The next 10 years of mobility will bring more change in the way that people and products move than any decade since the invention of the automobile, Goldman Sachs Research’s Heath Terry explains in this episode. Emerging technologies and business models like ride-hailing and sharing, autonomous driving and delivery, micro-mobility and even eVTOL (flying cars, finally) stand to disrupt profit pools that we estimate exceed $700 billion, and venture-backed startups and incumbents will attempt to address over $7 trillion in spending. Given the size of the opportunity, it should come as no surprise that access to capital has created a hyper-competitive environment marked by massive operating losses driven by marketing, subsidies, incentives, and capital investment. As this environment matures and rationalizes, Goldman Sachs Research expects consolidation that will lead to profitability, the establishment of category leaders, and significant opportunities for investors.
This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is exe the Goldman Sachs, when we discuss developments, curly shaping markets, industries in the global economy, objects, Ewart, Global, had of corporate communications, hurt the firm the key of today's episode is: why is mobility about to change more than it has since the invention of the automobile dance that question were joined by Heath, Terry Business leader for the Tec, analogy media and telecom group in Goldman Sachs Research heat that his team are out with report on the future mobility. Heath welcome back the programme has been one of our most regular guess rate thanks ravaging. Let's putting some numbers on this. What are the three numbers that listeners should know pertaining to future mobility, been Tamar done with this episode ass at a three hour: seven trillion, ninety five percent and twenty six percent. So at seven trillion dollars worth of global spending on transportation that generate seven hundred
billion dollars and profit nearly nine percent of global GDP. We like to go after big addressing markets. This is one of the biggest the second one, ninety five percent, that's the amount of time that the average automobile sits unused. So this is the second biggest purchase most people in their lifetime, and it's not and getting used more than roughly five percent of the time, and it's a depreciating asset and in third, twenty six percent. That's the number of U S! Sixteen year old that are getting their drivers, licence is now that was nearly forty four percent twenty years ago and it's been coming down across all those groups now. Clearly, that's not just because of right. Hailing, there's a lot more there, but it tell you a lot about Canada, changing attitudes towards car ownership fastened I can't imagine my teenage years without the automobile by neither can I grew up in the suburbs, so do I know so to. Finally, you mean by the new mobility mark New Mobile,
sort of the umbrella term that were using to capture things like ride. Hailing micro mobility, electronic vehicles, autonomous vehicles, even things like ie tall that affair heavily or just changing the way that we get to and from where we're going even have things under that umbrella, like electronic free booking, which is impacting the business to business side of things and food delay. which is obviously having a big impact on the way we Ali and what about micro mobility, just to get some these definitions out of What's that mean? And how is it growing micro mobility Basically as bikes and scooters, it's all the electric bikes Voters that you're starting to see pop up nearly everywhere, except for maybe New York's. right now, although that's potentially gonna change here soon, but you can't walk down the street
and allay Paris, Atlanta, Stockholm, without tripping over a scooter at this point and their bikes all around them, but there they are because people are clearly using them and will see what happens with the business model over time. But it's a really effective way for people to cover short distances. If you got a five block from your subway stop or you. Ve got a twenty minute commute if you're walking into the office, and you can make that a five or six minute commute on a scooter. There's a lot of appeal there. Our CEO David Solemn and said he was in Atlanta for business meeting recently meeting see all the big big company and the guy shored up on a scooter. So it's not just for the teenagers, not at all how about the delivery a proxy mentioned briefly, but online shopping deliveries, food! What you watching that base right now, food shortage Where everybody's focused on this? Just because you can't go anywhere without being offered twenty dollars, offer a delivery or a hundred dollars to order from one company or another, and so you ve got
a lot of inter capital money going in to feeding us and making it relatively expensive to do it? feeding into a lotta the demographic trends changes in the way that we all behave, creating a real convenience factor around that important meal of the day that every family or every individual has to deal with, and a lot of this happening in the same category, because these companies are doing that is well. You ve got goober doing over eats and you ve got companies like Robin that are offering this in a lot of the international companies or offering both services and so they're kind of getting lumped together around this idea of mobility but effectively, what it's doing is it's giving people away to get something easy it. Some people call at the Manhattan Association of the rest of the world, something we all took for granted being able to order tat food at three a m, but if you lived in and very lived in Shreveport that wasn't really an option and increasingly London too, for they are the people talk about something unique about New York, but not so unique anymore. So
