How the energy crisis could fuel mobility innovation

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Could the current energy crisis fuel greater change in the mobility sector, creating new opportunities for investors? Here, Newton portfolio manager Frank Goguen and global investment strategist George Saffaye consider the changing market landscape.

Could the current energy crisis fuel greater change in the mobility sector, creating new opportunities for investors? Here, Newton portfolio manager Frank Goguen and global investment strategist George Saffaye consider the changing market landscape and potential road ahead.

As fuel and energy prices soar in the wake of a rebound from the worst of the Covid-19 crisis and supply disruptions forced by the Russian invasion of Ukraine, many industry analysts are asking what this means, not just for households and manufacturers but also the wider mobility sector.

Drivers of conventional fuel-driven cars face a double whammy of pressures. Amid rising fuel costs and with governments in Europe and some US states such as California also looking to phase out the sale of internal combustion engine (ICE) powered vehicles within the next 10-15 years[1] motorists are feeling the squeeze.

According to Newton portfolio manager Frank Goguen a sustained period of higher fuel prices could lead to significant change within the mobility sector as motorists reassess the sheer cost of owning and driving cars. He adds that growing concern about energy security could also speed up the transition towards new mobility modes and infrastructure and the development of more local supply chains.

Higher fuel prices mean that the cost of ownership of a gasoline or diesel-powered vehicle becomes significantly more expensive. What is unknown is how much longer these higher fuel prices will last and whether consumers are savvy enough to judge if this change is for the longer term or just a short-term phenomenon,” he says.

If it is shorter term then maybe current fuel prices are not such a problem but if the fuel crisis becomes a mid to long term problem then it will likely weigh more heavily on the consumer wallet – and that could mean some big changes ahead in mobility. Energy security is also becoming a really big focus whether you are in the UK, Europe or the US and building more local supply chains could also be key to the future of mobility.

Ridesharing returns

While the rise of urban ridesharing and ride-hailing services had seemed inevitable in a pre-pandemic world, both these and other more traditional forms of transport such as buses and railways were badly hit by Covid-19 (See box below).

Yet with some sense of normality is returning, Goguen says a sustained period of high fuel prices could challenge the logic of paying for the upkeep, parking and maintenance of private cars in our towns and cities and trigger new opportunities in areas such as ridesharing.

If fuel prices remain high people may be reluctant to keep their car in the city when it is underutilised for 95% of the day or only used at weekends. It is hard to see car ownership in cities increasing – especially with the rising cost of garages and car parking spaces”.

Less potential vehicle ownership in cities would be a positive tailwind for mobility. And if people start to feel more comfortable with communal transport, then ridesharing and ride hailing could once again come more in focus and also become an area ripe for new investment,” he adds.

With ICE powered vehicles coming under greater scrutiny from policymakers, electric vehicles are an obvious avenue for development. Yet Goguen is doubtful some government targets for private EV sales will be met without greater public incentives and investment.

In highly developed markets like the US there are currently limited, if any, EVs that are priced affordably for the middle and lower classes. This will hold back EV penetration, outside of the higher income population who can afford them. In contrast, when you look at large emerging markets like China, they tend to have EV models that span across all price points so this can be less of an issue for them. Once the US has more affordable options then the low to middle income demographics can participate in the EV transition”.

Government incentives and support could help but more investment in infrastructure would also be necessary to support market growth. As it stands it can be difficult to find charging points for EV in US and other cities, so what would happen if we saw exponential growth in their sales?” he asks.

Beyond private ownership, Newton global investment strategist, George Saffaye, believes electric vehicles will play a major role in ride sharing and ride hailing networks of the future with some mobility companies already mapping out our transport nodes and networks of the future.

The real game changer will be when we get fully autonomous EV ridesharing robo-taxis which don’t need either human drivers or fossil fuels,” he says.

These solutions are not as far-fetched as they might seem. Companies are already building out these solutions and have the capabilities to deliver solutions in these areas. In the next decade we believe the mobility landscape will change dramatically and that successful mobility business models of the future could deliver strong earnings levels for the companies engaged in them.”

Goguen adds that autonomous electric vehicles could also play a major role in business and commerce of the future. He points to recent shortage of US truck drivers as just one bottleneck autonomous vehicles could help ease.

In trucking there is a driver shortage in developed countries such as the US so we need to get autonomous highway driving solutions working. Worker shortages in key areas of distribution are a key indicator of why technology will be needed to adapt to these bottlenecks,” he adds.

Whether it is autonomous vehicles or battery manufacture for EVs, both Goguen and Saffaye are in no doubt the mobility sector continues to hold wide significant investment potential.

There is enormous scope for the development of mobility infrastructure such hydrogen power, new local ‘smart’ electricity grids with charging capability and the build out of new power packs such as solid-state batteries”.

Even in the public transport realm, train and subway carriages, buses and infrastructure will all likely require some input from private companies, generating further investment opportunities,” says Saffaye.

The Covid factor: how a pandemic changed mobility

Covid-19 and its associated lockdowns have had a dramatic impact on public transport and wider mobility. With communal transport off the agenda for many during initial lockdowns, the use of public transport, ridesharing, taxis and e-hailing plummeted.

While other more personal modes of transport, such as micro mobility, might have seemed likely beneficiaries of the change – with users adopting more autonomous means of local travel such as E-scooters – this was far from the full story.

In fact, while private sales of E-bikes and E-scooters spiked during the pandemic and this mode of transport became more visible through private use and for some home deliveries, the overall picture for micro mobility was surprisingly bleak. Covid-19 lockdowns saw the level of passenger-kilometres travelled in the sector fall between 50% and 60% worldwide, partly because of hygiene concerns about shared bikes and scooters in conventional sharing business models[2] .

While the pandemic presented a wider short-term crisis for mobility, hitting everyone from mass transit operators to taxis drivers, its aftermath may present potential opportunities for investment and infrastructure development. Importantly, Goguen believes a range of factors, including fading concerns about the threat of Covid-19 in a post-pandemic phase could see a renaissance in ride sharing and ride hailing.

Saffaye adds that shifting working patterns may also have a huge impact on future mobility within our towns and cities post Covid-19. “When you think about the way the world is going to work and the new hybrid work model, things will have to change. Much of what we used to do in a five-day week has changed and this will rationalise the way we use vehicles. As our post-Covid response evolves, newer business models will adapt to this new reality to provide the new more tailored transport and even delivery services people need,” he adds.

[1] The International Council on Clean Transportation. Growing Momentum: Global Overview Of Government Targets For Phasing Out Sales Of New Internal Combustion Engine Vehicles. 11 November 2020.

[2] Orange business services. Driving change: micro mobility and getting around post-COVID-19 22 February 2021.

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