. But are we going to just start to see more fleets throughout the mobility infrastructure, if you will, or landscape?
Sam Abuelsamid:
Oh yeah, absolutely. We're already seeing some early commercial deployments, for example, of robo taxis. Cruise is running in San Francisco and Phoenix and Austin, and I think just yesterday they said they're starting to test in Miami. Waymo's in a number of different cities. Motional is going to be launching some commercial services this year. You've got several in China, and some of these are going to be operated directly by those companies. In some cases, we'll see the vehicles being sold or leased to fleet operators. And then the companies like Motional for example, that's their intended business plan, is they'll sell or lease the vehicles to a fleet operator that will run them on a ride hailing platform of some sort. And Motional will provide the backend services for the automation but not operate the vehicles.
So for all of these companies, they are going to want some sort of management services to know when their vehicles are out there. So it's not just delivery vehicles. I mean, we're talking potentially all kinds of different vehicles or smaller automated delivery vehicles, like what Nuro is doing is another example. And all of these, particularly on the automation side, all of these are electric vehicles. So again, they need to be charged, and the key is to try to charge them at the optimal times during the day, both in terms of whatever the utility rates might be, but also what the usage pattern and the demands are on the vehicles so that you're not losing out on potential revenue by having the vehicle sitting there for an hour charging instead of being out on the road somewhere generating revenue. So I think there's a lot of opportunity for revenue from these kinds of fleet services.
Angela Simoes:
For the last few years we've all talked about the subscription economy, everything is subscription, and this conversation makes me feel like we're at the beginning or entering a fleet economy, if you will, where at some point we will just operate in fleets, right? We will go from point A to point B or deliver goods via fleets. Does that resonate with you? Do you see it kind of going there? And if so... Yeah, go ahead.
Sam Abuelsamid:
Yeah, I think long-term we will see more and more of that. I don't know that we will, at least in the foreseeable future, get to a point where that entirely replaces personal ownership. But the fleet business is a huge business, and there is a lot of opportunities still for growth in that business around the services side of that, whether it's subscriptions for the management systems, subscriptions to the vehicles themselves. Fleets, in many cases, fleets don't necessarily want to have the capital expense of owning the vehicles, so they may be leasing those through some other company that actually owns the vehicles. Airlines do this all the time. Many of the aircraft flown by airlines are not owned by the airlines. They lease them from some other company. There's a number of aircraft leasing companies. Same kind of model I think could grow on the ground vehicle side for fleets. So fleets are going to continue to grow. Deliveries become more and more important, gradual transition of personal mobility from personally owned vehicles into some form of shared transportation.
And another thing that I didn't talk about is the integration across the ecosystem. Simply replacing existing traditional, personally owned vehicles one for one, for example, with automated vehicles, does not really help us in terms of trying to reduce congestion, reducing the need for parking. What we need is to have fewer vehicles on the roads with higher utilization. And not every vehicle is ideally suited for every trip. What you want to have is an ecosystem that includes everything from micro-mobility vehicles like scooters and e-bikes through robo taxis and smaller automated delivery vehicles to mass transit and then automated trucks for long haul get better utilization of those vehicles.
But then you also have to coordinate all of those and have, for example, micro-mobility or robo taxis feeding from lower volume areas into mass transit on high volume routes where it makes sense. Mass transit doesn't make sense on every single route because then you have, again, underutilized vehicles. So if you can right size the vehicles for every trip and use a multimodal ecosystem, again, this is an area where some sort of subscription to a management platform would make a huge amount of sense and help to facilitate that.
Angela Simoes:
And then if you think about some of the other benefits of an automated fleet economy, if you will, is safer road conditions as far as fewer accidents, right? I can't remember. I just-
Sam Abuelsamid:
Yeah, reduced number of crashes, potentially, reduced congestion on the roads, because if you've got more people using fewer vehicles, then they're taking up less space on the road, and then you can open up some of that road space for dedicated micro-mobility lanes for bikes and scooters.
And another really important societal benefit out of this as well, in addition to also making mobility more accessible for people who can't drive, whether they're elderly or young or have some physical limitation that prevents them from being able to drive is parking. Today in the US we have something like seven and a half parking spaces for every vehicle on the road.
Angela Simoes:
Oh, Jesus.
Sam Abuelsamid:
Because most of the vehicles are idle 90 to 95% of the time. And so you have to store them somewhere during that time when they're not being used. So we have way more parking spaces than we have vehicles. And if you look at many urban centers, as much as 25 to 30% of the landmass in a lot of city centers is dedicated to storing vehicles that are just sitting there.
If we can get people to migrate away from personally owned vehicles for a lot of those trips and get into various forms of shared mobility across this multimodal ecosystem, now you can take some of that landmass that we've dedicated to storing idle vehicles and repurpose it for other applications, whether that is green space or building more housing. In a lot of cities, we don't have enough housing, and that leads to much higher prices for housing. So if we can have more housing, it makes it more affordable for people to live in cities. And then when they're living in cities it's easier to use mobility services than if you live out in the suburbs. You can have all kinds of other benefits from city living. Getting people closer together and having some density in there makes for a more creative society. So I think there's a lot of potential ancillary benefits from going down this path.
Angela Simoes:
And we haven't even mentioned environmental, right?
Sam Abuelsamid:
Yeah.
Mark Thomas:
In San Francisco, the new zoning laws actually prohibit adding parking to some of these big buildings. And when you're making the decision to drive or take mobility, the lack of parking now becomes a deciding factor. It's like, I'm not driving down there and then circling the block for 30 hours. So yeah, it's great to see that the tyranny of the vehicle owner is no longer driving policy decisions.
Sam Abuelsamid:
Yeah, no, that's definitely a step in the right direction. So I think there's a lot of things that we can, as I said, benefit from both an economic and a societal perspective.
Angela Simoes:
But clearly there's a lot of room for growth, as you've talked about, both from usage of different forms of mobility, business opportunities, revenue growth for different companies. So for our last question, where do you see things going or what do you think we're going to see next? Maybe that's in the next year, the next five years, where do you think we're going to see some movement?
Sam Abuelsamid:
I think in the near term, I think where we're going to see the most growth in terms of services and subscription type of revenues is going to be in the commercial fleet sector. That's where there's a clear benefit to the customers, the fleet owners, the fleet managers, and a clear economic benefit to them as well as an operational benefit to them. And then longer term, I think we will continue to see more modest, but eventually increased growth on the consumer side, shifting away from personally owned vehicles, ideally, particularly in urban areas, and continuing to shift towards a multimodal mobility ecosystem.
Angela Simoes:
Excellent. Well, that ends our episode for today. And thank you again so much, Sam. This has been a very exciting conversation. Just when we think about where things are going and the possibilities, it's actually quite exciting. So thank you for your time. Thank you, Mark, also for your time as always. And thank you to our listeners who joined us for another episode of The Mile Marker Podcast. Be sure to subscribe so that you are notified of our future episodes. If you liked this episode, please like and share, and please leave us a review on whatever platform that you listen to your podcast. And until next time, keep moving forward.
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