little bit about investment in space. There's meant about a hundred billion dollars, venture capital investment, just in the last four years. What strive and where are the dollar's going driving. It is that big addresses market venture capital is always attracted to big, addressing markets. The big winds and so the opportunity there, and especially when it's a market that is being impact. It has the potential to be impacted by technology as much as this one has that kind of overlap draws venture capital and going to ride. Hailing it's going to electric vehicles. It's going to food delivery really in that order than micro mobility is also another area and easy tolls. Another area that it's going into autonomous is attractive lot of venture capital. Money is well about half of its to China about a third of its going to the? U ass, given the size of the market, it's really hard venture capital is not to want to have at least some flags in the ground there without much
play flowing around this lot of competition. You mention these offers and me with all these offers. You wonder whether people are competing on price, can make money, but talk a little bit about petition in this new market is actually one of the unfortunate things I think about the development of the market, because as much as it can to create some excitement around it, it also creates some real distortions around the way. This should look. These aren't products, you necessarily have to subsidize for people. People want this. They want the convenience of right hailing. They want the convenience, being able to order by you got a lot of but he's right now that are burning nearly billion dollars a year in venture capital, competing each other. To make sure that when that ride happens, that ends with over and not left, or vice versa, that that order goes to grab hob and not Buber eat, sir. Vice versa, as planned and prices amounts into consumer benefits reminds me a little better, the early to thrive,
since late nineties, when aromas trying again the space in their busy giving things away, it didn't work out well for the companies, but eventually the consumer got what they needed. Yeah so right now and I'd focused mostly on the right hailing side of things, because we're start to see the way we think all the rest of this is gonna play out. First, it was we to make these rides cheaper than all the alternatives. It needs to be cheaper than a taxi, a pool options to be cheaper than the subway cheap and only the incumbents really exactly right, because that's what we're gonna do to win users over now Users have gotten comfortable with this and appreciate what it means you back seen a lot of that subsidy shift over to the driver side of things, because now it who can pick me up the fastest, isn't a five minute wait with one A minute wait with the other, I'm gonna take the three minute wait, and so a lot of this is owing to pay drivers, incentive fees to subsidize, putting more cars? road for these services, and so it's less of a consumer business
Anybody who uses these services in major cities like New York or San Francisco or London or Tokyo Paris, has seen the cost of this going up pretty dramatically. What was fifteen dollar a bride became a twelve dollar right, ailing ride. Then it became fifteen dollar right, ailing right now, it's a seventeen dollar right, ailing over the last three years, and so that's cosmic growth too. down, because any time you raise prices, it's gonna impact growth, but it's also the maturing of the space that you need to have happened that same thing, we think will happen in the food delivery space over the next few years. Talk about the trajectory around profitability. I mean I see a lot of attention on one of the big comments: we're went public and that put a lot of attention on this issue of scale and profit as prices Back up out of the ride, helping companies become profitable for the long term. That's gonna be the biggest driver of it, because if you look at profitability, it's all about competition in markets where, over
competition. They ve got contribution margins that are negative, ten percent in markets where they have significantly less competition like most of Europe. They ve got markets that have fifty percent plus contribution margins. Europe as a whole is a forty percent plus contribution margin market for them because they don't at the same level of competition in Europe that they have in the? U S or some of the latin american markets where they're losing money, Looking ahead, will ride hailing, be a utility or are luxury good right now it's a luxury good for most people. It's making that decision on. I want to take the subway. play. I don't want to have to worry about finding parking once I get there. I don't want to worry about how many drinks I have at the end of dinner before I drive home I'm going to take over and so for the most part, it's a luxury Nice goes up your suffer through looking for parking. Ultimately over time. We think there's gonna be a replacement cycle around car ownership, where you make decision of. Do I need that second car do actually a car at all. We do some math and the report provide sort of it
for people to put in how often you drive what you're insurance costs. Does it make more sense for you to use an over verses, owning a car, and so oh for people who drive right now. The math works out where, if you drive lesson about a hundred miles a week, it probably makes more sense for you, too, use over left or one of these other right. Ailing services verses, actually owning a car, and at that point that's where it becomes a utility. Unless you have four kids in Carson So a couple, the big players in the industry recently gone public where the implications for the end she coming out of these ip us we're hoping, and we expect that the ice I will be sort of the growing up moment for this industry that having public screwed having investors watching this kind of progress in the trade off between growth and profitability that public market investors typically the sea will lead to more rational behaviour around those kind of incentives and market expansion
