A version of this article was originally published in Forbes.
Once the darlings of venture capital and private equity, mobility and automotive startups are falling on hard times in 2020, thanks to COVID-19.
With people stuck at home and travel almost eliminated, mobility was not a particularly exciting theme for investors in the first few months of the year, and the money for these startups has been evaporating. The expectation is for the various mobility segments to continue to suffer in the second quarter because of the global recession anticipated in the wake of COVID-19.
In the first quarter of this year, the pool of funds invested in mobility and automotive enterprises — particularly those in ride-hailing, ride-sharing, and micromobility services — shrank 16% as people were no longer willing to get into the same car or share the same bicycle or scooter as strangers who could be infected. Global funding to private companies only attracted $77 billion in Q1 2020, down from $92 billion in the last three months of 2019, according to CB Insights market analysis.
One of the biggest losers was China — a reaction to the country’s nationwide lockdown that went into effect in the second half of January. From December 2019 through February 2020, the number of Series A deals fell 74% , according to numbers from incubator Startup Genome. When indexed to the decline in the rest of the world, China’s numbers were down as much as 57%. China and the United States have been the top two destinations for mobility and automotive startup capital for the past several years, reflecting not only the sheer number of enterprises but also the number of already large and successful startups in both countries.
Moving forward, in a coronavirus-driven economy, we expect to see connected and self-driving technologies attract a larger share of the sector’s startup money as the need for autonomous vehicles rises in situations where social distancing is the norm. The other area attracting investment is last-mile delivery, which has become an attractive opportunity with so many consumers ordering online to avoid shopping in stores with other people. Here, investment is flowing into logistics technologies and services. For instance, several e-scooter startups switched to delivering groceries and other staples after stay-at-home orders eliminated much of their scooter-sharing business.
How a slowing economy hurt mobility startup investment
But even before the pandemic struck, mobility and automotive startups fell victim to slowing growth in major economies. Where in 2018 the automotive and mobility sector attracted $395 billion, the startup category in 2019 only saw $354 billion invested — a 10.4% drop. Investments in the top 10 most promising mobility services startups dropped from $6.9 billion in 2018 to only $3.6 billion in 2019.
In 2019, the US attracted the most mobility and automotive startup investment — $16.5 billion versus $10 billion for China. The next two biggest destinations for startup investment were Singapore, with $2.5 billion and India, with $1.7 billion. The total for Europe was $2.7 billion, of which $1 billion was invested in German startups.
One of the big winners in 2019 was the green vehicle category, including investments in electric vehicles (EVs) and battery development. Investors were swayed by mounting public concerns over climate change and increasing emission regulations by European governments. Investment in the top 10 most promising green vehicle startups totaled $6.9 billion, rising 163% between 2018 and 2019. In the US, 10 times more was invested in green vehicle startups versus mobility services startups in 2019.
That said, in the first quarter of 2020, green vehicles saw a drop-off in support because of the disruption in the automotive supply chain, which particularly hurt lithium-ion batteries used in EVs. Six out of 10 lithium-ion batteries are produced in China, where production was shuttered for most of the first quarter. The sector also may be hurt in 2020 by depressed oil prices, which make internal combustion cars less expensive to operate.
Autonomous vehicles are the last safe bet in mobility investment
The other big winner in 2019 was connected and self-driving technologies, where the top 10 attracted $4.6 billion — nearly 10 times more money than in the prior year. Of that global total, $4.3 billion was invested in startups in the US.
Another trend: Liquidity and business success remain crucial to attracting investment. In the last two years, startup funding has increasingly gone to winners across categories, making the average size of the funding rounds larger and creating behemoths in areas like ride-hailing. Car manufacturers and large technology companies have also been injecting new capital into the sector by acquiring startups involved in digital software and connected and self-driving technologies. That is unlikely to continue in 2020, given the financial hit automakers have taken because of COVID-19.
The top 10 startups offering online sales platforms or innovative customer services received financing of $2.7 billion in 2019, a slight decrease from 2018. Given that car sales will suffer in the wake of double-digit unemployment in major economies like the US, the sales and aftersales startup category is expected to be affected.
Now more than ever, it has become imperative for automakers and those operating in the sector to define a long-term mobility strategy and set a course to get there. With most startups in survival mode, there may be an opportunity for forward-thinking car companies to form partnerships or acquire the most promising of these young enterprises. More than any crisis of recent years, the coronavirus and the global recession it caused will separate the winners from those who will simply not be in business when the smoke clears.
Originally published in June 2020.
