Today the mobility industry is in flux. Innovative disruptions are shifting technologies from fossil fuels and manual vehicles to electric, autonomous and smart vehicles.
This report, the result of a knowledge collaboration between McKinsey & Company and EcoMotion, looks at global mobility trends and investment in smart mobility across geographies and technologies. The trends indicate where new technological development is needed, possibly generated by start-ups. The report highlights the role of Israel’s smart mobility ecosystem as a hub for regional and global innovation.
Five mega-trends are shaping the mobility ecosystem: climate change, electrification, autonomous vehicles (AVs), shared transportation and software over hardware.
- Climate change: Growing global awareness of climate change is driving new sustainable modes of transportation. Companies and investors are increasingly focusing on supporting the net zero effort.
- Electrification: Electric vehicles (EVs) are a major disruptor. They are perceived as a viable mobility option and are rapidly growing in popularity supported by regulation in many states.
- AVs: Autonomous mobility (private autonomous cars, intra-city robotaxis, public transport shuttles, drones, long-distance freight vehicles) is a dynamic area that is expected to provide new levels of consumer experience, increase levels of uncertainty and disrupt existing business models.
- Shared transportation: Innovation in shared transportation will play a key role in the future of mobility in the form of new modes of transportation, such as shared mini- and micro-mobility, hailed mobility, last mile delivery, car sharing, shared robotaxis and urban aerial mobility.
- Software over hardware: Software for mobility is crucial for the advancement of all other trends.
Global investment in future mobility has grown over the last 10 years but slowed in 2022-23, similarly to other industries. Limited funding and increases in interest global rates have encouraged commercialization and less focus on exploration. As a result, most mobility segments have seen market consolidation.
Israel’s smart mobility start-up ecosystem plays an important role on the world stage.
Israel is the fourth-biggest mobility start-up hub in the world in terms of financing (US$30+ billion investment in 2010-2023) and the biggest in terms of investment per capita and as a share of GDP. Investment in mobility is highly consolidated in Israel and is driven by major M&As. This is similar to the situation in the UK and Sweden where over 50% of investments in the last 10 years has been generated by top-3 deals.
The strong global presence of the Israeli tech on the one hand creates a dependency on global trends and funding landscape fluctuations. On the other hand, it helps Israeli start-ups to stay more resilient to local shocks due to the diversification of their client base, partnerships, and talent pool.
Israel followed the global trend and saw funding for high-tech sectors including mobility peak in 2021 then decrease in 2022-2023. A survey run by EcoMotion in September 2023 cites access to funding and finding the right strategic partners/investors as the top challenges for Israeli start-ups. The country’s small market size and lack of local car manufacturing are pushing Israeli start-ups to take a global perspective. The ability to maintain relationships with international investors and strategic partners will be crucial as international investment and R&D spending is an important pillar of the ecosystem, followed by government support.
According to the survey, Israel’s biggest strengths are professional networks and access to talent. The concentration of start-ups across industries enables talent and knowledge exchange, which is particularly beneficial for software solutions. The ability to retain and attract top talent will be another important factor for the success of the ecosystem.
In Israel, what is the next phase in the development of the local ecosystem? How will the global trends influence the market? And what will most enable start-ups to scale? Looking ahead, there is a significant need for new mobility technologies. Technologies from multiple sectors and use cases could be adapted to serve emerging needs of mobility. Start-ups in Israel and beyond will benefit from tailoring their solutions to the industry needs of today and tomorrow. They should strive to connect with global networks, investors, and industry to advance the mega-trends shaping mobility.
Disclaimer: The analytical part of the report was prepared in August-September 2023.