BMW, Toyota, VW prepare for robotaxi future

Nearly every major automaker in Europe is involved in car-sharing to some degree, from pilot programs with just a few dozen cars to large-scale services in major cities.

There are signs this year that the sector, which is also referred to as short-term rentals, is starting to mature, with several operations closing and the two biggest players, Daimler’s Car2Go and BMW’s DriveNow, announcing a merger in an effort to build scale and fend off competition from digital and technology companies such as Uber and Didi.

Volkswagen, Europe’s largest brand, this summer announced that it would place 2,000 electric vehicles on the streets of Berlin, the company’s largest car-sharing initiative yet. In addition, VW Group’s fledgling Moia mobility unit has been running a test service in Hamburg using an electric minibus. The idea of the service is to help reduce traffic jams and pollution.

The economics of car-sharing remain uncertain, however. The global car-sharing market, which includes hundreds of services not associated with automakers, is forecast to reach US$11 billion in revenues by 2024, according to a study by Global Market Insights, with double-digit growth in users every year. But that does not necessarily translate into profits. DriveNow lost 17 million euros in 2017 on revenues of 71 million euros, according to BMW’s annual report, and Daimler reported losses of about 80 million euros at Car2Go subsidiaries, though the company says the service is profitable in more and more cities. “Our company has been investing in massive growth over the last few years,” a Car2Go spokesman said. “The strategic focus has been to gain market share.”

Making money on car-sharing isn’t the goal right now for automakers, experts said. Instead, they are using the services to learn about customer habits and best practices as they prepare to fight for a share of the robotaxi market as they evolve into mobility providers and move away from simply building and selling cars.

“Akio Toyoda made a clear statement at the beginning of this year at the Consumer Electronics Show in Las Vegas, where he shared our willingness to transition from an automotive company to a mobility company,” said Luigi Ksawery Luca, the director of mobility and connected cars at Toyota Europe. Toyota has just expanded its Yuko hybrid car-sharing service to Venice. It is already in Dublin and Forli, Italy. Among the three cities there are fewer than 100 cars, but Luca said Yuko is designed to be a knowledge-seeking trial rather than a profit center. “The purpose is to understand from our side how this business works,” he said.

Along with plans to enter the car-sharing sector starting next year, Volvo says it will be able to build robotaxis from its second-generation scalable product architecture, known as SPA2. “We should have one specialized car for ride-hailing companies. This car will be very different because it will be built without a steering wheel,” Hakan Samuelsson told journalists when introducing Volvo’s 360c autonomous vehicle concept last month. Volvo last year signed a deal with Uber to sell the ride-hailing firm up to 24,000 XC90s underpinned by the first-generation of SPA.

Learning by doing

“If you look five or 10 or 15 years down the road at autonomous driving, it makes a lot of sense why they are entering the car-sharing market now,” said Sandra Phillips, the founder and CEO of Movmi, a car-sharing consulting company based in Vancouver, Canada. “A lot of the things you learn in car-sharing, especially free floating where you have cars that are moving around in seemingly unpredictable patterns – which is not at all true – you will need to know when you get into autonomous ride-hailing,” added Phillips, who worked in business development for Car2Go before starting her company. “You learn the patterns of how people truly move.”

At the base of car-sharing lies the concept of mobility as a service, which many analysts believe will fundamentally change the economics of the automotive industry. Seen in that light, automakers’ involvement in car-sharing is essential to ensure their future survival. “We’re looking at an incredibly diffuse environment, looking forward, in the way technology interacts with conventional commercial platforms,” said Tim Urquhart, a principal analyst at IHS Markit. “That leads to questions about personal car ownership. We will see exponential growth in the range of mobility services.”

Peter Wells, a professor at Cardiff University in Wales and a principal in Stars, an EU-financed project that is studying car-sharing services in Europe, said the automotive industry was still struggling to find a way to integrate technology into its business model. “The industry as previously structured knew what it was,” Wells said. “They built cars in high volume, they sold through dealers, they made money on service in the first few years, and that was it.”

“Nobody knows how this emergent automobility world will work, how quickly it will come on screen, which places will be first, where the revenues will come from,” he added. “In the end, it implies a radical shift in the business model if we see it all the way through.”

Many transportation experts and automakers believe that ride-hailing and car-sharing will eventually merge into fleets of robotaxis that can be summoned by an app. “We are convinced that the future of car-sharing is electric and autonomous,” a Car2Go spokesman said. “We are already getting ready for this autonomous future today -- no other mobility sector can prepare itself so comprehensively for the future of autonomous driving as the free-floating car-sharing sector.”

Said a VW spokesman: “The merging of classical free-floating car-sharing and ride-hailing services is a probable outcome by the time the autonomous driving technology reaches Level 5.”

