In 2020, the global COVID-19 pandemic triggered one of the worst economic downturns in a generation, and the mobility industry was one of the most heavily affected sectors. The crisis has given automotive OEMs, suppliers, and other mobility players a new revenue and profit mandate: develop a sustainable business strategy that aligns with the realities of the next normal.
To help both incumbents and new businesses achieve this vision, we recently reviewed the landscape for mobility start-up and investment. In addition to looking at the amounts invested by and into specific companies, we identified the technologies that attracted the most funding, focusing on 17 critical categories related to automation, connectivity, electrification, and smart mobility (ACES).
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Despite the global pandemic, mobility players cannot ignore ACES-related developments if they wish to achieve a competitive edge over the next decade. (See sidebar, “Understanding the ACES trends,” for more information on recent technological advances). Even though the current economic landscape has increased financial pressures on mobility players, ACES technologies will continue to evolve and disrupt the automotive landscape.
Understanding the ACES trends
Since 2010, we have analyzed future trends in mobility investment, focusing on the four ACES technologies: autonomous driving, connectivity, electrification, and smart mobility. Our current analysis reflects findings from McKinsey’s 2020 overview of the landscape for mobility start-up and investment. Prior publications in this series include our 2017 article, “Analyzing start-up and investment trends in the mobility ecosystem,” and 2019’s “Start me up: Where mobility investments are going.”
This year, our analysis includes some new areas. First, we complemented our analysis of investments in mobility companies by studying patent-filing activities. Through this lens, we gained greater insights about the technologies that companies prefer to develop in-house, rather than through inorganic growth (for instance, through investment). Second, we took a fresh look at future-mobility investment by identifying the technologies that support ACES trends and looking at investments and patent-filing activities for each one. This analysis provides insights on emerging technologies that would not be available through a simple analysis of investments in mobility companies.
While all the areas of ACES remain in play, the pandemic has introduced major uncertainties that could complicate technology investment. As our consumer surveys showed, business and leisure travel around the globe has dropped significantly. Moreover, consumers now consider shared modes of transport, such as ride services or subways, less safe than private modes. Such changes could have a lasting impact on transportation preferences and patterns, even after the pandemic abates.
To ensure their future success in this changing environment, company leaders must take two steps. First, they must review potential ACES investment themes and identify the most promising ones, since it would be impossible for a single player to pursue all trends. (When it comes to ACES, the old gambler’s line about knowing when to hold or fold is appropriate.) Second, companies must create a plan that supports their selected investment priorities. It should describe the specific technologies or assets that merit investment and how the company will spend money to achieve the desired capabilities. The “how” part raises some strategic questions, such as whether companies should pursue ACES trends in-house, strike a partnership, or go the M&A route.
The continuing relevance of ACES
Since 2010, investors have poured nearly $330 billion into more than 2,000 mobility companies focused on ACES, with over $80 billion of this amount invested since the beginning of 2019 alone (Exhibit 1). About two-thirds of the total investment, or $206 billion, went to autonomous-vehicle (AV) technologies and smart mobility. A lower amount—about $123 billion—went to connectivity and electric vehicles (EVs), suggesting that companies prefer to develop these technologies in-house, rather than by pursuing inorganic growth.
Recent investments have flattened. After a decade of steady growth in average annual investments in mobility companies, our analysis reveals an overall flattening of specific expenditures for the first time. The drop has been particularly intense in e-hailing and infotainment. (The former drove the early market but has recently seen an investment decline.) Meanwhile, investments in operational technologies remain small but continue to increase, particularly for car sharing, charging stations, and battery technologies, with a total of $29 billion invested since 2010. It is important to note that this trend was under way well before the pandemic.
Our analysis also reveals an acceleration of patent-filing activity across all four ACES technologies, suggesting a greater emphasis on in-house development and a move toward operationalizing prior investments.
