We have ~1B non-commercial passenger cars on the road globally, and 260M in Europe. Meanwhile we are facing increasing congestion and pollution in larger cities. Ride-hailing services like Uber, Lyft and Bolt provide a superior customer experience vs traditional taxi, but have raised questions regarding increasing congestion due to increased use of taxi services without commensurate reductions in car ownership.

Car sharing has not yet seen the same market adoption as ride hailing, even though the model provides a solution that should result in fewer cars on the road. Contrary to ride hailing, the car sharing market is, to some extent, characterized by semi-local champions, as the market has yet to mature in a similar fashion as ride hailing.

However, recently we have seen the first major steps toward a more consolidated car sharing market with Getaround’s acquisition of Drivy (NGP Capital portfolio company), and BMW and Daimler merging their mobility services, including Drivenow and Car2Go. Another factor increasing consolidation is the likes of Uber and Lyft racing towards true multimodal offerings. Lyft recently launched a car sharing service, following Uber’s partnership with Getaround. Furthermore, on the OEM side, Volvo recently launched their own shared mobility platform, M, and Ford and Mahindra have invested in Zoomcar (NGP Capital portfolio company), highlighting the strategic nature of the space for OEMs.

Despite the launch of mobility services that provide alternatives to car ownership, car sales are still growing at 1%. So why are European drivers not shifting to car sharing services, even though these have been widely available for years, and we have seen the rapid rise of other shared economy platforms like Airbnb? The way we see it, there are a few key reasons:

1. Companies still buy or lease almost 50% of the cars sold in Europe annually.
2. Supply remains limited.
3. Market education for peer-to-peer car sharing takes a longer time than for ride hailing.

Car as a benefit, or mobility as a benefit?

It is undeniable that consumer adoption of mobility services in Europe has been rapid. However, corporations have struggled to replace the car with mobility services as an employee benefit, despite tightening internal environmental targets and increasing reporting requirement (IFRS16). A key reason is that legislators in most countries have failed to adapt to the new environment to create an equally attractive benefit for mobility services from a taxation perspective. Belgium recently approved legislation that allows mobility budgets to be taxed favorably, enabling increased flexibility for employees.

Why is the supply still limited?

Two models dominate this market: (1) peer-to-peer car sharing and (2) owned or leased fleet car sharing (Drivenow, Car2go). The two models have different characteristics, from both a scaling and a profitability point of view.

Peer-to-peer is less capital-intensive, as service providers can operate with a light balance sheet and scale or withdraw from markets more flexibly. The drawback is the ability to control the volume and quality of supply. Peer-to-peer models need to have efficient demand and supply acquisition from a marketing perspective to reach required network density while providing an equal or superior customer experienced vs owned or leased fleets.

According to a Deloitte survey, only 9% of German consumers would be interested in renting out their cars. Consolidation should favor peer-to-peer marketplaces, as it becomes more efficient to build up a supply network dense enough to create a strong brand. Reducing booking friction through remote opening technology is also playing a key role, as it allows instant bookings without the need for the parties to meet in person. Cities have also been slow to incentivize car sharing by providing more flexible parking zones. This is especially true for Europe, where dense city centers are not designed for high volumes of car throughput, which is why functional public transportation infrastructure remains crucial.

According to a Deloitte survey, only 9% of German consumers would be interested in renting out their cars.

Car sharing providers using their owned or leased fleets can immediately deploy the required supply in a city in order to achieve theoretically sufficient demand conversion rates. This is thanks to their up-front fleet investment, making the business model similar to that of rental companies. This also allows remote opening technology to be installed prior to fleet deployment. The crucial profitability factor for owned or leased car sharing fleets will be utilization levels. Rental companies like Hertz and Avis achieve around 80% utilization rates on their fleets. A major benefit of merging Drivenow and Car2Go was to drive economies of scale and increase the network density of the car sharing fleet.

Network density will be crucial for both of these models, and needs to be funded through marketing or fleet investments. Well-functioning parking schemes will also play a key role in enabling pickup and drop-off times within 5 minutes, which is generally required to drive adoption.

Market adoption of car sharing is still in its infancy

Car sharing remains a massive market opportunity, as only a fraction of privately owned cars are currently shared. Consumers still want to own cars for convenience and control. With consumers under 45 years being two times less likely to question car ownership vs consumers above the age of 55 (Germany), younger generations are set to drive increased adoption of car sharing. Major cities like Amsterdam have banned diesel and petrol engines starting in 2030, which increases uncertainty for prospective car buyers. Simultaneously, private leasing and car subscriptions are on the rise.

Consumers still want to own cars for convenience and control.

Micromobility and multimodal MaaS (Mobility as a Service) have seen a rapid rise, but we believe these are likely to have a greater impact on ride hailing, and, to a lesser extent, car sharing (although they will be key components of multimodal offerings). Autonomous vehicles will, on the other hand, play a key role in car sharing going forward, with the likes of Tesla aiming to launch robotaxi service in 2020, which is only likely to increase the adoption of car sharing. You can read our perspective on autonomous vehicles here.

People still love their cars, but in the future they will be shared cars, providing people with the flexibility to drive a sports car for date night, a pickup truck for weekend work, and a utility vehicle for family activities.

Sources

• http://fortune.com/2016/03/13/cars-parked-95-percent-of-time/
• https://www.statista.com/statistics/281134/number-of-vehicles-in-use-worldwide/
• https://www.acea.be/statistics/article/vehicles-in-use-europe-2017
• http://www.schallerconsult.com/rideservices/automobility.pdf
• https://www2.deloitte.com/content/dam/Deloitte/us/Documents/manufacturing/us-global-automotive-consumer-study-2019.pdf
• https://mobilit.belgium.be/fr/nouvelles/nieuwsberichten/2019/le_budget_mobilite_pour_une_mobilite_plus_durable
• http://ir.hertz.com/2019-02-25-Hertz-Global-Holdings-Reports-Fourth-Quarter-and-Full-Year-2018-Financial-Results

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