OEMs Must Invest in Regional Ridesharing Providers Now to Establish Smart Mobility Business in the Future

Toyota announced this month that it would be investing US$1 billion into Southeast Asian ridesharing provider Grab. As part of the agreement, Toyota will invest US$1 billion In Grab with one Toyota executive also being appointed to Grab’s board of directors with the view of exchanging further personnel in the future.

The investment by Toyota follows a wave of investments made by other Original Equipment Manufacturers (OEMs) in the area. Earlier this month, Volkswagen (VW) invested US$80 million in U.S.-focused ridesharing provider, Gett, and in May, Daimler invested in European-focused Taxify as part of a US$175 million investment round.

The spread of investment in different regional players highlights how the ridesharing market is still far away from maturity. But why are OEMs choosing to invest in different ridesharing providers in different regions? And why are these partnerships important for OEMs and Ridesharing vendors alike?

Grab is not Toyota’s only investment in the ridesharing/ride-hailing market this year. In February, Toyota invested US$69 million in Japanese ride-hailing provider JapanTaxi. Meanwhile, Daimler has not only invested Taxify, but it also has a majority stake in another ride-hailing provider, mytaxi.

The investment by OEMs in multiple ridesharing providers, operating in different regions, shows how this market is still far from maturity. The ridesharing market is now heavily dictated by local players. In China, DiDi Chuxing rules the ridesharing market, in Southeast Asia, GO-JEK and Grab have established strong market positions, while in Western Europe and the United States, Uber is still the company to beat. Although Uber was found to be the leading global ridesharing provider in ABI Research’s Ridesharing Competitor Assessment (CA-1238), a range of companies, such a Grab, Careem, and DiDi Chuxing, were focused on localized markets, with strong market shares and presence. Uber, for its part, also sold all of its business in China and Southeast Asia to DiDi Chuxing and Grab, respectfully.

The current lack of a global ridesharing player with a strong market share in different regions and the selling of global businesses by Uber illustrates why OEMs have started to spread their investments among different players in different regions. OEMs have chosen to invest in a range of ridesharing players that are well established in their local markets, knowing that market entry into new regions is difficult and there is currently not a single player that has dominated the global market in different regions.

What have ridesharing companies like Grab and others done to establish themselves amid the local competition? These companies have focused on providing services that are localized to the market. In terms of mobility development, Grab has established transport modes that are tailored to the local consumers, e.g., auto-rickshaw and trike operations in the Philippines and an optimized bus operation in Singapore. Furthermore, the company has expanded its mobility operation to provide other on-demand services, such as GrabFood and GrabExpress, which are on-demand food delivery and parcel delivery services that address the local challenges of last-mile delivery in densely populated cities. Other localized ridesharing providers should be identifying the problems facing transport and mobility in their region and what they can do to help address the issues.

Why are these OEM partnerships important for ridesharing companies? The most important enabler for future Mobility-as-a-Service (MaaS) business models will be the development of driverless technology. The use of such technology will help drive down the cost per mile from US$1.65 to US$0.67, crucially undercutting the current cost of vehicle ownership of US$0.73 per mile. All but a few of the current ridesharing services do not have the capability or resources to develop this driverless technology in-house. The only way ridesharing sharing companies can develop driverless ridesharing services is through partnerships with OEMs, without which they will be left behind as Waymo, Uber, DiDi Chuxing, and others develop these services and undercut the market. Partnerships with OEMs are a necessity for ridesharing providers in terms of future profitability.

From the OEM’s perspective, partnerships with current ridesharing providers provide a head start in future MaaS operations. As Uber’s retreat in Asia has shown, establishing a new ridesharing service is no easy feat, even more so now that localized ridesharing players have established dominant market shares in various regions. Although most OEMs see ridesharing companies as a threat to their core business models, this may not necessarily be the case. Partnerships with ridesharing providers could help OEMs enable their mobility on-demand service platforms, as Toyota has done. At CES 2018, Toyota announced the launch of its e-Palette mobility platform. A mobility platform that will collaborate with companies like Google, Amazon, and various others to form a wider mobility platform. Its investment in Grab, therefore, builds on this collaboration-based model that will help drive its future mobility e-Palette platform.

Partnerships between ridesharing providers and OEMs seem mutually beneficial. OEMs gain the brand of the ridesharing provider for future MaaS operations, while ridesharing providers gain a partner to help develop technology that will underpin these operations. Both sides should look to increase collaboration in this area. Ridesharing providers should develop localized on-demand services that can attract OEMs to their brand and OEMs should build mobility platforms that are open to ridesharing providers.