Technology investments during the COVID-19 pandemic. Investment in future-mobility technologies has continued throughout the pandemic. For example, a US automaker reached an agreement with another auto company in the spring of 2020 to develop new EVs, using the second brand’s battery technologies. Later that year, a commercial-vehicle manufacturer announced partnerships with two technology companies to develop AVs. According to our analysis, investment in mobility technologies totaled $39 billion through October 2020, suggesting that total spending for the year will likely be similar to the $51 billion seen in 2019. Overall technology investments have been decelerating in recent years, well before the pandemic increased economic pressures.
Outsiders continue to outspend incumbents. Our analysis reveals that nonincumbents have made over 90 percent of investments in future-mobility companies since 2010, with 65 percent coming from venture-capital and private-equity (VC/PE) companies and 28 percent from tech players (Exhibit 2). Traditional automotive companies only accounted for 7 percent, or roughly $20 billion to $25 billion, of the total invested.
Although auto incumbents accounted for only a small portion of investment in future-mobility companies, they have allocated more than $200 billion to develop ACES technologies in-house since 2014. About 80 percent of the total went to electrification. The high in-house investment suggests that many incumbents are more interested in building in-house capabilities than pursuing external partnerships.
A more detailed, quarterly view of investments between 2014 and 2020 reveals that, with the exception of one quarter in 2017, VC/PE firms have consistently outspent their peers when it comes to investing in mobility companies (Exhibit 3). Their investment peaked at about $4.6 billion in the second quarter of 2017 and subsequently fell to a rather constant level of $2 billion to $3 billion per quarter. Meanwhile, investment by hardware-tech companies dropped significantly between 2018 and 2019 but recovered to nearly $1 billion in 2020. Investment by software-tech companies has steadily declined from a high of $1.3 billion in 2017. Finally, investment by auto brands reached over $400 million in 2015 but has since dropped to about $100 to $200 million per quarter.
The core technologies fueling an investment race
During our analysis of investment in mobility companies, we broke each ACES trend into company clusters. For instance, automation includes clusters for semiconductors and components of advanced driver-assistance systems (ADAS), among other clusters. There were 20 clusters overall.
Our analysis reveals that companies have poured the largest sums into the e-hailing cluster over the past decade, with the $83 billion invested representing over 80 percent of all smart-mobility investments. The next most popular clusters included semiconductors ($51 billion) and ADAS components ($36 billion). Together, e-hailing, semiconductors, and ADAS components account for over half of all ACES investments (Exhibit 4).
Patent activity varies across ACES trends. As Exhibit 4 also shows, companies have filed over 60,000 patents in ACES since 2010, with more than 80 percent targeting AVs and EVs. Companies have filed the most patents for ADAS components (about 9,000), semiconductors (5,000), EVs (10,000), batteries (7,000), and charging solutions (7,000). Patent activity in smart mobility is negligible, which suggests that business models and customer scaling—rather than technology—drives this pillar of ACES.
Large investment deals are significant. The preponderance of investment in ADAS components, e-hailing services, and semiconductors is mostly a result of large investment deals. (More than 50 percent of total investment in these areas—about $170 billion—comes from around 1 percent of all transactions.) Investment flattened from 2018 through 2020 largely because investment in ADAS, e-hailing, and semiconductors decelerated.
Investment is shifting among ACES trends. In other developments, investment in autonomous driving peaked in 2017 and then dropped significantly (Exhibit 5). Interest has been rising since mid-2019, however. Connectivity investments also peaked in 2017 and then lost traction.
New avenues are emerging for growth in autonomous vehicles and smart mobility. While overall investment growth has flattened, some company clusters that had previously attracted relatively little interest have recently gained traction. When looking at investments from 2018 onward, compared with the period from 2014 to 2017, the most dramatic increases have occurred in companies involved with AV integration (a fourfold increase), AV software (threefold), micromobility (fourfold), and car sharing (seven- to eightfold).
