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Episode Info

Episode Info:

EP009 - Partner at McKinsey & Company, Kersten Heineke

http://www.vehicle2.getspiffy.com

Episode 9 is an interview with Kersten Heineke, Partner at McKinsey & Company; recorded on April 26th, 2019. Kersten and Scot discuss a variety of topics, including:

  • Kersten’s career path at McKinsey and the creation of the McKinsey Center for Future Mobility.
  • Differences in car sharing, ride hailing, and other ownership models between Europe and North America.
  • The future of connectivity, including data sharing with cities/municipalities to improve infrastructure.
  • Latest developments with electric vehicles and predicting the rate of customer adoption.
  • Interesting and realistic use cases for autonomous vehicles, including robotaxis/shuttles and long haul trucking.
  • Exploring the transition from AV geo-fencing and regulatory issues to complete autonomous mobility.

Be sure to follow Kersten on LinkedIn and keep up with the latest from the McKinsey Center for Future Mobility!

If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.

 

Transcript:

Scot:

[00:51] Welcome to the vehicle 2.0 podcast. This is episode nine and it's being recorded Friday, April 26 2019. Welcome back vehicle 2.0 listeners this week on the show. We are really excited to have Kersten Heineke on the show. Kersten is a partner at McKinsey where he leads the McKinsey Center for Future Mobility in Europe. Uh, there he focuses on connected cars, autonomous driving, shared mobility, as well as the impact of all these developments on organizations across all industries. Welcome to the show. Kersten.

Kersten:

[01:29] Thank you so much for having me!

Scot:

[01:31] Cool. Let's, let's start off by kind of understanding how did you end up in the world of mobility?

Kersten:

[01:37] Well, I started at McKinsey doing a couple of engagements in, in banking initially and then I said, okay, banking is not really what I want to do. I need a physical product, something you it can be passionate about. And I went into automotive and did a couple of projects in an automotive, mostly traditional stuff and growth plans, expansion plans, material cost optimization, you know, the things that a consultancy is famous for and in some ways, and then we started getting more and more requests about automotive from automotive companies going into the new topics. So be that mobility, shared mobility. Also the question on what the impact of connectivity is and then eventually how you can make money with topics like eight us eventually autonomous driving. And we said as McKinsey, we need to approach this from a different angle because these disruptions, I was so significant that we need to build up our own perspective on this.

Kersten:

[02:32] And we created the McKinsey Center for Future Mobility as a, as a think tank. And I said, yeah, this is what I want to work on. This is much more exciting than trying to find 50 cents and some tiny piece on the car somewhere and trying to optimize the cost. I want to work on the future topics that can change the industry, but also can make our daily lives better. And I got the chance to dedicating 95 to 99%, so almost every, every single minute my day to these future mobility topics, um, started out a bit broader on all of the topics and then eventually when deeper and deeper and concentrated more on autonomous and connected and also shared. Um, and then I was fortunate to be allowed to take over even a leadership role in this McKinsey Center for Future Mobility. And that's sort of been the last couple of years of my career and it's, it's been a great ride so far.

Scot:

[03:23] Awesome. Uh, and then, um, I imagine, you know, when you, when you have a center that means something within the world of McKinsey, is there, is there kind of a whole team dedicated to this? And, and, uh, also, uh, I know you're in Europe, but do you, do you work with your colleagues and in the u s for example on a lot of this or does all the thought leadership come out of your,

Kersten:

[03:42] so as always when the Kinsey had set up a virtual organization, if you will, uh, and we do have colleagues working on future of mobility in, in Europe and the US also in Asia where we do have a team in China. We do have a team in Korea and one in Japan, one in India. And we do have a team for South America. And how we structured it is we usually have a couple of partners leading the charge in each of the continents. Also, we do have a couple of partners leading the charge in each of the topics we cover. So in an autonomous connected, electric and shared. And then there's a huge team of consultants around me to dedicate anything between 50% to a hundred percent of their time on these topics. And the entire group across all the continents, across all the topics within McKinsey has roughly 200 people. So it's grown tremendously over the last couple of years and months and we intend to grow it much further simply because the requests we're getting are now also not only from automotive companies, but increasingly so from outside of the automotive space. And we simply need to grow further to make sure we can keep up with the demand.

Scot:

[04:46] Yeah, that was actually going to be my next question. So, uh, I was going to guess, it's kind of obvious you're probably working directly with the manufacturers and people right in the heart of, of the bullseye there a of mobility. Um, what are some of the other types of customers that are interested in what's going on that or there abouts bid outside of that, that core?

Kersten:

[05:05] So we have, they have a couple of suppliers as well in there. We're interested, so automotive suppliers, um, there's other companies in the financial space. So can we ensure us that, I wondering how the change in car ownership is going to affect their portfolio. There was a lot of telco companies, um, that, I'm wondering what, what is our play there? How does five g maybe positively affect this? What can we do? The cities getting more and more interested in this and also public transport providers where any kind of mobility service provider interested, there's um, uh, tech companies. There is a even startups that got come to us for advice on sort of the market model and how they can, um, how they can optimize their portfolio and what their go to market strategy is going to be. So it's uh, an energy companies obviously interested in how electric vehicles are going to affect their business. Oil and gas companies similarly interested in this future of mobility, how their businesses impacted. So you could almost say it's, it's everybody, um, who, who somehow makes a product that is being transported somewhere or who was dealing with people that need to get to their respective establishment. So it's a broad, a very broad client group interested in this topic or on these topics.

