Posted on 02 November 2021
Leveraging Disruptors in New Mobility
With advances in technology ushering in a new era of intelligent machines, many claim we are entering the fourth phase of the industrial revolution. Along with the rise of smart cities and smart electricity grids will come new developments in smart delivery systems and smart vehicles – paving the way for market opportunities in the new mobility ecosystem.
“There is a lot of disruption in this space at the moment,” explains Harry Krkalo, Managing Partner & CEO of GLy Capital Management, which runs the New Mobility Strategy fund seeded by Zhejiang Geely Group and SK Holdings. “A lot of this movement is macro-driven, spurred by government policies towards de-carbonising mobility. The WHO estimates that, worldwide, 1.25 million people die in car accidents each year and more than twice that number die as a direct result of air pollution from transportation. The humanity cost is high and so is the economic, which in 2015 was estimated to be well over USD $1 trillion. To address the environmental impact of transportation, many governments have stated their intention to disallow the sale of new internal combustion engine cars. As an example, Norway is aiming to have all new passenger cars and light vans sold in 2025 be zero-emission vehicles, and UBS recently forecast that by 2040, almost all passenger cars sold globally will be electric.”
From Smart Vehicles to Smart Cities
As the era of petroleum fuelled vehicles draws to a close, the market is becoming increasingly receptive to new ideas and technologies around mobility. “Over and above the macro directives, people like electric cars, and the general perception is that Tesla has done something cool. The consumer feedback seems to be that the driving experience is better, the lifecycle maintenance is superior and round-trip efficiency is well above the non-electric alternative,” notes Krkalo.
Putting its investment philosophy into action, the New Mobility Strategy fund secured A-round valuation for Polestar (the high-performance electric vehicle arm of Volvo) at the end of 2019. Since then, electric vehicle valuations have increased significantly, serving as a strong testament to the fund’s underlying investment focus.
However, Krkalo is quick to point out that the recent popularity of electric vehicles is just the starting point. He elaborates, “With electric vehicles, you’re not just buying a car. You’re buying into an entire ecosystem – that includes the car, charging infrastructure, connectivity for telemetry and communication, as well as infrastructure for autonomous guidance systems.”
“But beyond that, the way people think about transport is changing. In Australia, it used to be when you turned sixteen you got a driver’s license and a car. Nowadays, that’s not the case – especially if you live in a city. Some are beginning to question the need for private vehicle ownership,” he continues. “For example, when you buy a car you only drive it for around 4% of its total life span. The rest of the time it is parked somewhere, completely unused. Yet for most people their car is their second most expensive asset… and it’s one that depreciates.”
A re-assessment of private vehicle utilisation also calls into question associated costs of car ownership such as automobile insurance. Should owners be paying for around-the- clock insurance coverage when the vehicle is unused and stationary 96% of the time? This shift in mindset is opening the door for a host of new disruptors in the mobility space.
The New Reality of New Mobility
One of the major challenges around the development of new technology is being able to properly identify and evaluate potential investments. Krkalo comments, “Our research centres are good at evaluating products and technologies. They put technology and prototypes through an automotive grade testing process and provide us with unique insight into the viability of the service offered. Having such insight gives us an advantage in identifying those companies that go beyond just a having a great idea.”
He also noted that the proliferation of SPACs has crowded the field with additional investment capital. While the shift in marketing dynamics is making it easier for earlier stage companies to secure funding, it has also become more challenging for fund managers to find late-stage companies still actively seeking private equity.
Krkalo added that not being able to see investors and company executives face-to-face due to social distancing and travel restrictions has increased complexities around fund raising. However, with a solid value proposition and an insider’s connection to the industry, GLy has access to a broader deal pipeline than what is not typically available through investment banks. He remarks, “We have more to offer than just capital, but in return we also ask for more privileged access.”
Despite the challenges involved in establishing the fund and securing investors, Krkalo credits Alter Domus for helping to streamline the administrative side of operations. He concludes, “The onboarding process is getting nastier, but there are definitely nuances in handling documentation. For example, I know of a $3 million investor who withdrew from another fund due to inefficient communication from the service provider during onboarding. This simply would not happen with Alter Domus.”