Mobility is one of the most important megatrends of our time - and major change is afoot. What routes can investors pursue to support, and potentially benefit from, the new technologies shaping how we get around?
The history of modern life revolves around mobility. Driving and flying, whether for work or pleasure, defined both the last century and this one. But the spectre of a post-fossil fuel world suggests that bigger and faster won't be the adjectives we use to describe mobility in the future. The recent pandemic, which severely curtailed public life, and an increasing focus on sustainability, suggest that the very nature of mobility is changing rapidly.
As consumers, we can see this change on every street corner. Electric charging points are popping up in supermarket carparks. E-bikes and e-scooters - called micromobility solutions in the jargon - are crowding city streets. And although self-driving vehicles, known as AVs (autonomous vehicles), are by no means common, car companies continue to invest heavily in this potentially disruptive technology.
While advances in technology are making a new mobility ecosystem possible, it is consumers and their changing behaviour that will ensure the transition to a world with different, and probably fewer, cars.
"Few inventions have brought as much mobility as the car," says Dr Tilman Dumrese, Senior Equity Analyst at LGT Private Banking. "In the EU, cars now account for 85 per cent of motorised passenger transport." Worldwide the number of cars has risen from around 275 million in 1978, to 1.3 billion in 2023, with many of these vehicles privately owned. Ownership varies between countries, with 868 cars per 1,000 people in the US, to just 219 per 1,000 people in China.
A more important question for investors is the rate of growth in the sales of new cars. "Between 2005 and 2019, the global passenger market grew an impressive 42 per cent," explains Dumrese. "But if you strip out Chinese car sales, that figure would have been just four per cent." In some Western markets, new car sales are now stagnating, or even declining.
While private cars still dominate the road, consultants McKinsey and KPMG report that nearly two-thirds of respondents in recent studies are beginning to change their transportation habits because of sustainability concerns. One place this shows up is in the sales of electric vehicles (EVs), which accounted for over ten per cent of global new car sales in 2022. Sales dropped back a bit last year, but as Dumrese reports, "the transition to electromobility is multifaceted and involves not just consumers and producers, but supply chains and governments." So it isn't surprising that progress may encounter some setbacks.
EVs aren't the only game in town.
This moving mobility landscape offers a range of opportunities for investors. While electric vehicles are already available, their full-scale rollout is far from complete. Not only are car companies jockeying with each other for market share, they and their suppliers are re-engineering supply chains and looking for new ways to deliver what consumers want.
The task for established European and American car manufacturers now is to deliver lower-cost EVs that can compete, for instance, with BYD, the Chinese carmaker now rolling out across the globe.
EVs aren't the only game in town. Almost all the major car manufacturers are developing new drive systems, such as hydrogen. This uses a fuel cell to convert hydrogen from a tank and oxygen from the air into electricity to power the car motor and charge the battery. "The advantages are obvious," points out Dumrese. "Hydrogen cars can be refuelled quickly and offer stable energy storage."
Although you can buy a hydrogen car today, the costs of the fuel cells and high-pressure storage systems are still comparatively high, and the infrastructure required, in the form of refuelling stations, is very thin on the ground. Another difficulty is that current hydrogen production methods aren't as environmentally sustainable as they should be. The most commonly used process, vapour reforming of natural gas, releases significant amounts of carbon dioxide. However, other techniques, such as the production of green hydrogen by electrolysis, are likely to gain in importance, which will overcome this hurdle.
The modern car is effectively a computer on wheels.
Overall, it doesn't matter what method provides the power. A car still needs tyres, seat belts, a steering wheel, and various safety systems. These parts are traditionally bought in by car manufacturers and are important elements of the mobility supply chain that can offer opportunities for investors.
Electromobility and other disruptive mobility technologies offer the possibility of radically more efficient, data-enabled services and solutions. "The modern car is effectively a computer on wheels," remarks Dumrese, "with anywhere from several hundred to a thousand computer chips, powering everything from powertrain controls to driver assistance systems, to consumer electronics."
Carmakers work with a range of suppliers to create and support these value-adding services. Artificial intelligence (AI) also offers enormous potential in mobility, not least in the development of AVs. Already integral to procurement, manufacturing, and life-cycle services for vehicles, the use of AI will only grow.
KPMG expects the global value of mobility to increase to over 1 trillion USD by 2030. While mobility trends like EVs and AVs make the headlines, other trends will also impact future mobility. Private car use is likely to decrease, particularly in urban areas, where congestion and pollution are driving government initiatives to encourage the switch to other transport modes. The global micromobility (e-bike and e-scooter) market is growing fast, with European capitals leading the way. Bicycles (with and without batteries) are already the main form of transport in several cities. Ride sharing is becoming popular, and work to enhance intermodal journeys, which involve more than one type of transportation, continues apace.
All these trends add up to the megatrend that is mobility, presenting opportunities as well as typical investment risks. Investors can pursue many routes to potentially benefit from the exciting changes underway in the mobility industries.
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