Latin America’s Mobility Market: The Underdog is awakening.
Latin American mobility consumers are preferring hassle free short term and subscription based rentals of vehicles, changing the way they move while reshaping the entire industry. But do all business models benefit from this trend? And, are all innovative business models profitable?
Patterns in mobility consumption adopt change in Latin America
The problem and the solution.
In Latin America, as well as in the rest of the world, the biggest cities have high levels of traffic congestion, generating immense problems for the population such as high pollution, increase in commuting time and inefficiency in asset utilisation by person. The region holds some of the most congested cities in the world, primarily due to high population living in urban areas, with the 10 largest cities in the region consolidating 176.31 million people and the smallest holding more than 4 million alone. Additionally, cities have been developed as a one single area that expands in its surroundings.
For instance, Bogotá and Monterrey, ranked 5 and 9 as the world’s most congested cities, have reached 122 and 116 hours delay per driver, respectively. Meaning that in a year, commuters in these cities are spending 122 or 116 hours more than the "ideal" travel time. The implication of high traffic is that it reduces the average speed a person can travel per kmt.
Brazil is no stranger to this issue, Sao Paulo and Belo Horizonte reached 56 and 65 hours delay per driver. For example, Sao Paulo’s 12M inhabitants and 20M metro area commuters keep reducing the average vehicle speed to 15 km/h during peak hours, even though, its local government has developed a sophisticated transportation infrastructure compared to the capitals of developed countries, unfortunately, traffic jams are not decreasing.
Nowadays, more than 150 cities around the world have implemented tax and urban mobility incentives for shared mobility services to be embraced by more users, such as ride hailing, vehicles sharing and micro mobility.
Likeways, Latin America policymakers have been shying away from conventional urban conventional mobility since the late ‘90s, with a series of policies that have all prepared the ground for shared mobility to rise. Some of them include Bogota's (Colombia) Pico y Placa, Santiago’s (Chile) access downtown only to electric vehicles and Sao Paulo’s (Brazil) rodizio. Recent public policies are more inclined to create infrastructure suitable for shared mobility services to operate, under the expectation that consumers would shift towards a more convenient and efficient way to commute, increasing average vehicle speed.
Due to all of this, innovative mobility solutions are being ignited and developed in the region, consolidating close to 20 companies actively operating in Latin America between seed and growth stages.
Such mobility services can be consolidated in three main categories, hailed mobility, car-sharing and micromobility. In Latin America, the main players of hailed mobility are companies such as Uber and Cabify, while in car sharing and micromobility we find a broader range of competitors.
The problem and the solution.
In Car-Sharing mobility services, users can rent vehicles by the minute, day or days via one time charge of their credit card once the trip has ended or via monthly subscription, when the user wants to stay with the same vehicle for more than 1 month. In this category, companies such as Turbi, Awto, Kovi and Kinto concentrate on the B2C and B2B segment for personal use, while companies such as Privauto, concentrate on the B2C niche market of drivers of ride healing service apps.
The Latin American Car-Sharing market: A $105 billion opportunity, but not all business models are profitable.
The Car-Sharing market can be described as the service via app for users to “order” a vehicle, or unlock it anywhere in the urban area and drive it without having to incur the time-consuming paperwork that comes with the traditional car rental process.
Within the car-sharing market, sub-categories such as station-based car-sharing, free-floating car-sharing, micro mobility sharing, car rental or transit, can be highlighted.
Today, we estimate that the total car-sharing market in Latin America, has consolidated a total market value of $16 billion dollars and its expected to grow more than 30% per year reaching $105 billion dollars by 2030, mainly driven by a significant increase in new users, stronger public policy supporting this development and friendlier social economic environment that allows the vehicles, bicycles and mopeds to be on the streets without facing vandalism.
Specific Market Drivers
Based on the free-floating car sharing model, the Latin America vehicle-sharing market segments into B2B, B2C and P2P. The first two offer higher value to consumers and SMEs, as the quality of the asset is maintained at optimum level and always complying with regulatory and operational requirements. The latter instead holds significant friction and quality gaps that erode value to users, bound specifically to the fact that there is little to zero maintenance and scrutiny over vehicles, whose maintenance and all the other ancillary services are ultimately up to the owner of the car rather than the company matching drivers to customers.
One example of the P2P business model struggling to find a profitable business model is the company Hyrecar. Even though its revenues grew from less than $100K in 2015 to $35 Million in 2021, consolidating a CAGR of 226% during this period, the company did not achieve Gross Margin levels above 30% (27% in 2021) and Ebitda results were negative every single year ending with an Ebitda Margin of -78% in 2021 and eroding a total value of $69 Million between this period.
Hyrecar was established in 2014, launched a small IPO of $12.5 million and filed for bankruptcy in february 2023. With a final acquisition of the company assets for a total value of $9.5 million by Getaround.
The rise of subscription services
In this environment, subscription services are emerging as a flexible alternative between operational and mobility financial services. Specifically, web or mobile platform based models have been capturing increasing shares of the market. Based on the application, the market bifurcates into Web or Mobile Platform and Third-Party Operator. Among these segments, Web or Mobile Platform accounted for the largest share of the Latin America Carsharing Market in the previous few years. The segment growth owes to the rising penetration of smartphones making easy access to the carsharing platforms. Specifically, Latin America has seen a spread of smartphones in the continent up to around 68% of the population in 2021 and forecasted to grow to 73% in 2025.
Latin America has been the underdog in the mobility revolution until now, with solid statistics backing urban mobility preferences change towards trends seen in developed markets.
In conclusion, Latin America has been the underdog in the mobility revolution until now, with solid statistics backing urban mobility preferences change towards trends seen in developed markets. Latinos are shifting towards an asset light scenario, due to consumers prioritising efficiency above all, monetary efficiency when choosing to pay for a monthly membership rather than acquiring a vehicle and time efficiency when choosing to hire a service during traffic jams. More importantly, urban traffic has reached a tipping point in which governments have been forced to implement public policy restricting the usage of vehicles, accelerating consumer adoption of alternative mobility services. All of this has ignited ride hailing, car-sharing and micro mobility business models in the region.
However, not all alternative mobility services are profitable and sustainable in the long run. Business models with no real competitive advantage, can disguise value creation by achieving high revenue growth, but unless the company can find operational efficiencies or ways to provide a better service than incumbents, at competitive prices, while generating gross profit above 40%, profitability and business sustainability would be hard to find.