Scot:

[06:24] Very cool. So, uh, here on the vehicle 2.0 podcast, the whole foundation is this framework where, uh, and uh, you know, since we came up with this framework, I've discovered everyone has one but, but in ours there's a, we, we look at kind of these four, I think of them as these ways of innovation and I come from the ecommerce industry and what you find is these waves just like waves in the real world, Dave, they kind of compound. Um, so there they're in in their own right, they're powerful, but when they compound, then it just really accelerates the rate of change. Um, so the four we look at our changing ownership models, connectivity, electrification and autonomy. Um, and I wanted to start with the new ownership models because that's how I found you. I was kind of, you know, really beefing up on all these new ownership models and read some of your, your reports that were excellent. So it's just wanted to start there. What's your point of view of where we're going on ownership?

Kersten:

[07:15] I think that's a, it's an exciting question and it's probably one of the key questions that keep the, some of the OEMs and also us awake at night. The Times I think he'd be honest, I say it depends. So it depends. Are you a, are we talking about people in their 20s or even though any 30th if in major cities while we talking about people in their fifties and sixties that live somewhere in the countryside. And in the end we believe that ownership netnet, um, on the whole is going to go down. At least when you take a look at the developed or the more developed countries, why simply because in cities and even in some use cases you have less and less reason to own a car and owning the car will also become less attractive going forward if you factor in what congestion, if you factor in, uh, probably charge us for production that you're creating.

Kersten:

[08:03] And at the same time also the increasing offer of subscription models of car sharing. And then as you said before, when you then throw an autonomy into the mix and you make car sharing or he hating autonomous and it becomes even, uh, even easier to use these services instead of owning your car. However, if you're now living in a rural area or if you're living in and the part of the work that this may be, you still still growing strongly and the car ownership, um, fingers will still roll for the next couple of years. So even for the next 10 years, we do see car ownership growing in a white chair and a white part of the world simply because it's either under penetrated or because it will take longer for the offers of car sharing. He hailing and then also autonomy to eventually get to these regions for a multitude of reasons.

Scot:

[08:52] Got It. Um, what are the, what are the models you're seeing in Europe? So in the U s we're really just starting to see, um, you know, so we had zipcar for a long time and had some adoption, but it's not a great customer experience cause you kind of have to go and find the car. And zipcar launched before phones, so, so it doesn't, you know, it wasn't 100% matched up to kind of a, a phone, a smart phone, kind of a use case. Um, but now we have, uh, get around and Turo, which are kind of like these micro releases. Uh, obviously we have the ride sharing companies. Um, you mentioned subscriptions. I've seen, it seems like the, the German manufacturers are really, really big on the subscriptions. I get, uh, something from Mercedes all the time from around what they're doing. Um, what are the models that you're seeing in Europe now and, and where do you think, you know, is that, are those going to be the models? Are there more models to come? And then do you have any thought of like, let's pick the city kind of a person? What kind of models they'll use?

Kersten:

[09:50] Europe, we still see a strong growth both in traditional cost sharing. So a couple of, couple of weeks ago it was announced that timeline sort of merging activities and also the other mobility activities. I think this might give another boost to, to Kasha adoption, especially in the major cities where this is already present. Uh, we do see continuous growth and he hailing, uh, there's an exciting discussion now in Germany with uh, Uber will at a certain point B I become, I don't want to say will it be legalized but we'll be more um, uh, allowed or allowed to to run their traditional business model. Also in European cities are in German cities. I think we'll see adoption off or an increasing adoption also in the hailing and ride hailing. Um, we've seen that a lot of adoption also micro mobility. So the e scooters eat kick scooters and bikes mopeds.

Kersten:

[10:44] And I think that's, that's a market that will grow for the next couple of years quite tremendously because for any trip that is below six kilometers, eight kilometers, that is simply a great option to get around quickly. And, and also with, with a lot of fun because you're enjoying the fresh air and it's just exciting to zip through traffic. Um, but eventually we do believe that most of these models, and probably all of the ones that I mentioned except for micro mobility will converge into autonomous shared mobility. And that can be Robo taxis or Robo shackles depending on the individual's price sensitivity, but also depending a bit on how cities who are regulators and, and that's really what in my mind, this is going to take off tremendously, um, simply because the price that you will pay per kilometer or per mile is going to go down so much that it's going to be super, super attractive to, to go from the type of mobility options.

Scot:

[11:36] Cool. Um, so when do you think will, from a macro sense, when do you think we'll get to a point when we see car sales kind of like decline? You know, it's been predicted for a while, but my understanding is that, that it hasn't happened quite yet. That, you know, it's definitely slowing, but we haven't seen kind of a decline of new car sales. It seems like that'll be a little harbinger that that were definitely kind of at the tipping point.

Kersten:

[12:02] It depends a bit on their perspective or if you say, hey, let's take a city like New York or London major city high density there. We do believe that this peak car might happen might already has happened or what happened very quickly because it's increasingly less attractive to own a car. Plus also in the cities there are so many mobility options to get from a to B at this will change. Then the next tier of cities which are a bit smaller, a bit less dense and where you have people commuting still to a certain extent by car. This would probably happen definitely the Twang before 2030 but depending a bit on the timeline for autonomous might happen. People foster and then in the countryside in the more rural areas or in cities that are in the neighborhood of say a hundred to 200,000 people there. It really depends on on how fast these models, these inhaling models and also the autonomous. He headed the models then trickled down to the cities, but eventually, and the can be anywhere between the late 2020s or the early 20, 30 years, it will also happen in these cities. And that's then when Lily, the total number of cars of old cars might be, um, might be impacted much more severely simply because the number of cars in these cities is much higher than if you'd take a look at as a city like New York or London.