Movmi’s Phillips said that, ultimately, other modes of shared transportation such as bicycles, electric scooters and mass transit will be part of an ecosystem of services. “You can merge and aggregate those services, and create a one-click option,” she said. “As a user I will be able to use the same apps I did in the car-sharing world – and now it’s a robotaxi world. It’s starting to happen.”

Building brand loyalty

Automakers are also using the services to connect with hard-to-reach young people who will be future car buyers or regular users of car-sharing, ride-hailing – and eventually robotaxis. The belief that price and convenience are the only criteria for car-sharing – and that brand does not matter – might not be true, Phillips said. “We’ve seen studies that the younger millennials do care what kind of car they are using,” she said. “That group seems to care a lot more whether it’s a luxury vehicle. We’re not exactly sure why – we jokingly said it’s the Instagram phenomenon.”

Wells, of the Stars project, said car-sharing users tended to be younger than the typical car buyer. “These are the kind of people who will be buying their own cars in the future,” he said, “so there’s a great marketing opportunity for companies to put their cars in front of those consumers, especially electric cars because there has been a certain amount of reluctance to embrace them.”

The Car2Go spokesman said the service allowed potential customers an easy way to test drive cars from Mercedes-Benz and sister brand Smart. “To see that they work perfectly could be a reason for people to opt to buy a new Mercedes or Smart, combustion or electric,” he said. Volkswagen plans to use its We Share service in Berlin as a bridge to its coming range of electric vehicles, after starting with e-Golfs and e-Ups. “Starting in 2020, We Share is to support the market introduction of the new generation of our new, all-electric I.D. models and thus make a significant contribution to the Volkswagen brand’s e-mobility offensive,” Juergen Stackmann, VW brand’s board member for sales, said in a release in August.

VW’s car-sharing activities will always be 100 per cent electric, said Philipp Reth, the CEO of Urban Mobility International, a VW subsidiary that develops mobility services. “We believe this to be the future of shared mobility, particularly in metropolises and large communities.”

Better user experience

Although car-sharing vehicles represent a tiny fraction of cars on the road in Europe, automakers say they are learning invaluable lessons. “User experience is king. It’s absolutely fundamental,” said Luca of Toyota. “But customer experience is not only an app – it has to be supported by technology, and it’s also dependent on operations that are behind the service.” That means making sure the cars are cleaned, fully fueled or charged, and in appropriate locations, whether free-floating or fixed points.

Another key is developing relationships with municipalities to gain their trust and secure infrastructure such as parking spaces or charging stations, automakers said. “These initiatives are possible only due to the relationships we have built over time with local authorities,” Luca said. “Without their support they can’t happen.”

Indeed, car-sharing can succeed or fail based on such relationships. Car2Go pulled out of London in 2011 and Toronto this spring, largely due to parking issues. “The general problem was that we didn’t come to a satisfying parking agreement with the cities,” the Car2Go spokesman said. “It’s crucial that customers can basically end their rental on every public parking spot inside the defined Car2Go home area. Before the city council changed the legal framework, Toronto was one of our most successful Car2Go cities in North America, with 80,000 customers. It was really disappointing to leave the city, but the strict regulations left us no choice,” he said.

Car-sharing service requirements are also shaking up aftersales, which is a key profit center for automakers. “Now, carmakers have dealerships, and customers bring in their cars for maintenance. That won’t be the case in the future, so you need to know where to locate service centers. It’s not just about repairs, it’s also about cleanliness and lost and found items,” Phillips said. Other critical factors are city selection, whether to have free-floating or fixed-point vehicles, insurance, and damage control, experts said.

Ready to rise

Looking ahead, the pending fusion of BMW’s DriveNow and Daimler’s Car2Go may be the first of many in the car-sharing and mobility services sector. “More mergers are absolutely inevitable,” IHS’ Urquhart said. “We will see more in the automaker sphere, we will see more combinations and mergers including technology acquisitions. You have to create value, you have to create economy of scale.”

Scale is essential to provide coverage and to create a “network effect” of new users, analysts and automakers said. If the BMW-Daimler merger is approved, “All of a sudden you do not have 750 DriveNow and 550 Car2Go cars in Munich, you have a combined fleet of at least 1,300 cars, which decreases the average distance for the users to reach the next vehicle. This is key for further use cases and convenience, and maybe even for attracting additional users to register and use the service,” said Thomas Pottebaum, who is a director at Deloitte.

“In Germany, we have about 160 car-sharing services and providers, but less than 10 of them account for 90 per cent of the market,” Pottebaum said. The ideal walking distance between cars should be no more than several hundred meters in the free-floating model, he said. “If you have a longer distance it’s too inconvenient even for one-way drives,” he said. Even if the earliest predictions are that robotaxis won’t be available until 2030, “for the auto industry 10 or 12 years is not that much time, so car-sharing is perfect for the automakers to gain and attract a huge target group and build a customer base for new mobility services adjacent to classical vehicle sales,” Pottebaum said. “There’s the risk that you will lose these types of customers to Uber, Lyft and other competitors.”