BofAML Autos: Mobility as a Service

Martyn Briggs >>

Research Analyst

MLI (UK)

martyn.briggs@baml.com

+44 20 7996 7442

Fraser Hill >>

Research Analyst

MLI (UK)

fraser.hill@baml.com

Kai Mueller, CFA >>

Research Analyst

MLI (UK)

kai.mueller@baml.com

Viktoria Oushatova >>

Research Analyst

MLI (UK)

viktoria.r.oushatova@baml.com

>> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under the FINRA rules.

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BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Refer to important disclosures on page 11-13.

20th February 2018 MaaS Market – Concept to Delivery Conference, London Martyn Briggs Vice President BofAML Automotive Research

Will the car have a future?

19 February 2018

2

Converging Trends & Regulation driving the Future of Mobility

Source: BofA Merrill Lynch Global Research based on cited sources

The transportation market is transforming owing to a convergence of trends. Shifting demographic, social preferences, technologies and regulation are enabling multiple new solutions to move people and goods. This poses several opportunities and challenges to industry incumbents, faced with increasingly technology led, service-based business models attracting several new competitors, and changing regulations to manage congestion and air quality in particular.

3

Mobility Services: New entrants, new partnerships, new competition

Mobility

Services

Car Rental

• B2C

• B2B

• B2B2C

Bikesharing

• Bicycles

• E-Bikes

• Scooter Sharing

Carsharing

• Round Trip

• One-Way (A-B, A-X)

• Peer to Peer (P2P)

• Corporate

Drive yourself

Ridesharing

• Fixed Carpooling

• Dynamic / On-Demand

Ridehailing

•

• Transportation Network Companies

• Ridesplitting / taxi sharing

• Microtransit / dynamic Shuttle

Taxi / e-Hailing

With Driver

Parking

• P2P Parking

• Parking Apps

Integrated Mobility

•Planning

• Aggregated Booking

• Smart Payment & Ticketing

• Multi solution offerings /partnerships

• Mobility as a Service subscription

Multi-Modal Journey

Corporate Mobility services

•

•

•

•

•

Mobility Budget

Mobility Consulting

Telematics

Corporate Carsharing

Payment services

Mobility Management

• Private car ownership is beginning to be rethought in urban areas owing to considerable challenges (congestion, parking availability and cost) and growing availability of alternatives, most notably technology led, on demand mobility services.

• Multiple services are emerging to enable a combination of accessing cars (driving or driven), services such as parking and charging, and new forms of public transport.

• Technology is facilitating increased transparency of available services, increased utilisation and optimisation of assets across all modes.

Source: BofA Merrill Lynch Global Research

4

Mobility Services to grow to 130m vehicles by 2030

Mobility Services Fleet growth – from 2% to 8% of global parc by 2030

Source: BofA Merrill Lynch Global Research estimates

2015 2016 2020 2025 2030

Fleet Based

Carsharing 0.11 0.13 0.22 0.43 0.69

P2P Carsharing 0.20 0.25 0.44 0.99 3.03

Car Rental 5.05 5.20 6.24 7.26 8.45

Ridehailing 4.26 6.53 18.14 35.93 48.48

Carpooling 7.67 10.00 23.16 44.98 69.80

Total "Mobility"

Vehicles

17.30 22.11 48.19 89.59 130.45

Global Vehicle Parc 1,033 1,070 1,223 1,392 1,595

Mobility % of Parc 1.7% 2.1% 3.9% 6.4% 8.2%

• Vehicles used in mobility services (car rental/sharing, ridehailing and carpooling) increased from 17m to 22m 2015-16

• We project a continued growth to 130m vehicles in 2030, representing 8% of the vehicle parc used in mobility services

• Shifting demographics, social preferences, technologies and regulation are enabling multiple new solutions to move people and goods. Rising urbanisation, millennials valuing access over ownership, rising smartphone penetration and cities restricting the use of private cars in cities all favour new technology enabled sustainable alternatives.

