THE MONOLITH
Part I: Reducing the Cost of Intercity Mobility
Gaetano Crupi is the Co-founder and CEO of Cabin Technologies, the tech-enabled long-distance mobility company solving intercity travel. In this four-part series, he presents an overview of how technology will affect intercity transportation and how we live.
TL;DR Autonomous electric vehicles will significantly decrease cost-per-cubic-foot-mile, transforming automobiles into real estate. The subsequent evolution of large-format ground vehicles unlocks affordable high-frequency intercity travel pricing.
ABOUT THE SERIES
I might be old enough to remember a time before iPhones, but I am also squarely in the generation that views travel as true luxury and experiences as the only things worth collecting. Now that cities have become so accessible, all I want is a more efficient way to move between cities.
At Cabin, we are building an affordable, timeless, and 1-click long-distance mobility product that will enable people to live a multi-city lifestyle because we believe great technology doesn’t meet needs, it encourages new uses.
In this four-part series I will examine how autonomous electric technology will affect long-distance mobility (a) pricing, (b)travel time and (c) buying friction, ultimately leading to an explosion in travel frequency and a new ‘destination consumption’ behavior.
- Part I: Reducing the Cost of Intercity Mobility
- Part II: Eliminating the Opportunity Cost of Travel Time
- Part III: Simplifying the Decision-Making Process of Skipping Town
- Part IV: Expanding the Experience Catalogue
Autonomous Electric Vehicle(A-EV) technology will decrease all manner of mobility costs from cost-per-mile to the cost of lives to the opportunity cost of travel time (examined in detail in the second part of the series). In the first part below, we start with transportation cost-per-mile in an autonomous electric future and how different form factors impact long-distance mobility pricing.
THE INEVITABLE DECLINE IN COST PER MILE
I don’t believe anyone really knows when level-5 autonomous, 500-mile range electric vehicles will be a reality. Whether you think it will happen in 6 months or 20 years, the transition to A-EVs is inevitable.
Literally hundreds of papers and blogs have been written about A-EV cost-per-mile economics versus traditional, internal combustion engine vehicles (ICE). I can’t add much value to this analysis, but want to emphasize both the variance of opinions and convergence of where we are headed. Virtually everyone agrees on the magnitude of impact, however most differ on the precise level of cost reduction, with more aggressive estimates in the 70% range and more conservative estimates in the 30–40% range.
The general consensus around centers of cost reduction from electrification are energy costs, maintenance (simpler motors with fewer parts) and depreciation (cars that could last for 500k plus miles). The cost reductions from autonomous come from labor, insurance and fleet optimization (parking, cleaning, etc.) Below are analyses of these cost impacts from three different sources with different assumptions around asset utilization and business models.
The first example is a traditional cost stack comparison between transportation-as-a-service (TaaS) and individually-owned internal combustion engine vehicles. The inherent assumption here is that personally owned vehicles will transition to TaaS.
This second example puts those cost savings into context compared to today’s alternatives. According to ABC News, the average American commute is 16 miles. Daily commute with ‘single rider autonomous’ would only be $8 per day and $5.44 for shared autonomous based on Business Insider estimates.
Personally, I think there will be a more gradual and varied A-EV future with many differences across geographies and demographics. This last example by Deloitte breaks down the opportunity based on whether consumers fully embrace shared versus personal vehicles and whether these new vehicles reach high or low asset efficiency.
Timelines for full Level-5 Autonomous vary from months to decades. Regardless of when these cost reductions materialize (or whether they ever reach the more aggressive estimates), there will be a significant decrease in ground transportation cost-per-mile in the next decade.
I don’t know how low cost-per-mile will go by when. However, I believe that it will be a tectonic shift. This is not a controversial opinion. Billions of dollars have already poured into this next generation of mobility. It seems like entire company strategies are banking on these cost reductions to reach profitability (including the high-profile IPOs of Uber and Lyft) but the behavioral impact of new mobility business models derived from electrification and the promise of autonomy has already started.
