July 14, 2020

The COVID-19 Shared Mobility Recovery Plan


Kunal Khattar



As the Covid-19 crisis rages across the world, public life in many countries has come to a grinding halt. Not only is the patient caseload and death rate still increasing exponentially in many countries, the toll on the quality of our life has been enormous. As has happened with other financial contractions, people have postponed discretionary purchases and increased their savings as they anticipate harder times ahead. Discretionary consumer spending may decline by as much as 50%, translating into a roughly 10% reduction in GDP resulting in numerous second- and third-order effects. The current crisis could result in the most abrupt shock to the global economy in modern times. On the economic side, the coronavirus pandemic has forced businesses across the globe to cease or slow down operations.

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Impact On Mobility

The automotive industry, especially the shared mobility players, are among the hardest hit. Over the long term, COVID-19 could have a lasting impact on mobility, as it drives change in the macroeconomic environment, regulatory trends, technology, and consumer behaviors. Not only are most people staying home, but those who do need to travel are wary of using shared vehicles which could be harbingers for (sources of) transmission. The trends may vary by region, so responses and outcomes for mobility players may differ by location.

The most immediate and visible effect of COVID-19 in the traditional automotive sector was that many OEM and supplier factories came to a complete standstill. This may result in roughly 7.5 million fewer vehicles being produced due to the current crisis. This will have a cascading effect on the entire ecosystem. Over 90 percent of the plants in China, Europe, India and North America have been closed and are now slowly reopening. Many have been able to secure capital by applying for some form of government assistance, raising capital from current investors, extending their credit lines and even suspending dividend payments. In spite of that, with vehicle sales plummeting, automakers and suppliers have been forced to cut fixed costs extending to laying off workers across all levels.

Shared mobility players are suffering even more. Public-transit ridership has fallen by upto 90 percent in major cities across the world. In cities which are in lockdown operations across all form factors – public and private shared mobility platforms have been forced to shut down completely. On top of that, operators are burdened with uncertainty, additional responsibilities and costs arising from the need to implement strict hygiene protocols—such as compulsory face masks and health checks for passengers. On the other hand, revenue potential is going to be significantly capped due to limits on capacity, invoked by restrictions on the number of riders in cars, buses, trains and stations, in order to comply with social distancing norms. Companies are getting squeezed from both ends.

Another major impact of COVID-19 is that it has significantly shifted both the target user base as well as the main need for shared mobility, and many companies are scrambling to readjust their services according to where there is more demand. Several shared mobility services are joining in contributing to last-mile delivery solutions, as online shopping is drastically increasing with more and more people staying home. Zomato, Rapido, Swiggy and even Dominos have started delivering groceries. Even MakeMyTrip and Amazon were forced to announce their entry into food delivery.

Global Response

We are hopeful and look towards the state to launch initiatives to support mobility start-ups that were hit hard by the crisis. But low cash reserves and a lack of capital in the market will most likely take their toll on many players- especially those that have depreciating assets on their books. The potential weakness of some players, combined with the availability of still-cheap money, could trigger a surge in M&A activity in the mid-term, leading to a much needed and long-overdue consolidation across sectors. We have already seen Uber’s investment into Lime and its subsequent merger with Jump. This is just the first of many transactions to come.

We believe that regulators will react differently across countries. Some might view the crisis as an inflection point to accelerate the transition toward sustainable electric mobility, while others could loosen regulatory mandates and relax emissions targets to prop up their ailing automotive industries. Those living in India in some of the world's most polluted cities were pleasantly surprised at the dramatic reduction in pollution levels and improved AQI, would now demand clean air even more once things open up.

If physical distancing continues, city leaders might relax regulations for private mobility, at least over the short term, because people feel less vulnerable to infection in individually owned vehicles. Leaders might also revise their regulations to give more space to pedestrians and cyclists. For example, Bogotá, Colombia has added over 70 kms of cycle lanes. Many cities, like New York City, have closed several streets to traffic. In Oakland, California, an astounding 100kms of streets—10 percent of the total—have been blocked off for the exclusive use of pedestrians and cyclists to encourage distancing and safe mobility options. No such expectations for such announcements in India, since our cites are not designed for pedestrian or cyclist.

Mobility's Evolution Post-COVID19

In the short term, the current crisis could delay the development of advanced technologies, such as autonomous driving, as OEMs and investors scale back funding to concentrate on survival and cash flows. Investment in micro-mobility and shared-mobility providers might see a temporary pause—further driving market consolidation. Survival will favor larger players with higher cash reserves and blue-chip VCs on the cap table. Over the long term, however, we are confident that new technologies, smart vehicles, AVs, micro-mobility solutions, and other technologies in the automotive space especially those that support physical distancing could benefit. We believe that customer demand for these solutions would rebound quickly once the initial crisis subsides, increasing their attractiveness to investors.