Source: BofA Merrill Lynch Global Research Estimates

5

Mobility services could reduce vehicle ownership & usage

Table 3: Using the survey findings as base assumption, at the high end up to 436m

2016 2020 2025 2030

Impact from Carsharing vehicles

Carsharing Vehicles (m) 0.1 0.2 0.4 0.7

# Cars sold per CS vehicle (Bear) 7 7 7 7

Vehicles sold (m) Bear (1) 0.9 1.5 3.1 4.9

# Cars Sold & Deferred per CS vehicle (Bull) 25 25 25 25

Vehicles Sold & Deferred (m) (2) 3.2 5.4 10.6 17.1

Impact from Ridehailing vehicles Ridehailing Vehicles 6.5 18.1 35.9 48.5

#Cars sold per RH car (Bear) 5 5 5 5

Vehicles sold (m) Bear (3) 29.5 81.9 162.2 218.9

# Cars Sold or potentially sold per RH Vehicle (Bull) 10 10 10 10

Vehicles sold (m) Bull (4) 65.3 181.4 359.3 484.8

Total Vehicle Reduction (Bear) (1+3) 30.4 83.4 165.3 223.8

Total Vehicle Reduction (Bull) (2+4) 68.5 186.7 369.9 501.9

Including +ve effects from ridehailing (incl mobility vehicles, 5x higher utilisation & replacement)

Total Vehicle Reduction Bear 21.5 59.0 116.8 158.2

Total Vehicle Reduction Bull 59.6 162.3 321.5 436.4

Source: BofA Merrill Lynch Global Research estimates

• We view mobility services as a disruptive force in reducing private car ownership in cities; Independent surveys show one carsharing vehicle can remove 7-25 privately owned vehicles, and ridehailing 5-10.

• If this current behaviour change is extrapolated, carsharing/ridehailing services could result in a foregone growth to the parc of 158-436m vehicles cumulatively by 2030; vehicle parc would grow at 1% CAGR vs the base case (LMC) assumption of 3% to 2030

• In addition to reducing vehicles, vehicle mileage per user also reduces; we estimate a 1.4tn miles per year reduction by 2030

Source: LMC, BofA Merrill Lynch Global research estimates

6

Why are OEMs getting involved in New Mobility Services?

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Gross RPV ($) Net RPV ($)

DriveNow Uber

From a positive stance….. • OEMs are targeting new Revenue streams, customer interactions, city relationships, and further integration with their EVs • This gives valuable Data / operational understanding of cities…a mandatory precursor to Autonomous Driving • OEMs realise cities are the future battleground for their autonomous fleets and see mobility services as the first step

…and from a more critical stance: • Barriers to entry remain relatively low (implication: too much price competition, not attractive for OEMs) • Uncertain ROI in Mobility Services (services largely unprofitable owing to subsidies, marketing, new services; implication –

huge growth potential, profitability less clear) • Investments rising and competing vs other future car initiatives (cumulative ridehailing investment more than doubled

from $30 to >$63bn in 2017… implication: costs to participate for OEMs are rising) • Competition from all directions – not obvious OEMs can do this best / themselves – partnerships and alliances are likely

Source: BofA Merrill Lynch Global research estimates, Company Reports

10.0 9.5

2.1 2.7 1.8 1.2

12.2 11.3

2.0 1.4 2.0 0.6

6.1

22.1 20.8

4.1 4.1 3.8

1.8

0.0

5.0

10.0

15.0

20.0

25.0

Uber Didi Lyft Grab Ola Go-Jek Others

2017 Funding Pre 2017 Funding

Source: Crunchbase, CB Insights

54% of funds raised by private ridehailing apps were in 2017, as the investment size/capital raised accelerated

The delta between the gross/net revenues currently generated by carsharing vs ridehailing players underpins the race to AVs by OEMs

7

OEMs are attempting to re-brand as ‘Mobility Services’ ‘Technology’ or ‘Energy’ companies

• General Motors:

• Record Results Fail to End Investors’ ‘Peak Auto’ Unease Q3 2016 (Bloomberg)

• “We are a tech company already” GM: Q3 2017 (Bloomberg)

• Toyota:

• “What Tesla is producing is something close to an iPhone” Toyota: Q3 2016: (Bloomberg)

• Toyota wants people to know its not just an automaker anymore Q4 2017 (Bloomberg)

