News from the Revolution (Part I)
Infrastructure Ideas has been covering the ways new technologies are changing how infrastructure services are delivered. Today we focus on the transformation in cities and urban transport. With major new announcements becoming a daily occurrence, it’s difficult to keep up to speed with how the big picture is moving – but it is moving far and fast, with widespread ramifications for users, providers of capital and policy-makers. Seats belt required…
Let’s try it by the numbers. Kudos if you knew all of these beforehand. Actually, Kudos if you knew any of these numbers.
$1 billion, $3 billion and $20 billion:
• $1B is the May 31st announced value of California’s and New York’s investments in charging infrastructure for Electric Vehicles. $3B is the May 31st announced value of GE and Softbank’s joint investment in driverless cars. $20B is the estimated capital expenditure to date in global bike-sharing systems.
• the number of ride-sharing “unicorns” – with market values above $1B – based in Emerging Markets
• the number of cities hosting Autonomous Vehicle pilots, as of March 2018
• the increase in the number of cities with BRT systems since 2000
• the time to recharge an electric vehicle with Shell’s new charging station technology
• the time for 4 robots to build and install world’s first 3-D bridge, installed in April 2018
• Uber’s March 2018 estimate for the launch of UberAir, the planned flying taxi service
Eye catching enough? We could safely add “less than 1%,” which would be the number of professionals in the traditional infrastructure space who are up to speed on all this change. Today we’ll do a quick survey of this revolution, and in two forthcoming columns we’ll examine more closely the implications of all this for providers of capital, and then for Emerging Market policy-makers.
Uber and ride-sharing
The sharing economy, or the “Gig economy” as it is variously termed, is everywhere. Uber and AirBnB are probably the best known of the thousands of new companies that have been turning traditional businesses upside-down. Their spectacular growth is due to their ability to harness technology, data and communications technology in particular, in ways that enable them to raise asset utilization and so deliver low-cost and reliable services at large scale. Transport services have been particularly affected by this revolution. While Uber is the big name brand here, and its numbers are staggering — an estimated net worth of $50B (down 1/3 since recent negative press coverage), an estimated 5.5 billion annual rides – Uber has plenty of company in this space. The worldwide market in car ride-sharing is estimated at $59B for 2018, growing around 15% year-to-year, and the US is not even the largest market anymore. China now accounts for about half of total ride-sharing revenues, with leader Didi’s estimated net worth on a par with Uber’s. $59B puts ride-sharing at over 50% of the size of the global taxi market – this in less than a decade of existence. It also puts ride-sharing at somewhere ¼ and ½ of the size of the global mass transit market. Goldman Sachs projects that this market will expand over 1000% by 2030. Ola in India, Grab in Singapore and East Asia, and Go-Jek in Indonesia are all worth over $1B. Yandex paid over $1B to buy out Uber in Russia, while Go-Jek is investing $500m to expand beyond Indonesia. Big numbers, and big money.
Those of you my age, or who wear a suit most days, may think of ride-sharing as just about cars. No longer. Bicycle sharing has also reached the big time. From some 300,000 rides in 2010, when DC bikeshare was launched in Washington, the US bikeshare market reached 35 million trips in 2017. And it’s growing 25% a year. Motivate, the US market share leader with over 50% of all bikeshare trips, is the current target of a rumored $250m plus acquisition by Lyft. Amusingly Motivate – who few people have heard of, is already in danger of being “yesterday’s technology.” Dockless bikesharing models, only a few years old, are rapidly gaining share. Dockless player Limebike attracted funding at a valuation of $225m earlier this year, while in April – just over a month ago — Jump was purchased by Uber for $200m. More locations are getting onboard the bandwagon (bandcycle?), as these numbers are based on a still small and concentrated geography: 5 cities account for almost 70% of the US market. One can observe a proliferation of business models, from “traditional public private partnerships” with the host city sharing capital costs of establishing the system (Washington DC), to concessions for operation being granted exclusivity (San Francisco, New York), to open entry with caps on the total number of docking stations, to free for all.
The US bikeshare market is tiny compared to the later starting Chinese market, which has almost 100 times as many bicycles in bike-sharing program as the US. Market leaders Mobike and Ofo, backed by Tencent and Alibaba respectively, are each valued at over $1 billion. The Chinese bikesharing market grew so fast that 60 start-ups were recorded in 2017 alone, and as CNN reported in December 2017, the market is already in a bubble. #3 player Bluegogo failed to manage the expansion well and shut down in late 2017. Photographs of mounds of unused bicycles from the unsuccessful start-ups may create an impression of a fad fading away, but the bike-sharing market is growing full-throttle. In Chengdu, 2017 saw more rides on bikeshare than on the subway. Both of the two big Chinese players are expanding internationally: Mobike just began operations in Washington DC, and is in six countries, while Ofo has launched in India.
