The way we get around is constantly transforming. Uber is worth potentially billions, GM is setting up a separate business unit, Maven, to focus on ride-sharing, Ford is calling itself a “mobility” company and touting its fleet of self-driving cars, and Tesla is, well, Tesla.
This has led Wall Street to peer into the crystal ball in an attempt to position investors for the brave new world.
A team of Morgan Stanley analysts, led by auto specialist (and Tesla bull) Adam Jonas, just published an extensive report assessing the disruption to come. The US is the center of the action, so that’s the most interesting section.
But it’s as compelling for its mistakes as it is for its thorough analysis.
The upshot is that Morgan Stanley thinks a vast rethinking of transportation in the US may lead to an autonomous-vehicle-based, software-enabled national transportation system:
“A shared electric autonomous fleet that forms the fabric of a nationwide public transportation infrastructure without significant funding burden on the government does … presents an attractive alternative for policymakers to meet lofty emission/fuel economy goals,” the report says.
What Americans really want
That sounds great, but it’s far from obvious that most Americans want a nationwide public transportation system, or would be interested in paying for it even if they did.
Morgan Stanley then takes on the cornerstone of the existing auto-industry business model.
“Superfluous levels of private ownership provide an opportunity for shared mobility to find an initial grip,” the report suggests. “The average US house-hold owns 2.2 cars with around 20% of all US households owning 3 or more cars. However, vehicle utilization drops significantly for each incremental car in the household beyond the second car, making the cost per mile economics unfavorable.”
The use of that word “superfluous” compounds the initial error. As much as Americans may not want a national public transit system (even if it is created by cool self-driving cars built by Apple or Google), the do want more cars. In much of the country, it’s impossible to be standard family with two working parents and two kids without at least two cars.
And that’s just for basic-transportation needs. Plenty of folks keep around a infrequently used car because it’s a convertible and it’s fun in the summer, or it’s a pickup truck for weekend gardening duty, or it’s an SUV with roof racks to use for camping or fishing or mountain biking.
Rich country problems
The point is that the US is a very affluent country, relatively speaking, and with affluence typically comes … more cars per family. Let’s not even get into the need that teenagers have for their own wheels, or college students.
Sure, maybe the economics don’t work. But the economics of car ownership have never worked. You borrow money to pay for something that, even new, depreciates by 15% as soon as you drive it off the dealer’s lot. If you hang into it for a decade, spending even more money on maintenance, you end up with a vehicle that’s effectively worthless.
Americans are happy to overlook that because having a fleet a cars around the house is convenient. Uber might sell on-demand mobility, but you still have to spend 10 or 15 minutes getting your ride. A car sitting in the driveway trumps that, even if it spends most of its time parked.
It’s sexy to insist that this way of life is about to be radically changed by technology and new entrants — sexy because why wouldn’t you want to figure out a path to profitably invest in this Big Shift? — but in order for the current auto industry to be replaced, Americans would need to alter the national personality.
Morgan Stanley isn’t alone in wandering down this road of flawed reasoning. Traditional car companies are actively investing in solving a problem that doesn’t exist: there are no meaningful indications that anyone, anywhere doesn’t want to own an individual automobile. If anything, the opposite is true: a record number of cars were sold in the US last year, China has surpassed the US to become the world’s largest auto market, and it starting to look like everyone was wrong millennials not wanting to own cars.
Morgan Stanley’s analysts are definitely the most out-there on Wall Street when it comes to the future of transportation. But it might be time to to pull back from some of their more ambitious expectations
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