Traditional business models are being disrupted by a platform epidemic with size and speed of extreme proportions. A simple, but powerful example is the fact that the world’s largest taxi company, in the shape of Uber, does not actually own any vehicles. Industries are changing rapidly. Ride sharing alone could become a USD 5 trillion market and forms part of a wider theme which we think has the potential to be one of the fastest, deepest, most consequential disruptors going forward – transport as a service (TaaS).
According to ACA Research1, TaaS sits at the intersection of four macro trends: autonomous vehicles, electrified vehicles, connectivity and the sharing ‘gig’ economy; it involves a move away from an ownership transport model towards mobility solutions that are consumed as a service. Estimates suggest as consumers adopt the TaaS mobility model the size of the US vehicle fleet will reduce from 247 million in 2020 to 44 million a decade later. US Department of Transportation data used in a 2017 report by RethinkX entitled Rethink Transportation shows TaaS miles could overtake individual ownership miles as soon as 2025 and by 2030 almost all of the forecast six trillion passenger miles will be driven on a TaaS basis.
These forecasts suggest not only will there be a shift from car ownership, which is extremely uneconomical, but there will be far better utilisation of vehicles and an increase in the number of passenger miles actually driven from four trillion in 2015 to six trillion in 2020. The cost of delivering those miles will also decline significantly because cars will be used a lot more intensively. This is a major change. It means, for example, that many of our children will not own cars and may not even learn to drive. Some reports predict autonomous vehicles could be approved by regulators for use on public roads as soon as 2021.
Chart 1: Speed of TaaS adoption
Passenger and car sharing companies such as Uber and Lyft have actively taken market share from incumbent models and have quickly become part of day to day life – Uber is often now used as a verb. Yet, despite their rising prominence neither looks like they will be profitable any time soon and both companies’ recent IPOs were considered underwhelming in terms of performance. It is not clear how the landscape will evolve as yet and whether this will be a ‘winner takes most market’. One thing to be wary of is that valuations for these companies, and others in the technology space, are often excessively high; these listings have certainly served to remind the market that ultimately all assets need to stand up to scrutiny on an intrinsic value basis and the high profile names at the start of a disruptive phase may not prove to be the ultimate winners.
Nevertheless, given the very broad range of areas which TaaS encompasses alongside ride sharing in freight, distribution, food and drone delivery, and personal transport, we feel the total TaaS market could eventually represent an opportunity in the region of USD 8 trillion, which would equate to 10% of global GDP.
Food delivery is an area into which Amazon is further expanding its business. Having already bought Whole Foods in 2017 in order to tap into the US grocery industry, Amazon is now leading a USD 575 million funding round into online food delivery service Deliveroo. The investment has the potential to shake up the food delivery market in the 14 countries in which Deliveroo operates, giving it enough cash to compete with rivals Uber Eats and the UK-listed Just Eat; the three are locked in a battle to take a share of the UK food delivery market. Analysts predict Amazon and Deliveroo are likely to integrate services, with users potentially able to order food via Deliveroo through Amazon’s Echo devices, or Deliveroo couriers delivering other packages besides food.
There are few pure TaaS companies in the market just yet outside the food delivery segment; Uber and Lyft are the obvious names but we are cautious in the short term as they look at assert their business model; there are however, opportunities in suppliers to the TaaS industry, such as Monolithic Power Systems in the US and Infineon Technologies in Germany. Over time we intend to explore further ideas and anticipate many new opportunities within TaaS will open up.
Chart 2: Transport as a service landscape
Where there are big, disruptive winners, there are also likely to be big losers and, in our view, the traditional car companies will bear the brunt of this disruption. Some estimates suggest the size of the car manufacturing industry could fall from USD 570 billion in 2015 to USD 104 billion in 2030 and that the used car sales market could disappear altogether.
The oil industry is another which is likely to lose out as internal combustion engine-powered cars are replaced by electric vehicles. The move towards autonomous vehicles and TaaS could precipitate a huge reduction in their revenues.
We do not think we are overstating things when we say this has the potential to be the biggest disruptive change seen in technology to date, bigger even than social networking or smartphones. Over the coming months and years we are excited to see how TaaS develops and what investment opportunities emerge.