Philippa Kaur

IN THE decades after the second world war carmakers were the undisputed champions of the personal-transport economy. Competition and economies of scale made cars affordable to millions of motorists in industrialised countries. In the 1980s and 1990s the likes of General Motors (GM) and Toyota boasted some of the world’s richest market capitalisations. When it came to getting around town, nothing beat the automobile.Today the picture looks different. Of the five most valuable firms in the moving-people-around business only two, Toyota of Japan and Volkswagen of Germany, are established carmakers. Ahead of everyone by a country mile is Tesla, an American company that has disrupted the car industry by turning electric vehicles (EVS) from an unsightly curiosity (remember the G-wiz?) into a serious challenger to the internal combustion engine. Rounding off the top five are not carmakers at all but Uber, an American ride-hailing giant worth over $100bn, and Didi Chuxing, a Chinese one that on April 10th reportedly filed confidentially to go public in New York and hopes for a similar valuation.After being slow to react to the threat from Tesla legacy carmakers are—just about—getting to grips with electrification. Now another disruption lurks around the corner. Changing habits and technology are forcing car companies to rethink how their products are sold, used and owned. In a sign of the times, the boss of Volkswagen, Herbert Diess, concedes that “ownership is not necessarily what you want. You want a car when you need a car.” Competitors are elbowing in; Didi is expected to be the star turn at the Shanghai Motor Show later this month. The private car is not obsolete. But the future business of “mobility”—as the industry has rebranded getting from A to B—will involve much more besides.The market could be enormous. In 2019, ahead of its flotation, Uber put it at $5.7trn, based on the 20trn or so kilometres that passengers travel each year in 175 countries using road vehicles, including public transport. Consultancies’ estimates are more subdued, and vary considerably. But all point to rich potential. IHS Markit reckons that what it calls “new transport” will be worth $400bn in revenues by 2030. KPMG puts the figure at $1trn. Accenture calculates that revenues from mobility, including car sales, will hit $6.6trn by 2050. New transport will make up 40% of the total.Individually owned cars will remain a big part of the new ecosystem. They are still the world’s preferred means of transport. For every ten miles travelled Americans use the car for eight, Europeans for seven and Chinese for six. Even in Europe, which is friendlier to public transport than America or China, only one in six miles took place on buses, trains and coaches in 2017. Uber accounts for just 1.5% of total miles driven in its home market.Indeed, in some ways the pandemic has cemented the car’s pole position. Many people have shunned shared vehicles, be they cabs or buses, for fear of infection. A survey of American travelling habits by LEK, a consultancy, showed that car journeys declined by just 9% last year, compared with 55-65% for public transport and ride hailing. Although today’s teenagers are less interested in getting behind the wheel than their parents were, that changes when they turn 20. Between 2010 and 2018 America lost 800,000 drivers under 19 but gained 1.8m aged 20-29, estimates Bernstein, a broker. Appetite for cars in China, the biggest market, remains strong. In the first three months of the year Chinese car sales rebounded close to their pre-pandemic peak.The automobile’s appeal endures on the outskirts of cities and beyond. Bernstein reckons that most driving takes place away from congested urban cores. Nearly nine-tenths of car miles in America are driven in the suburbs, small towns and rural locations, where a private car is often the only choice.Instead it is in the city centres where a revolution beckons. There the classic ownership model is endangered, new modes of transport are emerging and there is building competition from upstart mobility providers that connect customers with a mesh of different services.Didi, Uber and others provide rides on demand. Having lost money for years, Uber and Lyft, its smaller American rival, should become profitable in 2022, thinks Morgan Stanley, an investment bank. Companies like Zipcar enable people to rent cars by the hour, or even minute. Turo, a Californian firm, is one of several to provide longer-term peer-to-peer car-sharing. BlaBlaCar, a French company that has signed up 90m drivers in 22 countries, connects drivers with spare seats to travellers heading in the same direction.Bike-sharing schemes