OpinionMobility sector is in flux, and Israeli startups should seize the opportunity
Opinion
Mobility sector is in flux, and Israeli startups should seize the opportunity
The local ecosystem plays an important and unique role on the global stage, being one of the most innovative mobility ecosystems in the world, even without a single Israeli car manufacturer. It is also capable of remaining resilient under the most challenging circumstances, driving change for the mobility industry worldwide
The mobility sector has a major impact on the lives of people, in Israel and globally. Mobility is a constantly evolving sector, where technologies contribute to and enable this change. Mobility holds the potential to positively impact and resolve some of the world’s biggest issues - such as climate change, traffic congestion, urbanization, accessibility and road safety.
Innovative disruptions through technology are contributing to the shift from fossil fuels and manual vehicles to electric, autonomous and connected vehicles. Industry players are seeking a competitive advantage by adapting and re-inventing themselves. Start-ups and scale-ups are a key source of innovation and technological breakthroughs.
A recently published report by McKinsey's Center for Future Mobility together with EcoMotion, the global smart mobility community, set out to look at global mobility trends and understand the role and exemplary contribution of Israeli mobility tech to the global industry.
Israel has 724 active start-ups or companies with applications to the mobility sector. Israel is ranked the fourth-biggest mobility start-up hub in the world in terms of financing (over $30 billion investment in 2010-2023) and the biggest in terms of investment per capita and GDP. Investment in mobility is highly consolidated in Israel and is driven by major M&As (including Moovit, Mobileye, Autotalks and Driivz – to name a few) - similar to the situation in the UK and Sweden.
In looking at global trends, transportation alone accounts for about 20% of overall greenhouse gas emissions, as 75% of which come from the exhaust emissions of road vehicles. Climate change will affect the mobility market as both a target and a challenge. Companies and investors are increasingly aware of the need to develop solutions that not only are more environmentally-friendly, but also enable and support the net-zero transition. Consumers, too, are changing. McKinsey Mobility Consumer Pulse indicates half of participants agree that within the next 10 years they will travel less to protect the environment. Although private cars are forecast to remain the most popular transportation option, the use of private vehicles is also expected to decline across most geographies, with over 40% of travelers expecting to replace their private vehicles with other forms of transport.
New regulatory targets in the EU and US aim for an EV share of at least 50% by 2030, and several countries have announced accelerated timelines for bans on the sale of internal combustion engines sales. Consumers are also moving towards sustainable mobility, with more than 45% considering buying an EV, and by 2035 we can expect that the largest automotive markets (EU, US and China) will be fully electric and advanced driver-assistance and autonomous-driving systems could create $300-400 billion in revenue. The growth of other solutions, such as shared mobility and micro-mobility, is also noticeable, as the global micro-mobility market could more than double by 2030 to about $90 billion, and spending on shared mobility could reach $500 billion to $1 trillion.
While global investment in future mobility has grown in the last decade, in 2022-23 start-up trends were shaped by headwinds. Limited funding and increases in interest global rates encouraged rapid scale-up and commercialization and less focus on exploration, leading to market consolidation in most mobility segments. Yet, the global megatrends shaping the mobility landscape and the dramatic shifts in consumer behavior, are not going anywhere.
As technology will remain a catalyst for change and transformation for years to come, Israel’s smart mobility start-up ecosystem will continue to play an important role on the world stage. In the near future, post-war rehabilitation efforts will also include significant rebuilding of the roadways and transportation infrastructure in the northern and southern border areas, paving the way for integration of new technologies which improve mobility services.
Israel followed the global trend and saw funding for high-tech sectors, including mobility, peak in 2021 then decrease in 2022-2023. A survey we conducted among Israeli mobility tech companies (136 respondents) in September 2023 cites access to funding and finding the right strategic partners and investors as the top challenges for Israeli start-ups. Looking ahead, it is evident that there is a significant need for new mobility technologies, as innovations from multiple sectors and use-cases could be adapted to serve emerging needs of mobility.
The ecosystem of startups together with global networks of industry, investors and partners can mutually advance the mega-trends that are shaping and driving the mobility industry. While Israeli startups take a global-first approach to achieve viable scale, this makes them exposed to global fluctuations, but at the same time serves as a great source of resilience to overcome local crises. During these difficult times, Israel’s ecosystem remains robust and resilient, and continues to deliver under the most challenging circumstances.
Israel’s strength as a talent hub for entrepreneurs and innovators has led it to generate high numbers of new start-ups addressing global challenges. However, the greater challenge for Israeli companies is to continue to grow to reach scale-up state, which requires larger financing rounds and strong partners to help reach product market validation and key milestones. Global industry partnerships, investors, and clients have always been crucial to fostering a thriving ecosystem, and it will remain the primary challenge - and opportunity - for Israeli startups.
The mobility landscape is in flux and experiencing a dramatic shift in the decade ahead. The involvement and contribution of new and emerging mobility technologies can make a significant impact.
Kersten Heineke is a Partner at McKinsey & Company (Frankfurt). Jennifer Schwarz is the Executive Director of EcoMotion.