The impact of COVID-19 on Electric Vehicles (EV) will differ across regions. We are already seeing post-crisis EV sales rebounding strongly in China. We also expect investments to remain on track in Europe due to continued strong regulatory tailwinds. EV demand might stagnate in the United States, especially if federal regulations about emissions loosen and oil prices remain low at the pump. In India we predict faster electrification across transportation needs given that prices at the pump have been delinked to oil prices and continue to remain high.

As the pandemic continues, need for social distancing will have a significant impact on mobility behavior and preferences. Many people may switch to a transport mode that reduces the risk of infection, but the exact shifts will largely depend on affordability and their pre-COVID habits. People who used a private vehicle may use it even more extensively, while those who previously relied on public transport might switch to alternate modes, such as personal mobility, biking or walking. We refer to this switch to a trade down, where commuters look for safer yet cheaper options in a slowing economy. Evidence from Chinese cities post lockdown confirms that private cars, walking, and biking have gained the most share since the pandemic began, while buses and subway ridership have experienced temporary declines.

But we at AdvantEdge feel that such changes are temporary and that shared-mobility solutions, including all forms of public transit, will rebound and continue to regain lost customers due to the lockdown. Micro-mobility solutions could also pick up more quickly if strict disinfection protocols are installed. That said, the pandemic could produce some permanent shifts over both the short and long term. WFH or remote work could become the norm temporarily, if companies recognize its continued benefits. If more people permanently work from home, the reduction in commutes would likely produce a long-term decrease in total vehicle kms traveled.

Mobility In India

Although somewhat contentious, the government has announced various economic relief packages worth $280 B or 10% of GDP, but the effects of the same are still to be seen. In April, the IMF still feels that India’s Real GDP would be flat or grow slightly over last year, one of the few large global economics that’s still not in negative territory (a lot could still change depending on how well we emerge post the lockdown).

In the long term, what will help India is its younger demographics which will expand the market significantly and continue to provide it with positive demographic dividend till 2055.

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Now let us consider the Mobility Industry in India specifically and how it may be impacted by Covid-19. Mobility has been operationally impacted to the maximum as all movement of people has been halted. On average, an Indian spends anywhere from 15-25% of their income on commuting - this may increase post Covid-19.

Transportation as a broad vertical makes up 14% of GDP of India. Mobility is however not a discretionary spend and should bounce back quickly. Daily commute is a requirement for majority of Indians to earn a livelihood (even after accounting for impact of accelerated trends like work from home, flexible work, etc. which will not majorly impact the sub Rs 100 daily commute customer). Personal mobility may be preferred in short term - resulting in newer business models aimed at cheaper ownership/ rental/ lease option. However, the majority of people don’t have the ability to afford personal mobility solutions due to high total cost of ownership as a percentage of their disposable income. Therefore, shared mobility is here to stay, with consumer preferences changing in the short to medium term within the segment leading to trade down to cut cost.

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AdvantEdge’s, two key investment philosophies leave us less exposed and in a better place to take advantage post the lockdown. First, we invested only in asset light marketplace models. Some were category creators (like Rapido and Shuttl) and some were aggregating inefficient supply in an existing category (Chalo, ZingBus and Sheru). Asset light models have high proportion of variable cost and have actually reduced their net burn during the lockdown. Secondly, in view of India’s low-income level, we invested in form factors that charged sub $1 per ride. Due to portfolio service falling in the affordable commute category, most companies should benefit from the trade down and win customers.

Next Steps

As long as the crisis is acute, mobility players must focus on keeping employees and customers safe and establishing dedicated safety protocols. For instance, they can keep potential customers informed about safety updates and demonstrate their commitment to preventing infection. Looking ahead, companies can develop a detailed plan for ramping up operations. They may want to begin ramp-up in areas where COVID-19 has had a limited impact- In India these are the “Green and Orange” zones. Business segments that have been severely affected, such as airport rides due to closure of airspace for domestic or international flights are likely to linger.
Companies can also benefit from a thorough portfolio review that helps them focus on profitable operations and prioritize new product features or solutions which have greater potential. Many have worked on deciding which technologies deserve increased investment and which should be abandoned, allowing them to emerge from the crisis leaner and stronger. Rapido for example used this time to launch Rapido Corporate, Local and Delivery verticals. The Startup 2.0 can emerge healthier, meaner and with new value propositions accelerating growth and path to profitability post the lockdown.

So, what happens next for shared mobility? It is the question on everybody’s mind but unfortunately there is no clear answer. What we can do is continue to observe the response of shared mobility actors across the globe and the trends that are popping up around their actions. This will help us to understand not only where the market is heading during the COVID-19 pandemic, but also, how this rapidly evolving Shared Mobility Landscape might look once the crisis has passed.

Mobility has always been a basic human need. To prepare for the future, shared mobility-industry players should immediately adjust their strategies to navigate the current crisis and prepare for the new normal. This too shall pass.