As emerging technologies and business models, like ride-hailing and sharing services, Goldman Sachs sees the way we live being impacted in major ways.
By Heath P. Terry, CFA, Daniel Powell, Piyush Mubayi, Frank Jarman, David Tamberrino, CFA and Adam Hotchkiss
The way people get around is poised to change more in the next decade than at any time since the invention of the automobile. As emerging technologies and business models, like ride-hailing and sharing, are joined by autonomous vehicles, micro-mobility, and even eVTOL (flying cars, finally), at Goldman Sachs we see massive new businesses being created, existing models disrupted, cities changed, and the way we all live impacted in ways both big and small.
While it’s impossible to condense all of this into a single number, we see over $7tn in existing markets (Exhibit 1) impacted over the next 10 years, creating opportunities for investors, existing businesses, governments, and entrepreneurs alike in a “new mobility” market that we estimate generated over $90bn in gross revenues in 2018 and will grow to over $375bn in the next 10 years (+15% CAGR).
The new mobility market
Broadly defined, we consider the new mobility market a combination of several existing markets, use cases, and services, as well as yet to be established versions of the same. While the earliest addressed of these is taxi and rental car replacement, we estimate that public transportation substitution, car ownership replacement, and micro-mobility will all combine to account for ~5% of a $7tn+ transportation market by 2030. More broadly, food delivery services, freight, and last mile logistics are also being addressed.
The global mobility market is set to change dramatically in the coming years. In an attempt to size the potential for disruption, we’ve leveraged input from our global transportation and technology analysts to seize the opportunity for ride-hailing as a category through multiple lenses. We recognize a high degree of uncertainty exists in sizing the impact of new technologies, particularly ones as globally relevant and complex as ride-hailing and which will impact multiple existing markets (car ownership, taxi services, public transportation, etc.) as well as create new ones (autonomous driving and delivery, micro-mobility, eVTOL, etc.)
Time to grow up?
Over $120bn in venture capital has been invested in addressing these markets over the past 10 years, with $100bn in the last 4 years alone. Venture-backed entrepreneurs see opportunity in the $700bn+ in profit pools generated by these markets. We estimate that venture backed companies burned nearly $10bn competing with each other in 2018, as incumbents tried to capture share in these profit pools. While capital in both the private and public markets remains readily available, we do believe recent and expected public offerings in the space will serve as a catalyst for companies to begin to move toward profitability.
We do believe that much of this maturity will come from rising prices, driving operating efficiencies, and ending venture funded subsidies to riders, drivers, and diners that have fueled much of the adoption of these services. For many users, ride-hailing or food delivery services are a luxury rather than a utility. We believe recent price increases in major markets, partly regulatory and partly a function of higher costs and tighter supply, have already served to materially slow growth in the category. While higher priced/less subsidized services will naturally grow slower, we see it as an inevitable process in the move towards a more rational competitive environment and sustainable growth/profitability.
We identify more than seven ride-hailing companies and eight food delivery companies that have raised over $1bn in venture capital in the last five years. There are also more than six other micro-mobility companies that have raised over $250m, eight autonomous vehicle companies that have raised over $250m, and five companies that have raised $25m focused on some other emerging form of transportation (eVTOL, Hyperloop, Jetpacks, etc.). Along with efforts from existing companies like GM’s Cruise, BMW, and Daimler’s ride-hailing joint venture, this has created a hyper-competitive environment around a massively addressable market with each subset of the market in a different stage of competition. While we believe that the advantages of scaled platforms are significant enough to drive the “winner takes most” dynamic that we see in other areas of technology, we believe it will be a process of several years before a winner reaches that point.
While we see new mobility as a massive long term opportunity, the path to reaching it is far from a straight line.
Though there are already very large companies across the various markets and services, we see the long-term leadership in the space as far from settled and believe the risks in ownership across the space, as both the services and the competitors within them mature, are significant. In the near term, competition, regulation, rising labor costs, and macro issues all stand out as major risks, while longer term technology developments could serve to alter market growth and competitive positioning.