In most emerging markets, bikeshare is just arriving or about to arrive. In India, early entrant Mobycy has 0.01% of the volume of Mobike in China. Even with road conditions in much of India, at $1 or less a ride, that ratio will change in a hurry. In Indonesia, Singapore-based oBike has entered in Bali and Bandung, while Banopolis tries to become the first local start-up. In Latin America Mexico City and Buenos Aires have started services with the same name, Ecobici, with the Government owning the Argentine service and having a PPP-model investment in the Mexican one. Established players can move into new cities in a matter of weeks, once data, communications and procurement systems are established, and entry permits obtained. Bikeshare is an area with lots of growth left, and a lot of investment ahead of it.
And still to come on shared transport: scooters and electric bikes. Bird, the flagship electric scooter company, already has a market value of $1B. At $3 vs $1 average ride cost, scooters are less attractive for last-mile transport in low-income geographies, but cheaper than cars for longer commutes. Unsurprisingly, multiple companies in Asia are already developing this segment.
Mass transit has traditionally been what one thinks of when looking at getting around cities. In developed markets, the boom in shared transport contrasts with a more stagnant picture in mass transit. No surprise here, as in many cases it is people leaving one transportation mode for another. In the US, bus ridership has been declining for years, and most subway systems have also begun to report declining passenger numbers. In Emerging Markets on the other hand, mass transit systems continue to grow, albeit nowhere near the pace of ride-sharing. But their future ridership is less and less certain as alternatives grow. Globally, there is one sub-category of mass transit which is booming in OECD and emerging markets alike: Rapid Bus Transit, or BRT. Even in the US, BRTs have shown consistent yearly passenger gains since records began to be kept in 2012. This should not be surprising, given how slowly buses in non-dedicated transit lanes sometimes move – a 2017 study in New York City has the average speed of Manhattan buses at 5 MPH: walking speed. From being in 33 cities in 2000, BRTs are now in 167 cities worldwide, and another 121 cities have BRTs either under construction or in the planning phase. That’s a 400% increase since 2000. Hanoi, as an example, got its first BRT in 2017. BRTs have been a favorite in Latin America, which accounts for 60% of global BRT passengers, led by Brazil where Sao Paulo and Rio de Janeiro’s systems carry over 3 million riders a day – followed by Bogota’s at 2 million. The BRT daily ridership in these three cities alone is equal to 5% of global daily subway ridership. BRT annual revenue is approaching $1B in both Sao Paulo and Rio.
With continued rapid urban population growth, one can expect BRT growth to continue. Here again technology plays a key role, enabling faster ramp up of planning and better cash management in new systems, as well as far better interface between new BRTs and other forms of transport in a city. New technologies are even being assessed that might enable cities to put in place “quasi dedicated bus lanes,” without the construction costs of all-new lanes. And cost declines from electric buses (see below) will spur additional growth.
Electric vehicles (EVs) continue their march forward. Sales last year of electric cars crossed the 1 million mark for the first time, and are projected by Bloomberg New Energy Finance to grow to 11m by 2025, and 30m by 2030. Automakers queued up in 2017 to announce plans: Toyota announced its lineup would be entirely electrified by 2025; GM said they would have 20 new EVs within 5 years and Ford 13; all post-2019 Volvo models will be either hybrid or all-electric. Four countries, including China and India, have made announcements of having only electric vehicles at some near future – from 2030 to 2040. While the early impetus for hybrids and then EVs was environmental, post-2020 market projections are increasingly being based on relative costs. Electric engines are far more energy-efficient than combustion engines, so while EVs will by definition consume energy, in the form of electricity, the cost of that energy should be only 20-25% of the cost to fuel an equivalent ICE vehicle. EVs also have far fewer moving parts than ICE cars, and so will cost far less to maintain. These advantages already exist, and are today offset by higher purchase prices, and concerns about the convenience of charging EVs. Within 3 to 6 years, depending on models and who is doing the analysis, it is projected that purchase prices of EVs will become across the board lower than ICE cars, making them cheaper to buy, cheaper to run, and cheaper to maintain. Lower prices will result from the decline in battery prices. And if solar panels and wind turbines continue to be the technological precedent that automotive electric batteries follow, then after EV cars become cheaper than their ICE peers, they will become… even cheaper, and cheaper.