THE UNBUNDLING OF THE CAR IS HERE
When it comes to car ownership, I don’t believe the outcome of A-EV is going to be binary. I think it’s more likely that mobility will be multimodal depending on the circumstance. As a parent, the thought of lugging a car-seat, stroller, etc into a new vehicle every time I go out is ‘unappealing.’ I also cannot ignore that my decision process when I need to get around downtown SF has evolved to include ride sharing, bike sharing and electric scooters depending on trip distance, cost and pick-up time.
It’s too early to tell how these business models will evolve and when the unit economics will actually make sense, but to dismiss the impact of these new business models on human behavior is myopic. The spell of the personally-owned automobiles has been broken — especially for Generation Z. Only a quarter of teens in 2017 had drivers licenses. In 1983, half of teens had them. In cities across the world, people already live in a future where mobility is chosen on a case-by-case basis.
The gradual decrease of cost-per-mile will accelerate this trend, making the marginal price for speed, convenience and comfort a no-brainer. Personally-owned vehicles might look similar in the future since they will have to provide multiple uses for their owners. Shared vehicles will adapt to function. There is no arguing that small, nimble vehicles are ideal for moving 20 blocks in a city or that larger, more comfortable cabins are ideal for moving long distances. Freed from one-size-fits all functionality, cars will become much smaller and much bigger as they chase convenience and comfort, respectively.
Vehicles tailored for longer-distances also have a different profile of technical challenges. 99% of travel is done on highways, so the A-EV profile is “freight” not “robo-taxi.” For example, at Cabin we are more interested in the recent advances in ramp-to-ramp autonomous and semi-truck battery capacity.
A secondary effect of unbundling is brand. Car companies have been selling torque, speed and handling to drivers for decades. Many cars are aspirational brands that appeal to wealth and masculinity — what you drive shows people who you are. What happens when that car is not yours and you don’t drive it? Is “Ludicrous Mode” fun for a passenger trying to write an email? Does the “Ultimate Driving Machine” make sense in an autonomous world? Does Volvo’s obsession with safety matter when accidents become incredibly rare?
Most of the features that form the basis for auto differentiation such as 0-to-60 acceleration, safety rating, MPG, horsepower, etc don’t make much sense in an A-EV world because current car marketing is not targeted to passengers. Even so, all the car makers are pouring tens of billions of dollars into A-EV so they don’t get left behind.
A-EV is a massive technological challenge. However, if you think of the WHAT versus the HOW, it’s straightforward. On the autonomous side, the technical feat is getting from point A to point B without crashing. On the electric side, the technical feat is battery energy density to get enough range.
In a passenger-centric world, these value propositions don’t alter your experience beyond price. After two companies reach level-5 autonomous what difference will you feel? The race for A-EV is a race that everyone will finish, resulting in the commoditization of how auto companies have competed for 100 years.
MOVING REAL ESTATE
Once A-EV commoditizes the economics of ‘getting from point A to point B’, the main differentiator between services will be the environment in which you are spending that time. Passenger cabins become much more like real estate than transportation; real estate that moves.
Air and train travel are similarly passenger-centric versus driver-centric. Airlines in particular have seen mass commoditization around the transportation piece (speed, fuel efficiency, etc.) — especially since all of the large carriers generally use either Boeing or Airbus aircraft. Because air travel is generally a value-based decision, pricing has also converged among airlines. Unlike auto, the main driver for airline pricing is seat class, not brand. Seat class is all about leg room.
There are other perks between classes on airlines such as lounges, food and attention. However the core differentiator from an economics perspective is space. Even an extra 10 inches of legroom (33% increase) can lead to 3x the price in some international flights. Domestically, the jump from coach to first class could easily be double or triple the price. This gap is even larger for international flights. A seat from JFK to Heathrow could cost $1,500 in coach booked a few weeks in advance. The same flight will cost over $10k for first class.