Scot:

[13:20] Yeah. Interesting. Um, and just so I'm clear on your pointless like pick 20, 30, kind of the latest part of your prediction there. You think that's just when we're going to hit the tipping point? It's not that we're going to be kind of 100% change of ownership. It's going to be kind of a, you know, a gradual change over time.

Kersten:

[13:38] Exactly. Yeah, exactly. I think it will be a very gradual change also because, um, some people might already today be using shared mobility to a large share of the upper mobility they consume. It does still still, it doesn't mean that people ditch that car or sell that car off or don't replace the car. It might seem to be that people keep on adding this mobility consumption of shared mobility to the mobility they consume. Right. And then until people realize that actually the car that they have owned for quite a while, it's not needed anymore. They either sell it or they don't replace it, it might still take a bit longer. Right. Because there's a lot of people who are very much used to, uh, to owning a car. So I, for example, I own a car. I live in Hamburg. I don't really, to be honest, it doesn't really make economic sense for me to own a car, but I'm a, I'm a car guy, red, so I'm passionate about it. I think this will still keep the car sales up for quite a while. And I do think that's a good thing.

Scot:

[14:30] Very cool. Yeah. So when one thing that's near and dear to our heart here at Spiffy is, uh, there's, what we found is a lot of people are excited about all these models, but they forget some of the basics. Like, like who's going to service these vehicles as they move from, uh, an individual ownership to become more of a fleet or a BTB orientation. You're, you know, the, the utilization goes up, which is good, but that's more miles, more, more, you know, more service needed on these vehicles. Um, and here in the u s at least we have all these factions kind of, you know, starting to square off to, to fight for, you know, kind of the, the, the overall macro management of this. You've got the dealers and OEM's, you've got, um, you know, the new new folks like the Ubers and lifts, you've got car rental companies. Um, and you know, even, uh, other, other kinds of entrepreneurial companies trying to start like a Toro or whatnot. Do you think there's a winner take all in that or, or do you think there's going to be all kinds of different battles going on to figure out who, who operates these fleets of the future?

Kersten:

[15:31] I think it was going to be different ecosystems and the ecosystem. So going to solve this differently, right? So that will obviously be some people going almost exclusively onto let's say Uber or Lyft platform and using that model for a large share of their mobility requirements, others will still get them mobility contract and the can be a subscription from OEMs. And there will be many other ways that we don't know yet had many of the companies coming up and each of these companies within the ecosystem, we're find its own way to solve this problem. I'll be of the operations of the cleaning of the maintenance of repositioning the vehicle before we have autonomy off. Uh, once the vehicles are autonomous, sending the vehicles to the right locations where the demand is going to be. And in my mind that's a very exciting business opportunity because it combines a couple of very classic capabilities that you need.

Kersten:

[16:21] Like the rental car companies have today, uh, with, uh, the requirement to use algorithms and new technology to optimize the system. And, uh, in my mind for the customer, it will, it will become better, right? Because today, if you own a car, you need to think about where do I take my car for service? If you live in a coach, part of the world, you need to think about tire changes twice a year. You need to think about repairs. Uh, you need to think about things like parking and so on. But once you take all this away, somebody else will need to integrate this for the customer. And the customer only consumes mobility through the click of a button on the smartphone probably, or whatever we'll be using in 10 years. But, um, this, this sort of change in the entire value chain will be very exciting, um, for the companies and we'll have great opportunities, but at the same time also make the lives of the consumers much easier.

Scot:

[17:12] Yeah. Yeah. The, uh, you mentioned subscription in your answer there, and I forgot to kind of dig in on that a little bit. Uh, so far the subscription programs have been, they're really interesting and intriguing as a consumer, but they're really expensive, you know. So one of the Mercedes ones for example, um, kind of their premium tier is two or $300 a month, which is, you know, that's, that's, you know, more than two or three x. What, what folks are paying for kind of a lease of a single vehicle. Do you think the, do you think the economics there will eventually work out so that the subscription, uh, is, is cheaper than Elise? Uh, or is it going to take autonomy before we of get to something like that?

Kersten:

[17:50] I think it might, it might happen before autonomy, especially when when you're real at a certain point in time, be able to have different packages and also combine the subscription to a car with other mobility options. So imagine, um, so in my mind the perfect thing would be a package where pay x zero $6 a month depending on the sophistication of that and that can consume whatever mobility I want to. So I can take a taxi when I need one. I can get a car sharing vehicle over the weekend, I might even get a convertible somewhere or during the week when I, when I really needed, because I'm commuting every day. I have a car that I have guaranteed access to. Right. And I think once you combine these different offerings and also make sure that people don't necessarily or don't use a car that they subscribe to the same way as an old car is at least top because they keep it in their garage for, for um, seven days a week.

Kersten:

[18:42] And even on the days where they don't use it all the time when they don't use it, then you can cut down the cost of these models because they simply sharing the vehicle using the vehicle's much more efficiently. And then I think we'll go into something like, like what we had a couple of years ago with cell phones when they were minute packages and, and data packages and you had SMS packages and all that, all that stuff before flat rates it. But you will have different packages that you can buy and you will get access to different types of mobility depending on how sophisticated the package to you by is. And I think that's the way when a, it's going to again, become better for the consumer but also become more affordable. And when also the companies that offer this will have a better chance of making money. And again, it takes somebody to manage all of this right and somebody to service the vehicles and take the vehicles from point a to point B. And that's again where these fleet operators and also where the dealers are going to come in because somebody needs to do that.

