An Uber World: Could we really give up our cars?

A thought experiment on what it would take

Overview of Uber’s Valuation

Much has been written about Uber’s most valuation of $18.2B

• On the prominent bear side, NYU-Stern Prof. Damodaran puts the company’s value at $5.9B. His key assumptions are that the global taxi market is $100B and Uber gets a 10% share of it
• On the prominent bull side, we have Bill Gurley (investor in Uber) who wrote a great post raising the points that Uber could grow the car service market by making it cheap and address adjacent markets like replacing car ownership which makes potential valuation much higher

Overall, I think the market addressable by Uber is probably at least 2x larger than the current taxi market and Uber’s share will be closer to 30% which gets a value closer to $18B—but there’s not much room for execution error.

More particularly, I was skeptical of Gurley’s point about Uber potentially replacing some proportion of car ownership and wanted to run it down.

What are the cars Uber could address?

Census has great data on US commuter habits (e.g. how many drive along, how long, at what time etc.). A few highlights: 76% of Americans drive to work alone. Driving times to and from work are not as clustered as you would think. Vast majority of Americans’ driving commute is less than 35 minutes.

I do not think most Americans (outside of SF/NY) are going to give up their primary household car anytime soon. But if we focus on the 57% of US households that have 2 or more cars and eliminate one commuter car from each of these households, it would still mean an ultimate market size of 65Mn cars.

Could replacing a commuter car be economical?

Based on the commuting data above, let’s assume that an Uber driver can drive 8 hours during morning and evening rush hours and get 50% utilization. Each passenger uses the car for 30 minutes. For simplicity, let’s assume the type of car an Uber driver uses is the same as a typical commuter car. Assuming a “living wage” for the driver of $15/hour, and a few more simplifying assumptions laid out below, Uber would cost the typical customer of ~$6,200 more than commuting with their own car.

However, if we could drive utilization up (density and efficiency help, but residency patterns and rush hour traffic don’t help) or if Uber drivers work for less, there could actually be real savings for the consumer.

Not to be ignored by the way, if each Uber replaces 10 commuter cars and Uber charges a 10% dispatch fee (at one break-even which occurs at driver wage of $7.50 and 65% utilization—assuming 30 min avg commute) replacing 65Mn commuter cars would mean annual revenues to Uber of ~$24B.

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