From an infrastructure perspective, it is not EV sales per se that are of most interest, but rather how EVs affect infrastructure. The big impact will clearly be the need for charging infrastructure – effectively a variant on traditional electricity distribution. Three days ago, on May 31, both California and New York made announcements of planned additional investment in EV charging infrastructure, of $1 billion in aggregate. This segment has seen about $5 billion in worldwide capital spending to date, and is projected by Grand View Research to become a $45 billion market by 2025, growing at over 40% a year. For context, this is about the size of the current worldwide annual investment in ports and terminals. So another big market under development. Initially one saw competition between alternative providers of this new infrastructure: gasoline retailers (who today provide the infrastructure which will be increasingly substituted by charging infrastructure); car manufacturers (Volkswagen is installing 2,800 stations in the US in the next 12 months); governments (as is the case for early rollouts in Europe); electricity distribution companies (80% of access points in the US today are in homes, with NRG also moving into stand-alone stations); and specialty providers. At this stage, specialty providers have the largest share in the non-home market. Chargepoint is probably the biggest player in the US, but there are several competing networks. Technologies and operating models still vary considerably: while the image is of the need for several hours to charge a car, new Level 3 stations enable a charge in about 20 minutes, and Shell has announced imminent roll-out of a technology enabling full-charging in 8 minutes. Tesla’s new supercharger stations have been described as a mix between airline waiting room and coffee shop. Sweden is experimenting with a completely different approach – electrified roads which enable charging while driving – now on two highways, while Italy is doing the same with contact-less charging at intersections and parking bays for buses. Which approach becomes “the standard” is not clear yet, but it is clear a lot of investment is headed this way.
The segment of electrified vehicles which appears to be developing the fastest is actually not cars, but buses. Because of a combination of lower relative costs (EV buses vs ICE buses), lower maintenance costs, and concerns over urban air quality, Bloomberg New Energy Finance forecasts a much faster rate of adoption for EV buses than EV cars. BNEF predicts electric buses will capture as much as 84% of the new bus sales market as early as 2030. China has 300,000 electric buses already on the road. This will have a big impact on city governments everywhere, in terms of procurement for publicly-owned bus fleets, of addressing transition costs for informal bus fleets in many emerging market cities, and in terms of ensuring the presence of appropriate charging infrastructure for buses.
Self-drive cars are somewhat further out on the horizon, especially in Emerging Markets. But they too are coming, “driven” again by cost advantages. As of February 2018, 21 states in the US had passed autonomous vehicle (AV) legislation, and 60 cities worldwide are hosting pilot programs for AVs. Rio Tinto announced in December 2017 it would expand the fleet of autonomous haul trucks at its Pilbara iron ore mines in Western Australia by more than 50 percent by 2019. According to the company, each autonomous truck operated, on average, an additional 1,000 hours at 15 percent lower load and haul-unit cost than conventional haul trucks in 2016. And on May 31, 2018, General Motors announced that together with Softbank they would be investing $3B in AVs. Infrastructure Ideas’ March column (life-threatening infrastructure technology) surveyed AVs in more detail.
From an infrastructure perspective, the wider deployment of AVs will have a number of consequences, some clear, some less clear as of now. What is clear is that cities will need to invest in sensing and signaling infrastructure for AVs, though the magnitude of those costs are unknown. AVs will also unlock massive amounts of new data for cities, which municipal governments will want to manage and utilize – requiring data management investments. AVs will likely have a significant impact on road congestion, affecting costs of road construction and maintenance, and on parking patterns, affecting the amount and location of parking spaces in urban areas. They will also, clearly, require a completely new type of regulation which cities will need to learn and adopt.
The big three parts of the mobility revolution, at least as we know it today, are shared services, EVs and AVs. But technology keeps developing, opening up opportunities to reduce costs or increase convenience outside of these three boxes. April 2018 saw the installation of the world’s first 3-D printed road bridge, in Amsterdam. One description of it is that the bridge “looked like it broke off an alien spaceship.” But it works. Built by four robots in six months, it holds out the potential of significantly lower cost, and faster construction, for road infrastructure. Drone transport is growing for small-distance cargo movements. And Uber has announced it will launch UberAir in 2023, with a fleet of air taxis. Right now it sounds expensive, at about $5 per mile (about 10 times the cost of car ownership), which would keep it a marginal segment. But who knows where technology will take costs.
The revolution is here. You’re in the middle of it.
In the next two columns of this series we’ll explore implications for providers of capital, and for policy-makers.