jostle in new dedicated lanes with electric scooters for hire. Before the pandemic consultants at McKinsey reckoned that renting e-scooters might generate revenues of $500bn worldwide by 2030. Even flying taxis may at last be about to take off; some of their developers, such as Joby, have earned multibillion-dollar valuations.All these modes of transport are being stitched together into seamless trips by specialist journey-planning apps. These let travellers take a scooter to the underground station, take the metro, then jump in an Uber for the last mile—or pick whatever other combination of price and travel time is most suitable. They charge the individual service providers a commission for including them in a journey. Some are experimenting with subscription plans. Some makers of aggregator apps are startups. Whim of Finland gives access to public transport, taxis, bikes and cars for a single subscription in several European locations. Others are stalwarts of the transport business. Deutsche Bahn, Germany’s state-own railway company, has an app that also lets passengers use a variety of travel options. Frost & Sullivan, a consultancy, forecasts that such aggregator apps will generate revenues of $35bn with a decade.Small wonder carmakers want in. Many have done so by investing in the newcomers. In 2016 GM ploughed $500m into Lyft and Volkswagen put $300m in Gett, a European taxi-hailing app. Toyota has invested in Uber, Didi and Grab, a Singaporean ride-hailing firm that could go public soon in a reverse merger valuing it at $35bn. GM has since sold its stake (at a healthy profit) but Toyota and Volkswagen have held on to theirs.The car companies have also been competing with the challengers head on. It helps that many car firms are familiar with the principle of charging for use rather than ownership. In Britain more than 90% of cars use some for of financing. Arrangements where the customer pays a monthly sum over two to four years to offset depreciation are a lot like a long-term rental. It is not a huge jump from that to a subscription service. Hakan Samuelsson, boss of Volvo, thinks the shift from ownership to “usership” could be rapid.Five years ago, in a bid to convince investors that it was a “mobility” firm, not an irrelevant behemoth, GM launched Maven, a brand offering both car-sharing and a peer-to-peer rental. The same year Ford, GM’s Detroit rival, acquired Chariot, a shared minibus service, and Volkswagen launched MOIA, which employs 1,300 people developing on-demand transport. In 2019 BMW and Daimler, two German makers of luxury cars, combined their mobility businesses into a joint venture called Free Now, and Toyota launched its car-sharing and travel-planning platform, Kinto, which has since expanded to several European countries.Some upmarket carmakers, including Volvo (a Swedish marque owned by Geely of China), Audi (part of Volkswagen) and Lexus (Toyota’s premium brand), have tried to woo back younger city-dwellers with subscription services. For a monthly fee starting at between $600 (for a Volvo) and $1,000 (for an Audi or a Lexus), which excludes only fuel, users get access to a vehicle whenever they need one. Lynk & Co charges users €500 ($595) per month for its cars. Its boss, Allan Visser, calls his marque (also owned by Geely) the “Netflix of cars”.As the relationship between car brands and customers gets more continuous, replacing some one-off sales, it is also becoming more direct. Tesla pioneered selling cars in its own salons, as Apple does with its gadgets. Other carmakers are beginning to follow suit. Lynk & Co sells its cars online. Volvo said in February that it will start doing the same. The trend has been accelerated by the pandemic, which has pushed more car buyers away from dealers’ forecourts and onto the internet. Selling vehicles directly forges a bond with buyers that may help flog services in the future.Not all of these ventures will succeed. Some have already fallen by the wayside. Ford pulled the plug on Chariot in 2019. Maven was put to rest a year later, as was the foldable-bike venture. A few months ago Free Now quietly wrote off its Hive e-scooter business and in March sold ParkNow, an app that allows drivers to find and pay for a parking space. As Ashish Khanna of LEK observes, ride-hailing will always struggle in outer suburbs where passengers are far less thick on the ground. Assaf Biderman, boss of Superpedestrian, which operates shared e-scooters, notes that city peripheries in particular are still “built for cars”.But legacy carmakers are not taking anything for granted as they face up to the reality that a few decades from now they may be selling fewer cars in the time-honoured way. If Tesla taught them anything it is that being caught asleep at the wheel can be awfully costly. More

