Cool Reception For JLR’s Reported Plan For New Mobility.
“Changes are coming, but does JLR really have $350 million to spend on this. It would go a long way towards a new platform for a new range of models. Does it need to take Addison over? Couldn’t there be a deal like it has with Waymo where they supply vehicles”
British-based and Tata of India-owned Jaguar Land Rover’s (JLR) reported interest in buying London-based taxi company Addison Lee would need to be part of a much larger grouping if it was going to compete successfully against the likes of BMW-Mercedes in the upcoming brave new world of shared auto ownership, computer-driven cars and mobility services.
The theory is that during the 2020s, technology for ride-hailing will make such progress that about 10 seconds after you’ve summoned a vehicle, it will appear at your door. This will make owning your own car pointless, and not before time after investment bank Morgan Stanley pointed out that we use this expensive purchase only about 4% of the time. Parking facilities will become redundant. Traffic jams will disappear. It will even solve the housing crisis, as garages become redundant and are converted into extra rooms. The world’s biggest auto manufacturers are busily investing huge sums to make this work.
Media reports last month said JLR was planning to buy Addison Lee from U.S. private-equity firm Carlyle Group LP for $350 million. A report in the Wall Street Journal in February said Carlyle was seeking just over $1 billion for Addison as investors eyed the impact of ride-hailing apps Uber Inc and Lyft Inc.
JLR didn’t comment on the reports.
“It is our policy not to comment on speculation like this,” a JLR spokesman said Thursday.
Addison Lee has a fleet of about 5,000 cars and taxis in London and serves more than 10 million customers a year there. It bought chauffeur company Tristar Worldwide in 2015, which it said would make it Europe’s largest private-hire business and give it a presence in the U.S. It is experimenting with autonomous and ride-sharing services. Last year it announced a deal with autonomous driving technology company Oxbotica, with a plan to put computer driven cars on London roads by 2021.
In February, Daimler and BMW announced plans to jointly attack the new mobility services market by spending more than 1 billion euros ($1.1 billion) on setting up a 50/50 owned new company as manufacturers saw the need to go beyond producing and selling cars and embracing pay for use. Daimler’s Car2Go was combined with BMW’s DriveNow, ParkNow and ChargeNow.
JLR has been in the news lately because of its faltering financial performance. It announced a $3.9 billion write down in the quarter ended December 31 because of falling sales in China, while it underestimated the harm that diesel’s fall in popularity would do to its European business. JLR said it was cutting 4,500 jobs as part of a turnaround plan. In November last year JLR announced it would implement a plan, called “Charge and Accelerate”, to slash $3.2 billion in costs over the next 18 months.
David Bailey, Professor of Business Economics at Birmingham University, said in coming decades mobility will change drastically from today’s mainly private car ownership to these so-called mobility services. The reports involving Addison Lee show JLR was looking seriously at this business and will have to position itself to become a big player.
“Changes are coming, but does JLR really have $350 million to spend on this. It would go a long way towards a new platform for a new range of models. Does it need to take Addison over? Couldn’t there be a deal like it has with Waymo where they supply vehicles,” Bailey said.
Last year JLR sold 20,000 I-Pace electric SUVs over 2-years to Alphabet Inc’s Waymo and its autonomous driving project.
Professor Ferdinand Dudenhoeffer from the Center for Automotive Research in Germany said any JLR deal with Addison Lee wouldn’t be big enough to succeed.
“The scale of the platform is very important. You need a big market share around the world. The Mercedes-BMW grouping makes sense and even more so when you think Zhejiang Geely Holding Group of China is in the group now it owns half off the Mercedes Smart minicar subsidiary and Volvo,” Dudenhoeffer said.
Dudenhoeffer said these projects are long term, and even the biggest companies are having to look carefully at their spending plans. Plans for computer driven cars for instance are being cut back by companies like Volkswagen, as they concentrate on electric cars.
“To succeed in this world, JLR needs to find a very strong partner. Can it operate in a big world dominated by Google, Uber, Mercedes and BMW. Can JLR go it alone,” Dudenhoeffer asked.
Professor Stefan Bratzel of Germany’s Center of Automotive Management (CAM) doesn’t think JLR’s acquisition of Addison Lee would make much sense, and he agrees with Dudenhoeffer that size is crucial.
“I don’t see a good strategy behind such an acquisition. You need a big platform with a bundle of services. The bigger the platform the more services will be available and the more successful you could be. You won’t make it alone. You will need a lot of money and experience to be successful so I think they better team up with other carmakers,” Bratzel said.
Bratzel said ride hailing and car hiring will get to be more important. In the long run there will still be car ownership and people will still drive their own cars, but the number of customers who want to use mobility services will accelerate.
Winner takes most
“It might not quite be winner takes all in this new market, but certainly the winners will take most of the business. Those not in the winning groups won’t be paying a major role,” Bratzel said.
Birmingham University’s Bailey said renting rather than owning will rise while autonomous taxis will carve a larger presence.
“This will happen increasingly in the 2020s and dominate the market in 2030s, although Tesla CEO Elon Musk’s prediction that he will have a fleet of electric robotic taxis up and running next year looks unlikely,” Bailey said.