and new categories and investment so that we get to a market that doesn't have the kind of distortions that all of the excesses of venture capital create. Now that may end up being wishful thinking. our part, it's not like the equity markets or the high yield markets are unwilling to find loss, making companies. We see plenty of those out there, but we do think. We do hope that this is going to lead to at least level of gradual rationalization of a lot of those decisions we ve talked but about the impact on technologies having on transportation, you can't talk about it all phenomena without talking about autonomous fleets and autonomous vehicles and oversee allowed. The comments are investing that's base along with so the upstarts in the disruptors. What's your outlook for the time in the implications of autonomous fleets for this space there's a lot of different degrees of autonomous level one through level, five to define it? The autonomous it's gonna be
or here is generally thought to be sort of level for which means that a car can operate on its own in a relatively well, defined area Manhattan, San Francisco. and really when you look at the experts around the space, such generally thought to be sort of a gradual process that will see over twenty twenty three twenty twenty five, depending upon whose view of the world you believe in For most of these companies, that means two three four per cent of their rights will be dress of all by autonomous. At that point, which doesn't sound like a lot but when you're eliminating seventy percent of the variable costs, which is the labour associated with this action, a pretty big impact on the business model, so how far away from flying cars that comes up a lot in the car, with our fate One more thing and traffic report talks,
but that Eve Tall had not explain that to us what it is and yeah what we need to think about that phenomenon. The ass, if youve, taller electric vertical, take off and landing vehicles that something that you're seeing a lotta development around who were just hosted a conference around it and easy called elevate right now, you ve got companies that are doing this some degree using helicopters Hoover has who were compter their private companies like blade that are out there. They're doing this, but the real, exciting part of it. The flying car peace that we ve all been promised. Some of the companies that are real aggressive on this- think that they can get those into production and out, thereby twenty twenty three there. So we called Lilium, that's making a promise of J F K amid town for seventy euros in less than ten minutes, and so you- and I think, that's where the Pope is so you're gonna have a lotta regulatory oversight on something like that. But as any of us who satin, J, F, Cato Manhattan traffic knows that be a nice premium product happy very my pie worth one. Seventy other other components,
technology that are overlooked, that we're not paying enough attention to the thing that were probably not spending enough. mine in thinking about the spaces, the electrical vehicle parts ask any a lot of us if sort of that feels like old technology. But when you look at the carbon debate that's going on right now, when you look at some of the regulations that are going into place in Europe that patent, He has a really big impact on the adoption of these new mobility models, because it seller rates that replacement cycle for existing car, empta structure, and so, if that seven year, average replacement cycle becomes five years or for years, because Only it's gotten much more expensive to own a gas powered car or Europe set of eyes to move into an electric vehicle model that potentially speeds up a lot of growth that were expecting space and really impacting that seven hundred billion dollar profit pull that we talked about when you think about this.
Car ownership, you mentioned the most car, sit idle for ninety five percent of the time. might the nature of car ownership evolve Over time I mean I was recently in London on the two banana You can do as much as five hundred pounds a month. By give your card or ride hailing serves, there's a lot of different ways that people are thinking about how to monetize that assets. It you ve, got the car rental, services where you essentially inner your car into a pool that allows other people to read it the same way, they might rent a car from the airport. and use it when you're not using it and that's something that we're seeing pretty meaningful growth, and particularly in major cities where the constraints of owning a car that stoning, a car lot hires makes people think about how to The ties that and then you're also Seeing in the future new here Tesla talk about this. The idea that if you own an autonomous vehicle and you're, not using it ninety five percent of the time, then let that autonomous
it will go out work for you if it can be this sort of Robo taxi that you can enter into a pool like that without any real work on your part. Why would you do it if I'm driving to the office at nine o clock in the morning and it's gonna sit there from ninety five it might as well be? out there on the road earning some income, as opposed to just sitting there, depreciate and so on, models seeing it ten dollars today or they stole like a little bit in the future. The rubber tax There is certainly still in a few trawler you're, seeing a lot of investment around autonomous, the car sharing models and there's a variety of private companies out there that are doing it. They're, seeing real investment from the venture capital communities out there, there's of right, of them that have had a degree of success getting off the ground. It's a difficult model to roll out quickly, because you have to go city by city to get the inventorying convince people that your cars gonna be safe, while its out on the road with somebody you dont know, but the growth rates are pretty staggering.
