Transportation of the future – is it electric

We have been seeing growing awareness around electric vehicles (EV) for some time now with initiatives from around the region, driven by UAE and Saudi Arabia. We have also seen the growing trend of renting rather than owning a car, to save the environment if not the costs.

Vitali Bielski, Associate Director and Subhashree Ramarathnam, Principal Consultant, Mobility Practice at Frost & Sullivan are seeing four key trends for the MENA region for the transportation sector: connected mobility, multimodality, price sensitivity and innovation.

Connected Mobility: The region is home to some of the most connected societies in the world - UAE is in the TOP 3 globally by the number of mobile subscriptions (201 per 100 people as of 2019). On the other hand, Saudi Arabia has the highest penetration of WhatsApp users in the world as of 2020, with 81 percent of internet users relying on the app. These numbers are important because CASE (Connected, Autonomous, Shared and Electric) is the future of mobility and the fact that it starts with "Connected" is no coincidence. E-hailing, car sharing, ride sharing, micro-mobility, demand-responsive transport would not be possible if people didn't use their smartphones. As vehicles are getting more connected, we expected connectivity to drive the future of mobility in the region.

Multimodality: As customers start exploring new mobility options (micro-mobility, car sharing etc.) and countries are continuing to invest in the infrastructure (like Dubai Metro Expo 2020 extension, Riyadh metro scheduled opening, etc), we expect mobility to keep shifting towards multimodality when customers plan their journey leveraging several transport options instead of just one.

Price sensitivity: Despite improvements in customers' sentiment, the regional population is expected to remain relatively price sensitive regarding the transportation budget. That means the customers are likely to explore new transportation modes and expand their vehicle selection when choosing new vehicles by perhaps considering Chinese brands which are increasingly more active in the region.

Innovation: there is little doubt that innovation will be driving the future of mobility in the region. With some cities and countries' ambitious goals like making 25 percent of all trips smart and autonomous in Dubai by 2030 and combining that with reducing prices of electric cars, which is expected to cost around the same as gasoline-powered cars by 2023-2025 , the type of vehicles sold by local dealers might change significantly already by 2023-2024. The role of limited local electric vehicle incentives will diminish, but customer demand is expected to drive the electric future.

We asked a few of those in the sector about the future of transportation. Here is what they had to say.

What trends are you seeing or will see for this sector in the MENA region

Adam Ridgway (AR), Founder & CEO, ONE MOTO Electric Vehicles: Convenience will always be a ‘driver’. We want to know a car is available when we need one, we leave our house, and we want a car there. For the new generation of drivers, I believe the shared platforms will appeal to them most as the direct cost for purchase is higher than most can afford, and debt is less appealing to those in existing employment. For those of us who own a car, the cost of ownership is relatively low compared to the convenience it offers. I do believe cars are a poor investment in the long term.

Various financing options are also a consideration for OEMs and those who choose not to accommodate the modern wants of consumers will fall short in the long term.

Ramez Hamdan (RH), Managing Director – Industrial Equipment (FAMCO, HINO, Toyota Material Handling), Al-Futtaim Automotive: Vehicle electrification is key, at least as far as commercial fleets go, because there is hard-evidence that electrification of vehicles in large numbers can immediately cut greenhouse gas emissions from commercial vehicles.

At least for the next two years, smaller vehicles used for express deliveries are the most likely candidates for electrification. Their shorter charging times make them easier to integrate into everyday operations and charging points tend to be more plentiful in urban locations. Eventually, even the larger model trucks will be candidates for electrification.

Nicholas Watson (NW), Managing Director, Udrive: As the largest car sharing platform in the region, we have seen a consistent increase in customers moving from CAPEX (Ownership) to OPEX (Leasing). In turn the understanding of leasing is maturing for self-drive customers and therefore it is forcing incumbents to change strategy. As you may have noticed many of the car dealerships are now creating and managing their own leasing agencies to help support the sale of a vehicle without having to rely on 3rd party leasing companies. This drive created by the need for customers to manage their fixed monthly costs and long-term risks is a key reason to why multi month and fractionalised leasing are growing in demand and popularity.

Mowafak AlSaadi (MS), H&D Marketing Division Manager, Schneider Electric Saudi Arabia: Awareness of electric vehicles (EV) and what they can do has grown in the MENA region, thanks in part to events such as Formula-E. Saudi Arabia’s Vision 2030 also spells out the importance of this energy transition. I expect that the EV market will grow rapidly, following the decision by the Saudi Standards, Metrology and Quality Organization to allow the imports of commercial EVs and charging stations.