Scot:

[19:37] Cool. Um, so let's transition from ownership to connectivity. Um, you know, I always kinda think of connectivity from a consumer perspective because it's a, I own a Tesla model three and it's, you know, it just really enhances the cabin experience to have a live connection to the Internet. The maps get better and you know, you can stream music and just the whole experience is kind of a nice, nice thing. And, um, and then so that's, that's I think when people hear connected car they think about those use cases. What are your thoughts on conductivity and, and you know, is that the right way to think about it or you know, it seems like you think a lot about infrastructure, you know, so municipalities and roads and cities and whatnot, is that really more where it's going to be interesting is the car is sharing their data with the cities. What's your view?

Kersten:

[20:24] as a ton of applications and a ton of use cases. So obviously it's a question, how can you use the data that is generated by the, by the car to make our lives better by making our last bit of this can be safety related, sharing data with other cars about incidents on the road, sharing data with other cars about, for example, a slippery surfaces or heavy rain or whatever it is to make sure that the driver, me other driver, a couple of a half a mile behind me on the highway or on the next round, the next corner already knows that there is a danger and, and can be crossing that dangerous section much more safely. And this is somewhat alluded to that. That's, that's one thing I think same type of data can also be used to inform cities and municipalities about bad spots on the road repairs that they need to make.

Kersten:

[21:11] It can help better guide traffic, not only on the way we doing it today with what we have in Google maps and other services, uh, but also, um, uh, making sure the traffic is actively steered in the morning to make the commuting time or reduced the commuting time for everybody. You could almost see then also do, um, uh, charging for, for city toiling based on that. So the faster route you want to do and want to get into the city, the more you have to pay for city toiling, manipulate, okay. With taking irrelevant, this may be going a bit around or is it a bit more congested in we have to pay more, you have to pay less for that. So these are all the options so that you can do this and there's a lot of stuff how to monetize, um, infotainment, upgrading the car.

Kersten:

[21:52] Anything you can do through over the air updates, what, what Tesla is already be doing quite quite successfully in my mind is a great opportunity to simply improve the user experience in the car because he can make sure that the vehicle that you buy today and you keep for two years or three years is always refresh to a certain extent that you get upgrades and updates to your smartphone. Um, there's a way how you can standardize all the cards that you have and you simply unlock the features by software. So you install the hardware, all of the hardware and the vehicle. You had significantly reduced production complexity and by going, if you will, into an APP store in the day, call you unlock certain functionalities. Is this then also a monetization opportunity for the, for the OEMs. So there's a ton of stuff that can be done in my mind was connectivity, connected cars and these teachers. The question is how do companies need to set up themselves to make sure that they can capitalize on this? And my mind just have a lot of work to be done from this on this end.

Scot:

[22:52] You think we need like an industry standard, you know how there's kind of like Hipaa for healthcare, which obviously is around privacy but it also is kind of like the format of data. Uh, it seems like if every OEM of has different data they're collecting and ways of delivering it, it's not going to be as useful. Um, are there, uh, I'm not aware of any but you, you probably are closer to it. Are there any in the efforts to standardize that kind of thing? There's a couple of efforts. M

Kersten:

[23:18] one one does an ISO norm that's being pushed forward in Europe by a consortium of players where they want to agree to share certain set of data accessible obviously in a, in a sanitized and anonymized fashion to um, a lot of companies and they can create use cases on it and then do safety relevant things with the data. That's a great starting point in my mind. Some of the companies also need to start thinking in a way, how can I create end to end use cases from, from the data that the car is collecting and how can I make money with it? But that's a question of also changing the incentivization structures of the companies because they've never, they haven't been trained to think in a way how I can make money off the data that are trained to send money, especially the other OEMs are trained to think, how can I make money with the car and how can I make money the car platform, but not so much with one specific piece of data that I'm collecting and how can I deliver great value to the customer. So yes, it's a, it's a way of standardizing a couple of the interfaces, but also do believe that the thinking and the organization and the way how they incentivize their people use to change in a couple of companies for this big to become even more a reality.

Scot:

[24:33] Uh, and this is a very tactical kind of connected car thing is I've read a lot of articles around package delivery. I think most of the German OEMs and then a lot of the uh, delivery companies like DHL and Amazon, um, you know, they have a connected car capability where they can deliver packages to your car is I've read this popular in Germany, but I haven't seen any data. Is that, you know, I'll ask since you're right there, have you, have you seen that being used a lot?

Kersten:

[24:59] I've heard it met a couple of, uh, a lot of companies are working on this and I think it's, it's an exciting new use case. Um, but it's, it's one use case, right? So, and it's a through it. It's a great one. But um, when you think about how much work needs to go into that use case and it's how much trust needs to go into you sort of unlocking or having somebody from VHL unlock your, not only the actual, it doesn't matter what company, right? Unlock your trunk so that they can put in a parcel. There's a lot of work that needs to go into that use case. But I think on that same level, there is not only one use case, there's probably a hundred use cases that will create tremendous value if the companies cooperate and make that happen. But yes, that's a, that's one example of a great boost case that can make everybody's daily life easier and save a lot of delivery costs and also save us a lot of hassle. They're not having to go to the post office to pick up a package.

