Ticket to ride?

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February 14, 2020

Every day in the news we hear about the creation of new products or industries based on innovations in technology, old businesses being disrupted and new ways of doing business. Yet for most of us, investing in such trends, ideas and events is less than straightforward. Exchange traded funds (ETFs) may be a vehicle, which can offer exposure to innovative companies that can potentially impact our world. Here we consider some of the major trends making headlines today and ways ETFs may potentially provide exposure to those sectors

While the advent of advanced ridesharing systems holds the potential to revolutionize global urban transport, some question marks remain over their potential business models and wider investment prospects.

Imagine a future, where fleets of sleek, driverless electric cars whisk groups of passengers seamlessly and quietly from point to point across our cities on demand via smartphones or other wireless devices.

According to some analysts, that future is closer than it seems. Developers are already looking beyond schemes that started as basic smartphone app friendly cab services to move us closer towards a sci-fi style vision of fully shared automated electric transport vehicles and systems designed for the cities of the future.

At a business level, the growth of private cab, app-based service providers in the US has already eaten into the market share of conventional taxis and public transport, demonstrating the disruptive influence of new technologies on transport. There have also been similar developments in other transportation modes, including car-sharing, bike-sharing and scooter-sharing services. The hope is this approach can be extended to fleets of driverless electric vehicles.

Yet, for now, doubts remain over more advanced ride sharing vehicles and systems – particularly over the reliability of related technologies such as 5G, as well as ongoing regulatory and safety concerns about autonomous vehicles.

Many regulators remain wary of the underlying technology of autonomous vehicles, though some do argue it could ultimately reduce traffic and actually save lives. Yet achieving a safe balance between automation and hands-on control of cars has proved difficult, and regulation in this area is being keenly monitored by the insurance industry.1

Beyond personal safety, the rise of ridesharing has also prompted some wider fears it could decimate sales in the automotive industry.2 Yet despite a number of gloomy predictions, Moody’s Analytics is just one analyst to suggest the rise of ridesharing could actually bring some new opportunities for manufacturers in the automotive sector.3

A growing market

According to market research specialist Mordor Intelligence the value of the global ridesharing market hit $73bn in 2019 and is expected to reach over $209bn by 2025 at a compound annual growth rate of 19.2%.4 Global consulting giant McKinsey identifies China and the US as the largest markets for shared mobility at $24bn and $23bn in size, respectively.5

The increasingly inadequate public transport infrastructure of some US cities could offer real potential for growth in ridesharing and shared mobility services. Many people living in cities also increasingly realize that owning a car is a wasted resource, which spends most of its time parked and the rest of its time contributing to traffic congestion. McKinsey research suggests that if the US were to fully adopt autonomous vehicles the public benefit—through a 10% drop in both private car travel and congestion, as well as a 30% increase in system capacity—would exceed $800 billion a year in 2030.6

Wheels in motion

With these potential savings in mind, stemming from increased affordability per trip and greater passenger accommodation7, real progress is being made towards the roll-out of driverless vehicles and ridesharing systems. In 2018 Alphabet Inc's Waymo started an app-based, driverless car service project in Arizona to transport riders throughout the Phoenix-metro area—however, this program has also used human safety drivers as backup in case of technological malfunctions.

Automotive giant Ford recently announced its own plans to launch self-driving vehicles in commercial ride-sharing and delivery services in the US in late 2021 in conjunction with its development partner Argo AI.8 Despite some early roll-out delays, GM-backed Cruise also plans to launch a new autonomous taxi service in San Francisco.9 It’s worth noting Cruise has pushed the deadline back for the launch several times, most recently indicating 2020 may be too soon.10

While facilities such as ridesharing and electric cars are perhaps more closely associated with younger generations, some believe they could also hold major benefits for elderly and disabled people. As just one example, everyday life in a retirement community in San Jose, California, has reportedly improved with the introduction of driverless vehicles with residents now able to engage in a much wider range of social activities thanks to their new-found shared mobility.11

1ABI/Thatcham Research. Regulating Automated Driving. The UK insurer view. 31 July 2017.

2 CNBC. Cramer: Ride-sharing is killing car sales—and it’s only going to get worse.28 March 2018.

3Moody’s Analytics. The Effect of Ride-Sharing on the Auto Industry. July 2017.

4Mordor Intelligence. Ridesharing Market - Growth, Trends, and Forecast (2020 - 2025). January 2020.

5 McKinsey. How shared mobility will change the automotive industry. 01 April 2018.

6McKinsey. Reimagining mobility. February 2019.

7McKinsey. The road to seamless urban mobility. January 2019

8The Detroit News. CEO of GM's Cruise driverless vehicle unit hints at offering low-cost shared rides. 11 December 2019.

9Wired. GM’s Cruise Rolls Back Its Target for Self-Driving Cars. 24 July 2019.

10The Verge: Cruise postpones plan to launch driverless taxi service in 2019. July 24, 2019

11USA Today. Driverless cars can transform lives – if we change the rules and let them. 21 November 2017.

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