There is a massive premium on space and space is the major differentiator between price tiers. The variance between airline brands is minimal compared to the variance within brands based on seat class; the difference between a coach class ticket on United and British Airways for the same route is much smaller than the difference within each brand between coach and business.
When transportation prices become a commodity, pricing diverges around the transportation space.
Hotels are similar to airlines in that they are guest (ie “passenger)-centric. However, hotel categories are more differentiated than airlines. There are entire brands that are considered luxury vs. upper midscale vs. economy. Hotel prices are also largely driven by the surrounding real estate market; a hotel in Manhattan is more expensive than a hotel in Indianapolis. Even with more brand differentiation, there is still more price variance between different size rooms in the same luxury hotel chain than between entire categories of hotels.
All this is to say that in the passenger-centric airline industry and guest-centric hotel industry, value may drive consumer purchasing-behavior, but space is the main differentiator that drives pricing.
I would wager that A-EV economics will likely trend more toward airline rather than hotel economics. Nevertheless, once transportation technology is commoditized and the assets are not personally owned (and therefore not aspirational), the size of your personal transportation space becomes the main differentiator driving pricing.
Smaller travel spaces will be less expensive because they are both cheaper to operate and because you can deploy more assets to reduce wait times. Larger personal travel spaces will be more expensive but more comfortable. The decision will likely come down to the marginal cost of space as well as time-in-transport. How much more will I have to pay for twice the amount of space? If your commute goes from $10 to $50, it will be very different than going from $10 to $15. If you are traveling intercity, how much would you pay extra to go from a seat to a lay-flat bed for a 5 hour drive?
At Cabin, we like looking at cost-per-cubic-foot-mile to understand unit economics in a passenger-centric future.
LARGE FORMAT GROUNDCRAFT
Even if you purely take the lower-end cost estimate of $0.20 per mile for A-EV, the 400-mile trip between San Francisco and Los Angeles would be $80 for the back seat of a car. Longer distance mobility can work on a more scheduled vs. on-demand basis that makes pooling demand a bit simpler. Even at $.10 per mile in a shared, traditional mid-size A-EV format, the cost of the trip is $40. This pricing does not seem to make regional travel suddenly affordable.
Currently, car prices are not correlated to interior-cabin space, even in the same quality categories. The chart below breaks down a sample of new car prices by cubic foot of interior space (including cargo space).
Even from a fully-loaded operating perspective, it is significantly more costly to move 100 cubic feet in a C-Class versus a Sienna. In either case, the best value-to-space ratio is the Transit Passenger Van. To achieve inexpensive long-distance ground mobility you need to think even bigger.
With over 3,000 cubic feet of space, the intercity motor coach is the largest passenger vehicle available today. These are not vehicles you would ever want to own. They are enormous, hard to maneuver around a city, more difficult to clean, wash and you have to deal with waste disposal and running water. Parking alone would be economically unviable. Forty-five by eight foot parking spaces at home, office and retail locations would be incredibly expensive — especially in densely populated areas.
It’s totally understandable that in a personally-owned vehicle world, large format groundcraft are only seen as recreational vehicles. As a driver, why would you ever commute in one of these?
In a passenger-centric, mobility-as-a-service world, you only rent the space as needed. The benefit is that in-cabin experience possibilities are endless — especially when you consider the marginal cost of additional space. Even though the “bus” has poor brand association and many folks would never consider taking a bus long-distance, the underlying asset-class is the most efficient way to transport large space from a discrete point to another discrete point. The future of the form factor will look much more like a container apartment that moves from place to place than a Greyhound Bus.
The table below is a breakdown of the per mile cost to transport 100 cubic feet of space in a sedan, passenger van and motor coach today (with a driver) and in the future with an autonomous electric vehicle.
Even in an A-EV world with costs-per-mile reaching close to $0.20 for sedans, long-distance pricing would not suddenly become affordable at high frequency (we will cover the opportunity cost of being in transport at high frequency in another post). The table below is a simplified look at passenger space versus cost per mile for different vehicles on a 400-mile journey based on airline comps.
Large-format A-EV unlock two opportunities that we have not seen before:
- Trip costs (and subsequent pricing) that could lead to an order of magnitude increase in regional travel frequency
- Completely new experiences (such as moving hotel suites), that are currently only available to the super rich.
As in predictions around cost-per-mile for passenger A-EV, occupancy is a large driver of unit costs, which will dictate the size of the vehicles themselves — larger vehicles do not reach per-passenger cost scale without the right occupancy-to-capacity ratio. Thinking that size solves all problems is a massive oversimplification that can lead to faulty projects (e.g. A380). I don’t think consumer pricing between SF and LA will be $9.47. However $25 tickets for a United Polaris-level experience is plausible. With so much transportation real estate to play with, the possible combinations of “ticket price” to “transportation space” are relatively limitless.
Who knows what the optimal form factors will be in the future. With the autonomous electric brains of the vehicle packaged into a front, ‘engine-car,’ these groundcraft will look more like modular highway trains than the buses and RV’s on the road today. However, product offerings will be able to go to a quality-to-price ratio that we have never seen before (in relation to private space) AND intercity travel pricing on these ‘highway trains’ will allow for virtually unlimited travel behavior. For example, with a nightly Boston <> Washington sleeper service at $25, living between cities will be less expensive than rent.
Once you start thinking of large-format vehicles as moving real estate, the obvious next questions are (a) how does that user experience differ from a traditional passenger car, (b) what kind of business models emerge from these new UX possibilities and (c)what kinds of business models get destroyed?
RISE OF THE MONOLITH
Kubrick’s 2001: A Space Odyssey is one of my absolute favorite films. I vividly remember watching it for the first time as a teenager. I was very confused (without the modern luxuries of wikipedia and reddit to help) yet mesmerized. Probably the most famous visual in the film is the alien monoliths that herald leaps in human evolution.
The current pace of innovation feels like monoliths are popping up every decade. From the personal computer to the internet to AI — each monolith is a creator and destroyer. Just like processing power and cellular bandwidth transformed phones into pocket computers, electric autonomous mobility will transform vehicles into real estate. In real estate, location and size are all that matter. If your real estate can move, all that matters is square footage.
For some use cases, vehicles will get a lot smaller — a micromobility trend we are already seeing with scooters and bikes for short distances. For other use cases, they are about to get a whole lot more macro. The next technology monolith might well be literal monoliths driving down the highway.
UP NEXT
What kind of moving environments and experiences will we build inside these large-format A-EV’s? In the second part of the series I will discuss how autonomous electric vehicles will transform cars into functional rooms and travel time into productive time. The subsequent reduction in the opportunity cost of travel will lead to both an increase in travel frequency and travel distances.
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Sources: Wall Street Journal I, II, Boston Consulting Group, Deloitte, RethinkX, United Airlines, Volvo Trucks, Business Insider, When Micromobility Attacks, The Verge, Techcrunch, Tesloop, STR, Quarts, One Mile at a Time, Money Inc., BI Intelligence, New York Times, Car and Driver, Edmunds, True Car
ABOUT GAETANO CRUPI: Obsessed with building teams and organizations, Gaetano currently serves as the CEO of Cabin. Previously, Gaetano was the COO of Betable and founder of Machina Pictures. Gaetano was nominated for a Grammy in 2013 for his work with Foster the People and also produced Beyonce’s “Move Your Body” video for Michelle Obama’s “Let’s Move!”project. Before becoming a producer, Gaetano was a consumer and retail investment banker at Goldman Sachs in New York. Gaetano is an alumni of Wharton and the Stanford Graduate School of Business. Having grown up in Brazil, Venezuela, Canada and United States, Gaetano speaks three languages fluently, and lives to explore.