“THE IMPOSSIBLE can many times become possible,” reflects Albert Bourla, boss of Pfizer. He is talking about the giant American drugmaker’s speedy development (with BioNTech of Germany) of a vaccine against covid-19. The sentiment also applies to the turnaround in the fortunes of the pharmaceutical industry.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

ONE OF SILICON VALLEY’S most successful inventions is hype. It usually disappoints. In 2015 live-streaming from smartphones became all the rage. But Meerkat, an app which pioneered it, shut down the following year. On April 1st Periscope, its more successful rival, did too (no joke). Will Clubhouse, a buzzy app that hosts live audio gabfests, suffer the same fate?Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

IN 1993 FOX, a nascent cable network owned by Rupert Murdoch, an Australian-born tycoon, paid a fortune to scoop the rights to National Football League (NFL) games from under the nose of CBS, a veteran broadcaster. It caused a tremor in American television history. As one CBS reporter put it, “The NFL was ingrained in the walls of CBS like Edward R. Murrow and Walter Cronkite.” With cable, the cost of sports rights took off. So did the cash cow of modern broadcasting—the TV “bundle” of sports and other stuff, most of it barely watchable. At the peak in 2012, almost 90% of American homes subscribed to one pay-TV bundle or another.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

FACED WITH recalcitrant sovereign counterparties, foreign investors and companies occasionally take drastic action. A picaresque example of the genre occurred in 2012, when Elliott Management, a buccaneering American hedge fund which held distressed Argentine bonds, seized a handsome tall ship belonging to Argentina’s navy. Elliott’s aggressive tactics ultimately paid off, and others have followed suit. In December a court in the British Virgin Islands ordered hotels in New York and Paris owned by Pakistan International Airlines to be used to settle a claim against Pakistan’s government by a Canadian-Chilean copper company. French courts have recently ruled that a stiffed creditor could seize a business jet belonging to the government of Congo-Brazzaville while it was being serviced at a French airport, as well as $30m from a bank account of the country’s state oil company.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

DEAR COLLEAGUES,This is my first memo as the newly appointed chief impact officer at Global United Financial Firms (GUFF) and I would like to thank everyone for welcoming me to the group. Some of you will be unfamiliar with the role of chief impact officer, but you may have seen headlines about Prince Harry taking on the role at a Silicon Valley firm. Of course, I don’t have the prince’s star quality but I hope I can do the same job in enhancing the reputation of GUFF that Harry has done for Britain’s royal family.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

CHINA’S TECH tycoons have not been themselves lately. In early March, at the annual session of China’s rubber-stamp parliament, Pony Ma called for stricter regulation of Tencent, the $700bn online empire he founded. Days later a rising star, Simon Hu, left his post as chief executive of Ant Group, a huge financial-technology firm affiliated with Alibaba, an e-commerce titan. Shortly after that Colin Huang stepped down as chairman of Pinduoduo, rattling investors still celebrating his upstart e-emporium’s recent announcement that it had overtaken Alibaba measured by the number of shoppers. Jack Ma, Alibaba’s outspoken co-founder and China’s most recognisable entrepreneur, has not been seen in public for months, with the exception of a video where he discusses the country’s education system.Their companies’ stocks have also been behaving out of character. Having added as much as $1.2trn to their combined market capitalisation since 2016, Alibaba, Pinduoduo and Tencent have seen their share prices tumble in recent weeks (see chart 1). The unlisted Ant is thought to be worth $200bn, down from more than $300bn in October. Throw in a few dozen other big Chinese tech groups and some $700bn in shareholder value has been wiped out since mid-February.The share price of Xiaomi, a big smartphone-maker, is down by more than 20% this year. Despite being one of the year’s most anticipated flotations, shares in Bilibili, a video-streaming service with 200m users, fell by 6% on its first day of trading in Hong Kong on March 29th. Baidu, a search giant which had regained some of its sparkle in the past year, has seen half of those gains snuffed out since mid-February. Shares in Meituan, a ride-hailing and food-delivery giant, have lost more than a quarter of their value in the same period, despite a doubling of profits last year. After this drop Chinese headlines asked of Meituan’s founder and boss, Wang Xing: “Is he not frightened at all?”