• Ford:

• “We’re a Mobility company that makes more than just cars” Ford: Q1 2015 (NBC)

• Ford underwhelms Wall Street as CEO has more convincing to do Q4 2017 (Bloomberg)

• Tesla :

• “Accelerate the world’s transition to sustainable energy” Tesla mission statement

• NEVs:

• Saab successor NEVs signs deal to help bring 1m electric cars to Didi’s ridesharing network Q4 2017 (Bloomberg)

• VW:

• Leading position as Mobility services provider / 1m cars off the road by 2025 with MOIA Q4 2017 (Bloomberg)

• Daimler:

• “CASE: New strategic focus for Mercedes Benz cars; four future fields for one comprehensive mobility offering” Daimler Website

• Hyundai:

• “in the past, people liked to own their cars. In the near future, the owners of the self-driving market will be mobility services providers” Q1 2018 (Bloomberg)

8

OEMs, Tech and ridehailing companies are forging several partnerships & investments

• Over $63bn invested in ridehailing startups; now

11% of global population are users of the top 10 alone. Partnerships are developing rapidly to target regional dominance and alliances.

• As fully autonomous fleets are deployed for commercial uses, the disruptors of today themselves are potentially disrupted as the separation between mobility business models, public and private transport disappear, and new operators emerge to provide MaaS.

• However in this scenario, someone will always need to own, finance, and service/maintain the fleet; companies that develop operational, fleet management, and customer service expertise alongside leading technology and user experience are likely to be successful in our view.

• For OEMs to participate, business model transformation from manufacturing & selling cars to providing services is needed, with several new competencies and relationships with cities.

Source: CB Insights, BofA Merrill Lynch global research estimates

9

We expect mobility services to expand use cases, and merge

Exhibit 8: Mobility services are diversifying horizontally with more use cases, becoming more competitive and targeting increased utilisation

• There are several examples of mobility services being combined by technology platforms, utilising the same fleet for different use cases.

• Continued aggregation towards Mobility as a Service reduces the need for a private car amongst users who have the tools to make every journey using a mobility platform.

10

MaaS / Future Car Themes: Disruptive forces impacting Autos sector

• Convergence of trends & regulation changing behaviour: Shifting demographics, social preferences, technologies and regulation are enabling multiple new solutions to move people and goods. Rising urbanisation, millennials valuing access over ownership, rising smartphone penetration and cities restricting the use of private cars in cities all favour new technology enabled sustainable alternatives.

• CASE: Connected, Autonomous, Shared and Electric vehicle services are converging, posing several challenges and opportunities to vehicle manufacturers in terms of where to prioritise their investments and strategic focus, with unknown future returns. This could transform the automotive business model from ownership to usage

• Mobility Services: reducing car ownership and car usage: We project a growth from 22m to 130m vehicles used in mobility services by 2030, representing 8% of the projected vehicle fleet. We view this as a disruptive force in reducing private car ownership in cities (independent surveys suggest one carsharing vehicle can displace 7-25 privately owned vehicles , and ridehailing 5-10). By 2030, carsharing/ridehailing services could result in a foregone growth to the vehicle fleet of up to 27%, resulting in a 1% CAGR growth vs the base case assumption of 3%.

• Transformation requires partners and new business models: Mobility business models are constantly evolving, and new entrants emerging as barriers to entry reduce (especially in asset light platforms) . OEMs are responding with a rapid rise in investments and partnerships in multiple new technology and service businesses, targeting new revenue streams, relationships with regulators and customers in urban mobility, transforming from manufacturing and selling cars to becoming more service led companies.

• With all mobility services and as more automated vehicle services are deployed, someone will always need to own, finance, and service/maintain the vehicle fleet. As such, companies that develop operational, fleet management and customer service expertise alongside leading technology & user experience are likely to be successful in our view.

• MaaS is the aggregation required to make these services commercially viable - Technology and partnerships will be crucial in enabling efficient, scalable and profitable mobility services in our view, to enable roaming between apps and aggregation into third party platforms. The car will play an essential part in this…albeit for usage, not ownership

Source: BofA Merrill Lynch Global Research estimates

11

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12

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