Scot:

[25:48] Yeah. Um, let's, uh, let's move on to evs electric vehicles. Uh, you know, looking at the data, it looks like they're starting to get and make it a little bit of a dent in new car sales. Uh, here in the U S we're, we're kind of in the low percentages, like two, 3%. China. I saw some data that there's somewhere between five and 7%. Um, and then the Nordic countries, uh, you know, I think they're, they're really taken off there. Uh, what are you seeing today for evs and then what's your prediction? Uh, you know, when we had some kind of, uh, uh, material tipping point there.

Kersten:

[26:21] So in our mind, eating isn't, it's all a matter of execution, right? So every, every OEM, every car company is, has either already launched or is it a process of launch, a tremendous amount of electric vehicles over the next couple of months and years. So in our mind, this, this penetration rate of new car sales is going to go up steadily, um, still much more quickly in, in China and in parts of the US like California than in Europe at least in the, in the wider part of Europe. But simply because the OEMs have invested so much money in this vehicle platforms and we'll be launching the vehicles, they will also need to sell them. And I do believe that customer adoption is going up. The question marks that the consumer has around range, around all of the other vehicles around reliability, all these different things, they will, they will go down.

Kersten:

[27:13] These concerns will become less relevant with the number of vehicles and the number of models increasing. Um, it's a notion of customer education that is already happening today. And, um, quite honestly if you, but if everybody thinks about their daily use of, of a car, how many miles you actually drive. And this question of range isn't really a problem. So for me personally, when I think about my car usage behavior, again I live in the city. There are very few trips that would actually require me to have a range larger than the range of any electric vehicle. And the good thing is you can actually charge it at home. So it also saves you the trip to the gas station. So I do really think that this is going to keep increasing when it comes to penetration. Um, China obviously leading the way and the number of, um, of companies that have popped up there, but also due to the fact that the government is pushing strongly in this helping strongly there. So, uh, in our mind, the, the future of the vehicle is definitely, at least in some use cases and some areas increasingly electric.

Scot:

[28:14] Cool. It seems like one of the, one of the linchpins is the charging infrastructure and then China, uh, correct me if I'm wrong. It looks like the governments essentially said, hey, we're going to go kind of, you know, build all this out. Um, how about, uh, what's going on in Europe as far as charging structure and then at a 30,000 foot level, uh, you know, it's interesting in the US you have some commercial ones like a charge point then you Tesla's building out there and kind of proprietary network. Um, there's talks of independent companies building more generic kind of, you know, chargers. Uh, what do you see happening there at the macro and the micro level?

Kersten:

[28:49] Pretty much consistent with how you described it. So we do see a increasing the company is doing that on their own uh, alliances being formed across various OEMs that say, hey, we need to electrify not only in the past cost space, but also in the commercial vehicle space that are um, uh, pushing towards charging infrastructure. Cities are actively promoting it. A retail outlets are putting charging stations in front of the stores and so on. Now in some European cities, I'm always joking about it that I need to get an electric car just because I can then parked directly in front of the store because the charging spots and the parking spots for electric vehicles up closer to the entrance, then the parking spots dedicated to families and to two women with small children. So it's, it's also advantageous to have an electric car from that perspective. Um, but I think we will, we will see that charging infrastructure will remain a certain bottleneck and especially in cities where people don't have the individual parking spots that we remain a problem for the next couple of years, but the penetration of evs is still fairly low, so that that's not the one bottleneck. I think the consumer adoption, especially in some European countries is still the bigger bottleneck then the fact that charging infrastructure isn't available.

Scot:

[30:02] Okay. Interesting. All right, last topic. I know this is probably the one you're most passionate about is autonomy. Um, uh, we're, uh, you know, the timing's really good on this. I don't know if you had a chance to watch it Monday, but Tesla had their, their autonomy day. Um, there's been a ton of news this week just around autonomy and this is kind of obviously the hot topic. Um, I wanted to start it kind of like, it seems to be the, the most interesting question for me is, uh, you know what, it seems like Tesla has bet pretty big that cameras are going to be kind of how to solve this and, and know a family of cameras that can stitch together a three d scene. Uh, but then everyone else has kind of bet on Lidar. Uh, do you think that's going to be there has to be a winner there or are you think either method could possibly work?

Kersten:

[30:47] So I think even ever met that can possibly work if, if Tesla manages to get the cameras and the combination of the cameras to a quality that will get them an image that they, or a perspective on what is happening around the vehicle. It is good enough for them to trust the vehicles to go autonomous then, then that's, that's great. Um, I would always in the discussions with many of my clients be more excited about the lighter opinion, but there might be a certain bias to it because a lot of companies are pursuing it. And it, we are, we do know that this is going to work. Um, in the end, either solution that works, doesn't matter if it's lidar based camera based or if there's a third solution that might even require less sends us in the car because it relies a bit more heavily on infrastructure and we might see that or we'll see that in, in parts of China. Um, uh, either solution that is somewhat working, working well, we'll, we'll be, we'll be winning and we'll will see different, different stacks and different combinations in the next couple of years because it's, it's still a new technology and it will take some years for this all to become a fairly standardized and to become similar across different makes and models of legals.

Scot:

[32:02] Yeah. And then, uh, at, uh, so that was a super micro question. A big macro question is, uh, do you guys have a point of view of wind? We're going to see, you know, real real use of of Avs or, and um, do you think it's going to start in Metros or it's going to be kind of like long haul trucks. Uh, and then what, what's your timeframe? Is this a 2030 thing or is it pushed out past that?