In smart mobility, companies outside of e-hailing are increasingly attracting investors. Meanwhile, investment in e-hailing services has slowed slightly, which might suggest that this mobility vertical has reached investor saturation. Investment in shared micromobility and car sharing has risen. The largest investments are going to asset-free-platform business models, primarily peer-to-peer (P2P) car-sharing platforms that connect private car owners with car-sharing users.
Overall, the mobility market appears ready to enter a new stage of operationalization and commercialization.
Mapping investment to crucial technologies
We estimated that securing a strong position across all four ACES areas would cost a single player more than $70 billion through 2030. It is doubtful any individual company could shoulder this level of investment by itself. Setting the right technology focus is crucial and requires a detailed understanding of the technologies underlying the ACES trends.
Setting the right technology focus and having a detailed understanding of the technologies underlying the ACES trends is crucial to securing a strong position across the four ACES areas.
To assist companies, we investigated patent and investment activities by underlying technology—an analysis that goes beyond market trends and company-level specifics. We first examined over 2,000 mobility businesses as outlined before and then mapped nearly 1,000 of them into one of the 20 company clusters we had previously identified. This mapping allowed us to identify 17 specific underlying technologies tied to investment and patent-filing activities. About half of the companies in our sample developed such technologies, with total funding exceeding $100 billion (Exhibit 6). This amount is nearly a third of the total $330 billion invested in ACES trends.
According to our analysis, the underlying ACES technologies that attract investment are mostly related to autonomous driving, connectivity, and electrification. For AVs, the main investments focus on radar and camera technologies (about $23 billion), with about $1.4 billion going to light detection and ranging (Lidar). In connectivity, vehicle-to-infrastructure and vehicle-to-everything (V2I/V2X) communication solutions attracted approximately $18 billion in spending. In electrification, $21 billion went to lithium-ion battery technology. Companies investing in the smart-mobility cluster make limited investments in technology, instead channeling funds to build the future customer base.
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Smaller, targeted investments in underlying technologies
When we looked at investments from a technology angle, rather than a company angle, some differences emerged. For instance, investments in shared-mobility companies tend to be larger, since they often focus on gaining scale and building the customer base. Technology investments may be lower in value because they often go to smaller players with distinctive technologies.
Accelerating investments in electrification and some autonomous-driving technologies
Technologies related to electrification saw the strongest acceleration in investment. This trend may be occurring because many OEMs and suppliers are trying to reach regulatory emissions targets. For autonomous driving, image-recognition technology saw 3.5-fold growth and trajectory planning saw fivefold growth. Other technologies, particularly radar and camera technology, augmented reality, and voice recognition, have experienced a deceleration in investment, resulting in an overall flattening of investment in ACES technologies.
The investment plateau, combined with the increased patent activity across all four technology sectors, could indicate an industry shift toward making technology solutions operational, especially for the more established ones already used in premium vehicles.
For mobility investors, the COVID-19 crisis has added a new layer of complexity to an already challenging situation. In this time of uncertainty, it is critical for all mobility stakeholders, including incumbents, tech giants, and investors, to understand where the market is moving and why. By analyzing investments in ACES and the underlying technologies, business leaders can identify emerging opportunities. In other words, the best way to understand the industry at this highly volatile moment is simple: follow the investments and the technology.
A version of this article was first published in Automotive World.
Daniel Holland-Letz is a senior analyst based in McKinsey’s Munich office, where Matthias Kässer is a partner; Benedikt Kloss is an associate partner in the Frankfurt office; and Thibaut Müller is a partner in the Geneva office.
This article was edited by Belinda Yu, an assistant managing editor in the Atlanta office.
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As an enthusiast and expert in the field of future mobility, particularly in the context of ACES (Autonomous driving, Connectivity, Electrification, and Smart mobility), I bring a wealth of knowledge to analyze and interpret the information provided in the article.