.Mr Wang and his fellow tech moguls indeed have plenty to fear. Investors have cooled on frothy tech stocks in America, where many Chinese giants, including Alibaba, Baidu, Bilibili and Pinduoduo, have listings. But China’s firms have been hit harder than their American counterparts. They and their shareholders, who include plenty of Western funds, are grappling with three poorly understood developments. After years of tolerating big tech’s unbridled expansion, the central government is rewriting the rules, some tacit and some explicit, for how billionaires can behave, the degree of overt state control over data, and who owns the firms’ other assets, including stakes in other businesses. This new master plan for Chinese big tech will transform one of the world’s most innovative and valuable industries.Start with the tycoons. Unlike their counterparts in America, tarnished by accusations that their corporate creations harm users’ privacy, spread disinformation, mistreat workers and abuse their market power, Chinese tech moguls enjoy a glittering reputation among ordinary Chinese, who see them as embodying the “Chinese Dream” of growing prosperity that propagandists tout on posters across the country. Too glittering, it now seems, for the Communist Party, which under President Xi Jinping increasingly bridles at anything that might challenge its authority. That includes being upstaged by superstar bosses.The initial spark that led to the tech crackdown was Jack Ma’s comparison, at a public event in October, of Chinese state lenders to pawn shops. A month later China’s stockmarket regulator suspended the $37bn initial public offering of Ant, which would have been the world’s biggest ever, in Hong Kong. Since then the authorities have forced Ant to become a financial holding company, which undermines its lucrative, asset-light business model of matching consumers with lenders.The message, says a broker in Hong Kong, is that tech leaders should “stay in their own lane, focus on their core businesses and avoid commenting on politics or economics”. It has been heard loud and clear. Pony Ma’s parliamentary performance, in which he called for strict regulation of areas that he has invested in, from e-commerce to ride-hailing, has been seen as a signal to the Chinese government that he will not get out of line. One interpretation of Mr Huang’s departure from Pinduoduo—ostensibly to explore new opportunities in areas such as food science—is that he is wary of leading what might become China’s biggest e-commerce company. He has also recently eclipsed Jack Ma in wealth, which further increased his stature. One person who knows Mr Huang says that as a diligent student of Chinese philosophy he “understands very well that it is not safe to be at the top or at an extreme”. “He saw what was going on next door and decided to leave,” says an industry watcher.This de-tycoonification matters, for the firms’ fates are bound up in investors’ eyes with their visionary founders. Although Mr Ma quit as boss of Alibaba in 2013, and stepped down as chairman a year ago, he has continued to exert control over the direction of both the e-emporium and Ant. Where the company will end up shorn of Mr Ma’s acumen is anyone’s guess. The share price of Pinduoduo fell by 8% on news of Mr Huang’s abrupt departure, possibly for similar reasons.A second set of questions concerns the government’s designs for the firms’ most valuable resource—data. Its objective is to pool data and impose more state ownership and control, which could eventually amount to a kind of nationalisation. The digital firms have built some of the world’s largest and most advanced databases, which assess everything from users’ loan repayments to their friend networks, travel histories and spending habits. Ant alone is said to hold data on more than a billion people, on a par with Facebook and Google, and because of the breadth of services that many Chinese “super-apps” encompass they have a richer picture of users.Credit-scoring is the front line of the battle with the government over who controls data. Over the years the People’s Bank of China (PBOC) has made feeble attempts to create a centralised scoring system. Now the central bank appears to have decided to grab more control over those of the tech firms. It has approved two personal-credit companies, most recently in December, in