Kersten:

[32:24] So in our mind, the two most interesting use cases, uh, I'm going to be Robo taxis, roadworks huddled. So basically, um, in cities or urban areas, what will it have? Robo Texas, similar to what other are doing today, drive around. And then the long haul trucking thing where at least the part of the, of the ride that is being done on the highway will be fully automated for the driver not being in the cab anymore. And the navy, the truck stops at a, at a rest stop in the last couple of miles to the depot, to the logistic center are being done with a driver. But you will still save a lot of costs because you take out the driver for the majority of the trip. And that's something we expect to see depending a bit on the exact geography, depending a bit on how much the extent the Geo fencing, but definitely in the early 2020 [inaudible].

Kersten:

[33:12] So, uh, this year, next year and the next couple of years with a increasingly more pilots, the geo fencing becoming less rigid, um, more and more cities launching this type or more and more companies launching this type of service in different cities. And I think that by 2025 this will have been, would have become a sizable phenomenon that is recognizable to the naked eye by everybody who was, was driving around in, in, in major cities. And then by 2030 this at least one, when we take a look at our model, there's obviously still a lot of uncertainty at how hot sauce this is going to scale and then how big it is going to be. But we do believe it will be a massive phenomenon anywhere between 2028 and latest 2035. And that will all be possible in all my, we'll go look forward technology because in the end, even if you geo fence, I'm a city and then anything that the geo fence is technically level four, not level five, um, you can still get a majority the lion's share, 80%, 90% of the, of the use cases of the trips. And thus the market size is just tremendous human without being able to drive autonomously into, uh, into the woods somewhere close to a city or, or I'm taking every single trip that is theoretically conceivable in an autonomous fashion.

Scot:

[34:30] Um, and then, uh, but again, you know, you're thinking that they'll, there'll be, by that time, I'll pick the further south 20, 35 it'll, it'll be common to see it happening, but we're not going to be kind of like 100%. It's going to be more of one of these gradual kind of changes that, you know, certain certain use cases.

Kersten:

[34:49] Absolutely. I think when, let's, let's roll it forward and let's say 2030 arrived in 20, 30 years, sort of mass adoption of Ab. Even then if you have 20%, 30% of all passenger miles driven in a city in driven autonomously and be driven by Robo taxis, a robot shovels, they would always already be a huge penetration. And for some cities that would be up all the major cities. That would be a market of anywhere between 15 to 25, $30 billion a year in terms of a revenue generated by the, by the customers, by the mobility users. So a sizable market, even without every single kilometer being done autonomously. And I do thing that we will still see cars being driven by people for the next, um, uh, 50 and 20, even much longer years. Maybe if it's just for recreational purposes or in rural areas or because people still like to drive themselves. Um, but this wasn't ever, at least not in my lifetime. This will not go away.

Scot:

[35:48] Yeah. People still ride horses, not that many minutes. Definitely a hobby. Um, uh, who another intersting. Just kind of like the fleet question. We have a lot of people obviously trying to, this is such a big pie that that they're, they're trying to go after this thing. You have the, the OEMs, you have Google with Waymo, Uber lift, uh, and then a bunch of other kind of players do, do you think there's a certain winner there or uh, do you have a prediction on that?

Kersten:

[36:24] So we do believe it will be ecosystems in the end that will be, we'll be winning this right then the question is who is going to dominate which ecosystem and who's going to only play a minor role. And our mind Waymo has a lot of, a lot of reasons why. There's a lot of reasons why we, why we would believe that Waymo is going to be one of the key players. They are fairly early head off of many competitors, been doing a great job, spending a lot of money and they almost, they have an amazing team. Um, but there's also a couple of other companies, either the Oems, we talked about the rental car companies and companies who need to do the servicing of the feeds. There's the mobility platforms we have today. Companies like Uber and Lyft who have a lot of um, uh, a lot of users already and work generating a lot of traffic and creating a lot of revenue.

Kersten:

[37:13] So I think all of these companies will play a major role in these ecosystems. The question is a bit how much, how profitable are the different steps of the value chain going to be? And in our mind the closer you are to the, to the mobility user, um, how closer you are to this platform game of actually matching supply and demand and sort of owning the business, the more likely you are to create margins that are in excess of 10%, 15%. And that's why these areas are probably more more interesting. Um, CMS when you are one of the first companies to have a functioning ab kit that is going to be super profitable, so sizeable but also profitable. And, and I guess there is, there is going to be a play for all of the companies you mentioned. Some of them will just have a higher profitability and we do believe that this higher profitability is going to be, uh, um, closer to the customer or the closer you are to the customer that are more profitable.

Scot:

[38:08] You know, we, we had, uh, uh, this is a little bit out there, but we had a guest on the show and, and their logic path was if you kind of flash forward to autonomy, um, now, uh, now, you know, we don't, what differentiates a vehicle? You don't really care. It's kind of like, you know, when you summon an Uber, when you do your, you're calling an e hailing, you know, you don't really kind of say, well, I really would prefer a model, you know, a widget a versus widget B. They kind of commoditizes the vehicles. Um, and then since you're, you're not really having to pay attention driving his, his theory was, you know, you could almost see people choosing, um, what, what they take based on the interior experience. So, you know, maybe there's, maybe there's almost like a Netflix or Robo taxi or a, you know, if you're, if you're going to be on, let's say you're going to do a three hour ride and you're really just want to be entertained or another one would be, maybe you're going to work on the way and just having the cabin outfitted for those specific needs is what's going to drive things.