A study by two researchers at the King Abdullah Petroleum Studies and Research Centre has highlighted the need for renewables to be built and deployed as part of a wider strategy to promote the EV industry. Their research estimates that if 100,000 combustion vehicles were replaced by the same number of EVs, carbon emissions would decrease, on average, by around 0.35%, or 266×103 tons. They’ve calculated that if all of the vehicles in Saudi Arabia were to be replaced with EVs, emissions would reduce by half, by 35 million tons.

We expect to see key transportation and utility stakeholders collaborate on policy, projects, initiatives and plans for investment to implement EV use.

What will drive these trends

AR: OpEx is always an attractive option for big ticket items, this is the case of B2B and B2C OEMs and dealerships alongside the operators. However, someone has to own the vehicles, and those that do, will see the financial benefits. It will take the governmental policy makers to offer initiatives for EVs to see a size if shift towards sustainable mobility.

RH: Government regulations and investments will be the driving forces behind the evolution into a future where electrification will become more than just a trend. In Dubai, DEWA has solved one significant problem by spearheading the rollout of charging points. SEWA is establishing a charger network in Sharjah.

The economic benefit is another driver. Operators of large commercial fleets can see a potential benefit of 15 to 20% if they convert their conventional fleet into electric as long as the vehicles stay in operation for at least three years or more. In the short term, of course, the financial impact would be negative as the cost of the purchase of EVs is relatively higher but will gradually be absorbed.

NW: The risk associated with asset depreciation, flexibility in work environments meaning less work-related transport and of course the impending buyers’ ecosystem consisting of more millennials and Gen Z, who have historically proven to shy away from outright ownership, will be the driving factors. While the MENA region itself has managed to maintain a protective approach to car sales through limited dealership models, the customers themselves are now have more power to demand alternative financing options. As more Millennials and Gen Z enter the workforce, their own personal choices and experiences will also drive corporate fleet ownership in new directions.

MS: Ambitious policy announcements have been critical in stimulating the electric-vehicle rollout in major vehicle markets in recent years. A continuing shift from direct subsidies to policy approaches that rely more on regulatory and other structural measures – including zero-emission vehicles mandates and fuel economy standards – have set clear, long-term signals to the auto industry and consumers that support the transition in an economically sustainable manner for governments.

Which countries in the region will lead in these sectors

AR: From the white paper I wrote back in 2019, mainstreaming EVs in the GCC will be led by those willing to accept the wants of the customers and take very mitigated risks. Jordan have the highest EV per capita, Egypt has the want, but are behind in infrastructure. The UAE has the opportunity to be the leader, however, currently with the investments in KSA, they are leading the charge of change for the region.

NW: We are a big believer that those who innovate will continue to maintain traction and growth. Those leaders are the ones that don’t fear change but embrace it. We see an amazing opportunity over the next 5 years to partner with the large players, support their own digitisation requirements and help support self-mobility marketplace.

RH: Passenger EV are increasingly visible on the UAE's roads as the cost of buying and owning such vehicles has relatively dropped during the last five years. We already see that the UAE is taking a proactive role in the roll-out of the necessary infrastructure that will eventually enable the deployment of a higher number of EVs on the roads. Dubai in particular has set the bar high as it aims to have 10 percent of electric or hybrid vehicles by 2030.

MENA policymakers need to focus on deploying EV-charging infrastructure that is powered mainly by renewable sources such as solar and wind.

MS: EV uptake will gain momentum in the MENA region over the coming years, particularly in the UAE, Saudi Arabia, Qatar, Jordan and Morocco, as governments continue to push for technology adoption and green energy initiatives.

Saudi Arabia and the UAE seem to lead with initiatives that will amplify the environmental and economic benefits of using EVs, mainly to replace our dependency on gasoline and to reduce carbon emissions.

In the UAE, Dubai has been working towards its long-term goal of electrification as part of its plan to have 25 per cent of the city’s trips converted into driverless journeys by 2030. Dubai, along with Abu Dhabi, has launched e-scooters in densely populated areas in the hopes of reducing congestion and encouraging residents towards sustainable methods of transportation.

Sharjah has become an emerging hub for sustainability with the help of its waste-to-energy plant. Bee’ah – which manages Sharjah’s cleaning processes, has ordered 50 semi-electric trucks from Tesla to add to its waste management fleet by the end of 2020. The city currently offers free charging for EV owners till 2025, while working on constructing and strategically placing more charging stations around the city.