which the technology groups and state-controlled entities hold stakes. The state has so far refrained from explicitly commanding the companies to share data. In China personal data belong to the individual, not companies, so laws would need to change in order for such data to be shared with the government. But that is hardly an insurmountable obstacle for an authoritarian regime.The tech companies have resisted, with reason. The scheme would, in the words of an asset manager in Hong Kong, erode the “information edge” that especially Alibaba and Tencent, which control the bulk of relevant data, currently enjoy. The uncertainty over what types of data would be shared, how and with whom, has weighed on Chinese tech shares, says Robin Zhu of Bernstein, a broker.The final source of uncertainty relates to the government’s plans for the giants’ other assets. The big firms are conglomerates that straddle many services and products. Over the past decade companies such as Alibaba and Tencent have also become some of China’s biggest venture capitalists (see chart 2), giving them influence over the digital economy that extends far beyond their operating businesses. Under Mr Ma, Alibaba and Ant Group have accrued assets in media, finance, logistics and health care. Tencent is a big shareholder in jd.com, another e-commerce giant, as well as in Meituan and Pinduoduo. Both Alibaba and Tencent hold stakes in Didi Chuxing, a ride-hailing firm which hopes to go public this year at a valuation of $100bn. In total the combined investment portfolios of Alibaba and Tencent are worth some $300bn, making them among the largest tech investors in the world—as well as two of the largest tech firms.Holding patternsThe decision to force Ant to become a holding company, with different activities held in different subsidiaries, suggests the authorities may want to change the structure of the tech empires. Tencent recently confirmed that it is working with regulators and reviewing past investments. Its credit operation, which is similar to Ant’s but smaller, may likewise be separated into a holding company under the PBOC’s jurisdiction. News reports have suggested that the government has asked Alibaba to sell its media holdings. Alibaba has not confirmed or denied the rumours. Legal experts say that if true, this would be concerning because the government measures would reach beyond antitrust law towards something more expansive and punitive.Shifts in the relationship between the state and big tech can scar foreign investors, who dominate the Chinese companies’ shareholder registers. Yahoo, an American tech group, and SoftBank, a Japanese one, learned this the hard way in 2011, when they had to accept that their large stakes in Alibaba no longer included Alipay, which Mr Ma had quietly spun off owing to regulatory concerns.Should something similar happen again, big foreign shareholders like SoftBank, which still holds a 24.9% stake in Alibaba, and Naspers, a South African tech conglomerate which owns 30.9% of Tencent via an Amsterdam-listed holding company called Prosus, could suffer another hit to their investments, on top of the recent drop in share prices. On April 7th Prosus said it would sell a 2% stake in Tencent to raise money for other ventures.An unspoken objective of the government is to ensure that foreigners exercise no control over Chinese tech firms, even if they own shares in them. That does not suggest their property rights are top of mind. And Chinese firms are no strangers to abrupt changes of fortune. A handful of traditional conglomerates such as Anbang and HNA, which had splurged billions on accruing assets at home and abroad, were forced to shed some of those holdings in the past few years.The fate of the tycoons behind them has been mixed. Several are in jail; others have been disgraced; a few have continued to do business quietly. Their companies are often shadows of their former selves. China’s digital darlings, as well as their founders and investors, will probably avoid a similar fate, because the firms are a source of dynamism and prestige and have succeeded through innovation rather than financial engineering. But such a bleak fate is no longer unthinkable. More

HON HAI PRECISION INDUSTRY is as obscure as its main client is famous. On March 30th the firm, also known as Foxconn, reported record sales of $182bn in 2020, thanks to demand for the Apple gadgets it assembles. Its market value has doubled in a year, to $63bn. It is now eyeing smartphones on wheels. Analysts think it could be making 1m electric cars by 2025. If so, it may overtake Apple, whose iCar plans look less advanced.■Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More