Scot:

[39:09] I thought that was just a, it kind of tilted everything on it said, and I thought that was an interesting perspective. What do you have any gut reaction to that?

Kersten:

[39:17] Agree. I think the, the factors that determine which product to choose would totally changed from today. So power train, uh, as we have today for many, for many cock customers, this is a super relevant thing and brand is a super relevant thing. Interior design, the way that US field and the [inaudible] make you feel and so on. That's important in my mind all going to go away with chef. And the fact that the factors you said are going to be super important, but it's also going to be important to how clean is the car. We're going to be all foster, they're going to come. And then also, especially in the initial years of autonomy and, and when I mean initial deals, I'm talking at least until 20, 30, the way how safe the car makes me feel and the way how confident the system is driving and how much the system feels like a human driver.

Kersten:

[40:00] That is also going to be a major driver on, on what systems will be successful in what systems won't be. And from a perspective of the operator, I want to, if I'm an operator of an ab fleet, I want to make sure that sort of my total cost of, of users or total cost of ownership is, is as good as possible. And that also factors in again how well the system is performing, how many hours a day I can actually drive autonomous. The uh, and then also how fast the vehicle gets from ADB. Because some abs might simply be a bit slower in the beginning. And thus the vehicle that has a higher performance or higher confidence to drive a bit faster to drive, like, like humans would be driving. We'll also get you a better, uh, a better profitability as an ag operator. So depending on, on where you, where you said this will, these factors will change dramatically, but there are still a couple of factors that are close at least to the traditional, if you will, OEM and automotive capabilities.

Scot:

[40:55] Hmm. Um, uh, you know, I'm sure you saw Tesla, they talked about having thousands or tens of thousands of potential robo taxis by next year. I think they're way ahead of the regulatory thing. And I want to talk to you about regulatory stuff, but then, you know, one of the interesting things that I saw was he talked about cost per mile and a current ride share, if you look at the TCO, is somewhere between two and $3. These are their numbers. You probably have your own view. But then he, you know, the thing that I think that was shocking is he said the Robo taxi, uh, because they are an EDI platform and, and, and whatnot, uh, we'll get to kind of 18 cents a mile. So, um, do you, do you think that's, do you agree with some of that math that, that, that we're going to really get the cost per mile or kilometer so low that, that that is one of the big catalysts for driving adoption of this?

Kersten:

[41:48] I'm not sure about 18 cents. Right. But we will get the cost down to something that is very close to what we see today in public transport, especially when you're thinking about pooling rather than taking an, a new autonomous, uh, vehicle. Um, so robo taxis would definitely be cost competitive, a price competitive to owning a car and Robo shuttles will be cost competitive to going on some kinds of public transit, which will a, and that's, that's by the way, one of the reasons that our model, why, um, why we do believe that this market is going to be so massive, right? Because I'm, we always think about what is the best next best alternative. That's a question of convenience, but in the end it's also a question of price. And if you offer to somebody a chance to be driven around from ADB at a cost competitive to taking your own vehicle, you don't have to worry about parking the vehicle, you don't have to worry about actually driving and you consider the back and work or watch a movie or do whatever, then the switching behavior is going to be, it's going to be a fairly intense and we will see a lot of people switching.

Kersten:

[42:53] And that's why we, we do believe that this market is going to be so huge.

Scot:

[42:58] It seems like you guys have put a lot of thought into these different ecosystems. Um, what do you know when you're sitting there in front of these, the, the OEMs? Uh, you know, one of the things here in the u s is they have these big dealer networks and you know, it's pretty easy to see a day where, where you don't really need that most, you know, if you ask a consumer, you know, uh, there, there's these funny TV ads where, you know, someone has to go buy a car and it's Kinda, you know, it's like the last thing they'd rather go get a root canal than it can kind of go buy a new car. Uh, so, so consumers don't love the existing, you know, experience of buying a car. Um, and then the service model for most Oems, you know, there's, there's luxury ones that that seemed to have cracked the code here. Uh, they don't live that either. What's that mean for kind of OEMs and dealers and this, this kind of future where we have robo taxis and different ownership models and all that stuff.

Kersten:

[43:50] So, I mean, we talked earlier about half the ownership structure is going to change, right? And then for sure we are still going to see Carl and this shape is a very relevant thing for the next 20 years, 20 plus years. Right. So the diva, we'll, we'll always stay. We'll always stay relevant. The question is just how does the role of, would you then need to change as in when we think about more online sales or more consumers that are getting all their information online and only having one point something visits per car per purchase rather than four or five in the past or the role of the dealer needs to change and also the retail experience to a certain extent needs to change. Do you think if we, if you figure all that in and if we think about how the ideal car purchasing journey look from a customer perspective and the dealer will still have a role in expanding the car, providing a test drive, delivering the car and obviously also in the whole servicing of the vehicle.

Kersten:

[44:44] Um, it's just a question of how you change this, um, this dealer network structure and also how you change the role of the dealer to accommodate a four. The fact that the whole car purchasing process is changing dramatically. And before the fact that at least in some geographies the number of cars owned will actually go down. But we talked extensively about all the fleet management things and also if we think about a different ownership models where people are using the subscription and so on. And there is definitely different roles for the dealers that need to be or different different activities that need to be done. And the dealers are in my mind, one of the most natural owners to to step in and do this. It would just be a change of the business model to a certain extent, but there will still be a requirement of a strong requirement for a diva like association with a new line of business.

