Ford Motor
Chariot in San Francisco

Automakers Find It's Hard to Make Money on Mobility, Not Cars

March 4, 2019
Shared mobility startups have attracted significant spending—about $5 billion in private investment last year, or 71% more than in 2017.

Jim Hackett’s first job at Ford Motor Co. was to figure out ways to make money that didn’t involve selling cars. One of his first big decisions as the executive in charge of smart mobility, a catch-all term for app-driven transportation businesses, was to spend $65 million on a ride-sharing startup offering shuttle bus service.

Three years later, Hackett is Ford’s chief executive officer and that startup, Chariot, has been shut down for good.

Chariot’s problems were mundane. There weren’t many riders in the 11 cities where it operated. Former employees described the sort of mismanagement that might afflict any startup, and there’s no indication that shuttle service made any contribution to Ford’s bottom line.

Ford dismissed the demise of Chariot as the end of an experiment and a chance to learn. “I’m very happy with what Chariot taught us and what the next evolution of the business is going to be,” Hackett said at the Detroit Auto Show in January. “This is a pivot for us, a bunch of things have been birthed from the Chariot experience.”

But the downfall of Chariot and its inability to find a useful place in the shifting landscape of urban transportation—or within Ford’s portfolio of non-carmaking efforts—underscores broader challenges facing automakers as they sink money into attempts to figure out the future. Shared mobility startups have attracted significant spending—about $5 billion in private investment last year, or 71% more than in 2017, according to Bloomberg New Energy Finance research.

“There’s this perception of a mobility utopia that the market is buying into, but the science and business model really aren’t there,” said Kevin Tynan, an analyst at Bloomberg Intelligence. When that optimism runs up against balance-sheet realities, he added, conservative automakers will tend to cut off projects that aren’t profitable.

Many big carmakers that have outlined ambitious mobility goals, from ride-sharing to autonomous taxi services, that risk being held back by the demands of their primary business: making cars. While General Motors Co. has been ramping up its manufacturing and electrification efforts, its driverless car subsidiary, Cruise, logged just a fraction of the 1 million miles per month on its autonomous test cars that had been promised investors. The effort to develop driverless technology for a forthcoming ride-hailing service built by Cruise will absorb about $1 billion a year from GM, with other investors putting in billions more.

The pressure of investing in new mobility initiatives has led to partnerships that help balance the costs. Daimler AG and BMW AG joined forces on their car-sharing ventures, Car2Go and DriveNow, after losing money on their respective services. “It takes a lot of money, so it makes a lot of sense to share that burden,” said Michelle Krebs, senior analyst at AutoTrader.

At Chariot, meanwhile, it appears Ford’s deeper pockets and the ambitions of senior leadership couldn’t offset its inability to serve as a realistic mode of transit for city dwellers. Chariot failed to alleviate the hassles most commuters face, such as not being able to choose who you ride with or a specific route. “Maybe it was not quite revolutionary enough or affordable enough compared to mass transit,” said Jeremy Acevedo, an analyst at Edmunds.

Chariot’s mission was to find a place between ride-sharing services like Uber Technologies Inc. and Lyft Inc. and public transportation by offering commuters on-demand rides in shuttle vans. In addition to individual pay-as-you go rides through its app, the company offered enterprise deals that allowed companies to pay for fleets that regularly shuttle employees to work or hourly charter vans for big groups.

Eric Mendelsohn, who spent eight months on Chariot’s sales team, expected to find a startup supercharged by experienced management from Ford. He hoped the venerable automaker would use its power to make the startup’s vision practical. “When I got there, there were just tons of issues,” Mendelsohn recalled. “It was a very poorly managed company.”

“I saw the writing on the wall,” he added. “It was something that wasn’t selling well, the deals were very low-margin and the commuter business had made no money.”

Candace Garton-Mullen, who worked at Chariot’s San Francisco office in 2017 as executive assistant to the chief operating officer, said she realized early on that the company had no chance competing with existing ride-hailing services. “Routes were too specific,” she said, with offerings mostly suited to the outskirts of the city.

Malachi Walton, who worked for Chariot in Austin, Texas, was tasked with getting people to sign up. Few seemed interested, and Walton left the company after a four-month stint last year.

“Ford, like a lot of companies, is doing a lot of experiments right now to try to figure out what consumers are going to pay for and how much they are going to pay,” said Sam Abuelsamid, senior research analyst of mobility at Navigant.

Ford said its goal is to use data it collected from Chariot to move forward with its other mobility ventures. The automaker is invested in 55 subsidiaries, according to BloombergNEF data. But whether these gambles will pay off will depend on whether Ford and other automakers are willing to put the same effort into their mobility project that they are into their main sources of profit.

Automakers are pouring billions into new mobility ventures like robo-taxis and ride-hailing without any clear idea when they are going to make money from them. And they're paying for these huge investments with the money they make from their traditional business.

“Out of all the different things that have been tried by these companies over the last several years, there’s one common thread, and that’s that nobody has actually figured out how to make money on this,” Abuelsamid said. “Whether you’re talking about ride-hailing, micromobility, car-sharing—none of them are profitable.”

By Alexandra Semenova

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Licensed content from Bloomberg, copyright 2016.

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