Firstly, the article highlights the significant impact of the global COVID-19 pandemic on the mobility industry, triggering a severe economic downturn. The mobility sector, encompassing automotive OEMs, suppliers, and other players, faces the challenge of developing a sustainable business strategy aligned with the realities of the "next normal."
The key concepts covered in the article include:
ACES Technologies Overview:
- Autonomous Driving: Refers to the development and implementation of self-driving vehicles.
- Connectivity: Involves technologies that facilitate communication between vehicles, infrastructure, and other devices.
- Electrification: Focuses on electric vehicle (EV) technologies and infrastructure, including battery technologies.
- Smart Mobility: Encompasses innovations and technologies that enhance the overall efficiency and intelligence of transportation systems.
Investment Trends in Mobility:
- The article discusses the importance of understanding investment trends in the mobility sector, particularly in ACES-related developments.
- Despite the economic challenges posed by the pandemic, the article emphasizes that ACES technologies will continue to evolve and disrupt the automotive landscape.
Analysis of ACES Trends:
- Since 2010, the article mentions that there has been an analysis of mobility investment trends, specifically focusing on ACES technologies.
- The landscape review includes the amounts invested in specific companies, technologies attracting the most funding, and 17 critical categories related to automation, connectivity, electrification, and smart mobility.
Impact of COVID-19 on Mobility Preferences:
- The pandemic has introduced uncertainties affecting technology investment, with significant changes in business and leisure travel preferences globally.
- Consumer surveys indicate a shift in perceptions of shared modes of transport, influencing future transportation patterns even after the pandemic.
Strategic Steps for Mobility Companies:
- To ensure future success, the article suggests that mobility company leaders must review potential ACES investment themes, identify promising ones, and create a plan supporting their selected investment priorities.
- Strategic questions include whether to pursue ACES trends in-house, form partnerships, or engage in mergers and acquisitions.
Investment Overview (Pre-Pandemic and During):
- Since 2010, investors have invested nearly $330 billion in over 2,000 mobility companies focused on ACES, with a significant portion allocated to autonomous-vehicle (AV) technologies and smart mobility.
- The analysis reveals a flattening of recent investments, particularly in e-hailing and infotainment, and an acceleration of patent-filing activity across all ACES technologies.
Outsiders vs. Incumbents Investment:
- Non-incumbents, including venture-capital and private-equity firms, have made over 90% of investments in future-mobility companies since 2010.
- Traditional automotive companies, while accounting for a small portion of investment, have allocated over $200 billion to develop ACES technologies in-house.
Core Technologies Fueling Investment:
- The article breaks down each ACES trend into company clusters, revealing that the largest investments are in the e-hailing cluster, semiconductors, and ADAS (Advanced Driver-Assistance Systems) components.
- Patent activity varies across ACES trends, with a significant focus on AVs and EVs.
Shifts in Investment Trends:
- Investment trends have shifted over the years, with fluctuations in autonomous driving and connectivity investments.
- New avenues for growth in autonomous vehicles and smart mobility are emerging, including increased interest in AV integration, AV software, micromobility, and car sharing.
Technological Focus and Investment Cost:
- Securing a strong position across all four ACES areas is estimated to cost a single player more than $70 billion through 2030.
- Companies need to set the right technology focus, considering the underlying technologies tied to investment and patent-filing activities.
- The underlying ACES technologies attracting investment are mainly related to autonomous driving, connectivity, and electrification.
- Specific investments include radar and camera technologies for AVs, V2I/V2X communication solutions for connectivity, and lithium-ion battery technology for electrification.
Post-COVID Industry Shift:
- The investment plateau, combined with increased patent activity, indicates a shift toward making technology solutions operational, especially for established ones used in premium vehicles.
In conclusion, the article provides a comprehensive overview of the mobility industry's landscape, investment trends, and technological advancements, with a focus on the ACES framework. The analysis considers the impact of the COVID-19 pandemic on the mobility sector and emphasizes the importance of strategic decision-making for companies to thrive in the evolving landscape.