Will the take up of autonomous vehicles be a straight line, an s-curve or a series of step changes? Could the adoption rate be affected by a series of tipping points? This is one in a series of posts reflecting on possible points of inflection.
I have seen the suggestion that the take up of new mobility options will follow an adoption life-cycle shaped like a bell curve. First will come a small number of innovators, just a couple of percent of the population. These innovators are followed by a larger cohort of early adopters, making up a further 10% to 15%. Then comes the first large group, the early majority, making up an additional third of the population. Another third follows, called the late majority. On the trailing edge come the laggards and finally those who do not adopt the innovation at all.
The rate of adoption of several new technologies has been explained in this way: fax machines; personal computers; mobile phones.
Whilst that broad shape of the forecast feels right, could there be some significant lumpiness as we hit a number of tipping points?
The impact of the used car market
The used car market in the UK is large. The Society of Motor Manufacturers and Traders (SMMT) reports over 7 million used car sales in 2015. Sales in the first half of 2016 were above that run-rate, with over 4 million sold in the first half of the year. This is a large and liquid market. There are a lot of buyers and a lot of sellers, no-one has a dominant position. The price of used cars is therefore sensitive to relatively small changes in the balance of supply and demand.
I have assumed for this discussion that the public may not be willing or able to exchange their main household vehicle for a privately owned autonomous equivalent. However, a third of UK households have two or more vehicles, what will the multi-car household do?
I make a three-fold assumption here. Firstly that the cost of a subscription to MaaS (mobility as a service) is less than the all-up cost of insuring, fuelling, servicing and depreciating a second vehicle. It makes financial sense to downsize. Secondly that the use profile of the second vehicle can be replaced by the MaaS. There is no loss of mobility by using the MaaS. Finally, given assumptions 1 and 2, the introduction of a MaaS in a local area will catalyse a decrease in the number of multi-car households. It will be practical and economic to replace the ownership of a private vehicle with the use of a shared service. So people will sell their second cars. We will be researching these assumptions further in a future post.
Used car values drive an accelerated switch to MaaS
The used car market will experience this “household fleet” downsizing as an expansion in the supply of used cars with no equivalent expansion in demand for them. Prices will fall. In most markets falling prices will itself generate demand and allow prices to settle at a new market equilibrium. However as additional MaaS are deployed, more used cars will come onto the market and the process repeats. There may be some new used car buyers attracted by lower prices, but most sellers of their second cars will be exiting the market. Prices continue to fall.
The steady fall in used car prices will be news and will be reported on. The quality papers will report the statistics, the tabloids will be less restrained : “Negative equity hits car owners!“. The publicity will trigger a further increase in the number of multiple car households who downsize. If they delay, they risk having to sell at lower prices. It is feasible there will be a run on the used car market.
MaaS take-up will increase as households off-load second and third cars whilst they still have value. However the speed of this transition may be moderated because as used car prices fall, the economics may allow them to compete more effectively with MaaS offerings.
In summary, the take-up of mobility as a service among multi-car households could have a significant affect on used car values, creating a feedback loop which will speed up the fall in the market.