Scot:

[45:31] Yeah. I guess one question is, you know, so, so I come from the ecommerce world and uh, one of the clear losers in this big kind of digitalization that we're seeing, uh, is, is traditional malls. Uh, and I don't, I guess cause you feel it in Europe as well, it's more of the high street retailers is what you guys would say. Um, but you know, that's, that's clearly we'll, we'll see like 30% of the malls in the u s go out of business because they just kind of don't offer a competitive offering. Do you think there'll be a big loser as we look at kind of these trends in the, in the ecosystem of mobility? Is there some are, I guess it's hard to be a consultant and say loser, but uh, let's say what industries most at risk by these changes we're talking about?

Kersten:

[46:14] So I think it's not an entire industry that's most at risk or an entire hypoplasia that's most at risk. I think for every single cause. This is, this is huge one and the whole ecosystem, the whole value chain is different. And at the same time it is still complex because cars are more complex and smartphones, just as an as an example, right? So think there won't be, entire industries are entire archetypes of players that we'll be using. They will simply be a couple of companies within each archetype. It will struggle either because they attack the change too late or because they didn't invest enough money or because they didn't have the right people or whatever. But that's, that's how I, how I would see it. And probably we will see a certain conservation and some parts of the market and we will see a change in the margin structure of the industry and also the revenue structure of the industry. But I don't think that entire industry is, we'll, um, we'll will cease to exist, um, simply because again, the potential is so huge. And Net net this will actually increase the number of miles driven and the mobility consumed because mobility will get easier to access, um, or to be accessed by the consumer and it will also be cheaper for the consumer. So therefore the total consumption is going to go up. And then the total pie if you will, it's going to get larger. It's just a different distribution of the pie.

Scot:

[47:30] Cool. Um, so I know you're super busy and we're getting right up against time. A couple of last questions. Any other thoughts or topics on your mind that we didn't cover about where you, where you see things going in the next five to 10 years?

Kersten:

[47:45] One, one thing that's, that's interesting to discuss. It's a bit what is going to happen to traffic into congestion in cities when you think about this. Because we take a look at the data today and we'll take a look at it, especially ride sharing and e hailing. It actually creates more traffic because it is more convenient for users to access and people are actually substituting trips that they would have otherwise driven by a bus or walked or not have taken by using, by using, for example, Uber or Lyft or something else. Right? And, um, the question is what can be done, especially by cities to make sure that this is, um, this doesn't increase congestion even further. And this doesn't completely stalled traffic. And in my mind, uh, cities have a very important role here and need to play a very active role and making sure that they shape this mobility transition for the respective city and think about what their target function is and how they want to optimize mobility and how would they want to make use of these technologies. Because in our mind, in the end, if you put, uh, autonomous shared electric mobility into the cities and this will make everybody's lives better if it is managed well. And that's for me something where one or the players need to cooperate but to also the cities need to play a very active role to make this happen.

Scot:

[49:00] Do you see a point if we kind of play that out? You know, a lot of folks are talking about, you know, cities just changing their design, getting rid of the parking and the roads become more, you know, maybe you have one lane for Avs and then a lot of more for, for like scooters and bikes. And, uh, do you, do you see a future there where we have these kind of cities that are drastically changed by these trends?

Kersten:

[49:24] Absolutely. I think if you, if you, if you are a city or the mayor or somebody in the transportation planning department and you take a look at the entire traffic pattern in the city and how people who want to get from a to B and how you want people to get from a to B, um, you could, you can redesign the city, you can take entire city, city blocks and areas where you don't a low cost at all, where you basically limit morbidity to either micro mobility or some type of public transport. Um, and yes, I think there's a tremendous opportunity, um, that by reshaping the way how the existing road infrastructure is used, we can accommodate more people and make mobility's cleaner and faster for everybody. Awesome. Two more economical at the same time.

Scot:

[50:10] Yeah. It's gonna be fun to see how all this plays out over the next 10 years. Um, so I, it's a little bit, yeah. One last question. I've really enjoyed reading a bunch of the content that, that you and your group put out there for listeners, where can they go to, uh, to learn more about your, your and McKinsey's thoughts around these topics.

Kersten:

[50:29] So we do have a presence of the McKinsey Center for Future Mobility at mckinsey.com. When you go to mckinsey.com and search for EMCFM, the McKinsey Center for Future Mobility, you will find our publications. You can also obviously stalk me on Linkedin if you want to. Um, I try to post all the new research that we have and if there are any other questions, obviously feel free to reach out to us. Um, we do have a ton of stuff available.

Scot:

[50:54] Awesome. So look forward to seeing, uh, there any, any uh, reports coming out that we should be aware of.

Kersten:

[51:00] We are working on a, on a major piece on autonomy and uh, the potential of Robo taxis from, uh, from, uh, from an adoption standpoint and also what the size of that value pool is going to be. That's something we should be launching in the next couple of weeks. I saw and I think that's going to be sparks. I'm exciting discussions about the market sizing.

Scot:

[51:19] Awesome. I look forward to seeing that. Uh, and we really appreciate you taking time to be on the Vehicle 2.0 Podcast.

Kersten:

[51:25] Again, thanks so much for having me. It's been an amazing experience and all the best for your next podcasts and guests.

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