Perhaps the finest phrase in finance is creative destruction.
Nothing captures the spirit of innovation, destruction and renewal that defines capitalism quite like it.
This wind is ripping through the transportation sector worldwide.
And thank goodness. Just yesterday came the news that Melbourne has worse traffic flow than Rome or New York.
That’s one of the trade-offs when the state economic model is to shove more people in the place and then build houses for them to live in.
The only genuine solution is to get more cars off the road. Is this feasible?
At the very least, this gives us two threads to follow for today’s Profit Watch…
The first is the ongoing expansion of what’s been dubbed ‘micro mobility’.
We’ve talked a bit about this in recent weeks.
Mainly, it refers to the expansion of e-bikes and e-scooters that is happening right now.
The Financial Times reports that Uber is considering a multi-million dollar deal with either Bird or Lime.
These are the two scooter companies that have rocketed to unicorn status – a US$1 billion valuation – in a year over in America.
Already, these scooters are eating into the market share for shorter trips in urban centres for the car-hailing firms. When I was in Baltimore recently, it became clear why.
I took an Uber downtown to catch a movie – A Star is Born – and we crawled along Baltimore’s congested streets. It would have been quicker – and cheaper – for me to ride one of the scooters to the cinema.
The rate of adoption for e-scooters is faster than when car sharing first came on the scene.
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One of the reasons, as I saw in Baltimore, is the ease of finding one around town. The things are everywhere…and you can drop yours anywhere you like once you’re done.
That makes it effortless. Whether it can become profitable remains to be seen.
But there’s clearly a significant new trend at play here – these aren’t another Segway – but it’s not clear exactly how it evolves.
But scooters are not really a disruption for the traditional role of the car anyway…
Goodbye to a century of optimisation
In general, these scooters create their own demand because they’re less likely to replace a trip than create one that wouldn’t have happened otherwise.
Nobody is going to replace their ride to work with a scooter.
The same isn’t true for the other burgeoning developments from car manufacturers. That’s the decline of the ownership model itself.
CNBC reports that automakers and dealers are increasingly offering subscriptions services for cars alongside – or instead of – traditional financing.
It’s a flat monthly fee that covers maintenance, insurance and servicing. It means no car loan required.
This is in addition to the advent of ride-hailing firms like Uber and Lyft in the first place.
It won’t be long before robotaxis and self-driving cars make the drivers here redundant as well.
It should all serve to push transportation costs down, but also fracture a business model that’s been solidifying for 100 years.
The automakers have massive supply chains designed to bring cars to market and cater to individual ownership.
It won’t be long before this declines, and good riddance, if you ask me.
The unseen consequence of tech deflation…
I don’t give a damn if I never buy one again. Already, there are property developers building apartment blocks without parking spaces.
Say goodbye to the inflated hits from registration, petrol taxes, parking fines, insurance and maintenance. These can be spread across a wider pool of riders.
This relentless cost-cutting will come as a welcome relief for the average Australian wage earner. However, it’s also an example of how – in time – property can continue to rise.
Under our current tax system, the power of technology to cut household fixed costs like this leaves more money for the average couple to pledge as interest to the banks to get onto the property ladder.
Another way is for developers to slash the actual size of the properties they’re buying.
The Australian Financial Review reported yesterday that developer Wolfdene is cutting lot sizes in half on its latest estate to meet the ‘sweet spot’ of affordability.
Some of these lots are now down to 213 square metres. It won’t be too long before the rare thing to find in Sydney and Melbourne is a traditional backyard.
It’s possible – on current trends – the garage could disappear as well.