The inevitable disruption of a business model lasting for a century: car sales

Nowadays, vehicle owners rarely trust strangers with their cars, fearing bad driving behaviour and accidents, resulting in cars being parked 95% of their lifetime.

As strangers would not drive autonomous vehicles themselves but be mere passengers, risk is reduced dramatically and would thus very likely enable a true sharing economy.

At the same time, „sharing“ of autonomous vehicles could become a new source of income: Elon Musk recently predicted that an autonomous Tesla could earn up to $30,000 annually, on its own, without any human intervention.

If correct, owners of autonomous vehicles could effortlessly refinance the acquisition cost of their vehicle within one or two years. After that they would purely profit from owning one.

Owning a vehicle able to generate revenue by itself, naturally would be much more attractive than owning one that only costs money, especially when taking into account that vehicles currently aren’t used 95% of their lifetime anyways.

Given their long development cycles, out of fear to become obsolete, nearly all major vehicle manufacturer currently invest heavily into the development of autonomous vehicles. They can’t wait because they wouldn’t be able to catch up. By joining in into the R&D craze they are raising the overall chances that autonomous vehicles will become a reality. Through their efforts they are therefore essentially digging their own graves:

Vehicles are currently only used 5% per day by an average of 1.4 persons. If automated robo-taxi’s would fulfil the transportation needs of just twice as many people (~3 people) per day instead, half the amount of cars would be needed and vehicle sales could get slashed by 50%.

A 50% decline in sales would be devastating. Yet the “shared” robo-taxi’s still would only have been used an additional 5% per day; and still remain unused 90% of the day.

Taking this further, if autonomous vehicles would be used 50% per day instead of just 5%, they would fulfil the transportation needs of 10x as many people as today, resulting in 10x less vehicles required – or in other words: 90% less cars needed, built and sold. Yet the robo-taxis would still remain parked 50% of their lifetime.

You probably see where this is going. F for vehicle manufacturers it gets even worse:

The prospect of making money while you sleep is a very powerful one. Once the first manufacturers start selling fully autonomous vehicles, it is therefore highly likely that the amount of robo-taxi’s being sent onto the streets by their owners to offer their services and make money will continuously increase.

Who wouldn’t want to earn money without having to do anything in return, assuming maintenance and expenses would be covered through the automatically generated revenues?

At the same time, an increasing amount of robo-taxi’s would also increase the competition amongst them in order to acquire passengers. The most basic economic laws indicate that where-ever competition increases, price usually decreases: Increasing competition would most likely lead to decreasing transportation costs.

As long as maintenance and acquisition cost would be covered by the generated revenue, vehicle owners probably don’t care as long as they keep continuing to earn money effortlessly.

The decline of transportation costs would only stop at a level slightly above the acquisition and ongoing maintenance cost for vehicles. Slightly above it, owners would still profit from a robo-taxi. Below it, it would become uneconomical. As a result, enabled by pure greed, because who wouldn’t want to make money without raising a finger, passengers would eventually pay the lowest possible fares, slightly above the acquisition and maintenance costs.

“The third industrial revolution”, a talk by Jeremy Rifkin

Once this level is reached, transportation is close to a Zero Marginal Cost Society, as described vividly by economist Jeremy Rifkin e.g. in his talk about the “Third Industrial Revolution”.

At this point, constant and immediate availability of a vehicle would likely remain as the sole reason to own a vehicle for exclusive personal use.

But constant availability is a very luxurious reason if one requires a vehicle only 5% per day on average, especially when the exact same service is offered or 90% less.

Speaking of cost: what could it be?

Let’s do a back-of-the-envelope calculation:

Vehicles are used an average of 5% per day, covering the transportation needs of an average of 1.4 people

A personal vehicle currently seems to carry an average total cost of ownership (TCO) of 600–800 Euro per month

If a robo-taxi would be used 50% per day, it would thus fulfil the transportation needs of 14 people

800 € divided by 14 people is ~57 € per person and month

While this calculation is anything but sound, it isn’t outlandish either.

Even if the cost would be 30% higher, for example to cover higher maintenance expenditures, ending up at ~80 € per month, it would still be cheaper than a monthly metro pass in most western metropolitan areas. And most importantly, it would be up to 90% less than owning a personal vehicle.

Expenditures for personal transportation of 800 € versus 80 € per month is again bad news for vehicle manufacturers: At these price levels, probably only very wealthy individuals would consider the luxury of owning a vehicle.

But the few cars they buy wouldn’t make up for the millions of vehicles currently sold to anyone in need to get from A to B once in a while.

Hence, if only a fraction of today’s volume would be sold in the future, business models of vehicle manufacturers currently profiting from selling hundreds of thousands or even millions of cars would completely change. They are therefore in dire need of finding new revenue sources.

In summary: