Carpocalypse

rorykoehler
Jul 10, 2015 · 10 min read

How the robot car will kill its maker

In this post I will explore the economic realities of the coming autonomous car revolution for the auto industry. Recently there has been a great buzz around the imminent arrival of self-driving cars. There has also been much discussion about what this means for society and the mass movement of people. Companies like Uber have raised billions in order to maneuver themselves into a position to take advantage of the coming disruption in the auto industry and others such as Google, Tesla, BMW, Mercedes and Apple (if reports are to be believed) are in the midst developing the requisite technology that will innovate auto-tech to the point of being fully autonomous. The general mood has been one of excitement tempered with the realization that jobs in logistics such as taxi driving, truck driving and delivery driving will become a thing of the past however little has been spoken of about the effect that this technological disruption will have on auto manufacturers themselves. Naturally each entrenched manufacturer is showing a mix of confidence and bravado however when digging a little deeper into the figures and the potential economic environment that will accompany the emergence of this technology a picture of instability and almost certain difficulty for auto manufacturers is unveiled.

Mobility is a way of life

This figure shows an 18.25% growth in the total number of miles driven since 2000 which when projected to 2027 amounts to almost 2.5T urban miles driven in total in the USA. Looking at the trend over the course of the past 15 years we can see that total miles driven decreased during the recession but rebounded and as we can expect another recession by 2027 it is fair to assume that this long term trend will remain mostly accurate.

Delving deeper we can analyse the total number of cars on the road, the age of cars on the road and also the number of new cars registered each year. In the year 2000 there were 225.8M cars on the road in the USA. By 2007 just before The Great Recession there were 254.4M cars on the road and by comparing the number of new vehicles registered (see below for more), the average age of cars on the road and factoring recessionary behavioural patterns we can extrapolate that there were roughly 255.5M cars on the road in 2014. This represents a sizable growth of 13.15% of road registered vehicles since 2000 which again when projected to 2027 with current usage patterns means there could be 289.1M cars on the road by then. This is highly unlikely for reasons which we will discover.

The Great Recession hollowed out new car sales

The average age of registered vehicles is increasing

An average American family car (2015)

With this information we have a considerable picture of what the auto industry looks like for the USA in the recent past but we can get an even clearer picture if we explore behaviour a little more in detail. Consider for a moment that in 2001 the number of cars on the road over 7 years old was 60.8% with the trend moving towards this figure increasing as new cars became more and more unaffordable for the average American. In fact the average price of car was $32k in 2013, a monthly payment that out of the whole country only the median income families in DC can afford.That is especially noteworthy when considering that the car in the most under utilized utility. A car is on average probably only used around 5% — 7% of the time with the rest of the time being spent idle in a parking lot somewhere waiting for it’s owner to finish work. That means, in 2014, America spent $528B on a utility it only uses at 5% of its potential efficiency. Just let that sink in for a moment.

What does all this mean for the future of the auto-industry?

Most established car companies are going to go bust and there is nothing they can do about it.

We know that cars are used 5% of time (ok it’s a guess based on each car being used about 2 hours a day). In any case we know they are very underutilised. When we implement a network of fully autonomous vehicles which benefit from an advanced technological routing and distribution efficiency management systems, car usage efficiency could get as high as 60% in peak hours and 80% in off peak in an urban environment. Add to this the change in culture with respect to more flexible working hours we can see that rush hour patterns will be negated slightly, again improving network efficiency. That said autonomous car service providers may prefer to optimize for customer satisfaction and have bigger fleets to cope with demand during peak hours. 100% efficiency in peak hours would mean maybe 50% efficiency or less during off peak. Night time hours efficiency could be expected to be at around 5–20%. Regardless all these figures are either light years ahead or at least still game changing compared to our current efficiency levels.

A 60% efficiency means that for every 12 cars currently on the road in an urban environment we would only need 1 car to replace it. Let’s revisit our figures from earlier to see what this really means. We had a car market of $528B in 2014. A rough calculation based on miles driven would point towards $359B of this being for urban based vehicles. With this in mind we can estimate the urban car market 2027 (1 car for every 12) will require a total value of $29.9B to serve the same amount of passenger/miles at current buying levels however we can expect that number to be two or three times as high due to customers demand for better experience meaning that fleets are updated more regularly than family cars are currently. Remember this is retail price so the price for the manufacturer will be much less. Let’s say cars are marked up 100% from manufacturer to retail (I couldn’t find accurate figures so if anyone knows a better figure please let me know and I will adjust the figures here) the cost of adding new cars to the fleet to be recouped is accurate give or take.

The car industry circa 2027

Assuming a network efficiency of 60% will be enough to achieve customer satisfaction of 95% then we can assume that that actual vehicle sales for those would don’t use autonomous taxis but instead continue to opt to buy will be at around $18B per year.

Car sales are going to crash

Expect the situation to look something like this.

But I love my car!?

Convenience, cost, recession and a shift in perspective

rorykoehler

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Addict brewing next #startup. Formerly @apoiocleaning @agoracollective @bookserve. Like #tastyfood #coffee #mountainbiking #soccer #techno #travel