in retail and e commerce. A lot of focus these days on last mile as people get more more accustomed to having more more things brought to them. The difficulty oftentimes is getting it to someone's door. How might that change transportation? Look at the way that traditional retails having to deal with this Amazon operating at a scaled, if they want to do that, they can go out and buy thirty and sprinter vans. The way they did last fall and invest eight hundred million dollars in same day delivery to go around the postal system, but if you're a mom and pop store even just a small medium sized chain that option Building a big fulfilment infrastructure like Amazon has isn't really realistic, but if somebody else come along, and there are several private companies that are proposing to do this and effectively do the same thing for products that companies like over each have done for food so that I can order something from the dress shop. A few miles down the road or the sporting goods store on the other side of town and have
delivered that same day and a new over the same. Why would a lunch order that ends up being pretty powerful, particularly when we're looking for ways to allow these retailers to get into. e commerce and a more effective way than they ve been able to you look at the record number of traditional retail store closures that we're seeing right now in large part because of e commerce. This potentially becomes an answer for that kind of store, talk a little bit about the mobility landscape internationally, as he plays out very differently in countries like China and Brazil a dynamic ceasing in those markets. The big difference in a lot of market is the labour costs or just a lot lower the regulatory restraints or a lot less severe than you see in the U S, and then the incumbent competition is less severe. So this has a huge him. particularly on some of those emerging markets that dont have the alternatives around transportation, lookit, look launching uber boss in
yet in the impact that it having their or the electric tuck talks. That are being then in India as part of this, and so the the fact that it has sort of on society in people's daily lives and being greater it in those markets. Now, there's a financial component of this, which is those markets, also tend to be a lot more competitive mover notably exited the chinese market, because the competitive environment there just didn't make sense for them any more Brazil. where you ve seen that same chinese competitor go into the brazilian market to compete with over their Brazil, went from being one of the most profitable markets to one of the least profitable in the course of a year, because of that, but the importantly Brazil still their second biggest market outside of the? U S, which I think is something that surprises alot of people. So you end up with this incredible patchwork of
different markets, that as an investor or someone watching the way that this industry is of all being you have to pay a lot of attention because the answer in the? U S is going to be very different than the answer in all of these other markets. You meant. this in the context of the U S, but what are some of the risks that the industry faces regulatory side, rising labour costs or a broader macro issues, the right literary cited as you ve seen this in New York with the cap, that's been placed number of right hailing vehicles that you can have that driving a lot of the costs tyre that we talked about before you ve got some markets like Germany, where there's just still a very severe risk, Chin on any sort of right, ailing being offered in those markets and so the regulatory side of things. Has the potential to really slow or, in some cases, speed up the adoption of these service, you also from a risk perspective, do have this real risk around costs going higher and higher costs me and slower growth in these companies generally have
and valued as growth companies. The reason venture capital money in the reason public market money has wanted to go into. It is because this is such a fast growing category. But if this group, not period that we're going through means that we're gonna see slower growth that could have an impact on how quickly this all develops. So he had you first get interests in this space and what was the market like when you started well, I grew up in the same way you did, and maybe even my case suburbs is generous and moving to New York City and seeing the magic of the subway system. When I was twenty years old meant a lot to me in terms of seeing how this could change and then move to San Francisco, and I saw it system look like out there and the challenge of getting a taxi and ninety. Ninety nine and efforts there's a reason these businesses started was a reasonable started in a place like San Francisco. Anyway, who seen how much having access to something like Goober has changed a city like San Francisco in some ways to better some ways. For worse it hard not to be fascinated
by all this and they look even more recently this explosion of micro mobility. The fact that you can't walk down street in Paris without tripping over a scooter right now. That would have been the case even eighteen months ago. So how fast it is developing its hard not to be fascinated by this. Yet when you walk on streets in these, scooters in LOS Angeles, just littered with them, and it's a strange place to really be taking a scooter in some ways, but I'll see if they're popular. How do you commute to work? I live in Manhattan, I'm actually pretty close to the office. I'm a subway or goober guy depend upon the time of day and how quickly I need to be here. But I've been known to take a few leaders when I'm outside of the city and some of these bike options are also really great talent. The big city bike phantom we're not progress with promote products on the throne of enough the great wave it's not too hot. Have our favour type of food. The order for delivery so southern roots its barbecue? For me, the fact that barbecue, that in New York City is spread all over the city and I can get it delivered without having to hike out to Brooklyn, makes life
lot more enjoyable, all right, so to wrap up the So let's summarised the central question: why mobility about to change more. There has, since the invention, the automobile, the ten years got going forward. The impact of all of these demographic changes like we talked about before the regulatory changes as we focus on carbon and then, of course, these technologies, particularly autonomous and electric vehicles, we'd, never had all of these things together. At the same time, it would be akin to getting the mob t and the interstate system Angelo gas prices all at the same time we're getting these things all at the same time, Exxon. He thanks for joining us today, thanks for having me Jake. That concludes this. a of exchanges, Goldman Sachs thanks for listening, and if you you, the show we hope you subscribe on Apple apple, podcast, only vociferating or a comment.
For more Goldman Sachs experts, as well as influential policymakers, academics and investors on market moving topics check out New podcast top of mine, a Goldman Sachs, hosted by also Nathan a senior strategies in the and research Domitian. This spot Gaskell's recorded on July twelfth two thousand nineteen, all price references and market forecasts correspond to the date of this recording. This podcast should not be copied distributed, published or reproduced in whole or in part the infirmary. it contained in this part gas does not constitute research or recommendation from any Goldman Sachs Entity to the listener. Neither governments
nor any of its affiliates, makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast, and any liability, therefore, including in respect of direct indirect or consequential loss or damage, is expressly disclaimed. The views expressed in this podcast, or not necessarily those of Goldman Sachs and Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Goldman Sachs too. That listener, nor to constitute such person a client of any Goldman Sachs Entity
Transcript generated on 2021-09-18.