Self-drive car rentals — is it worth it?
Zoomcar, Volver, JustRide, Revv, Myles, there has been a slew of self-drive car rental startups that have come up in India over the past couple of years. Ola and Uber have taken over the intra-city travel. Will the inter-city business and leisure market be dominated by self-drive car rentals?
Market Evolution — Is India doing it in reverse?
The self-drive car rental market is the most mature in the US where almost everyone takes a self-drive rental from airport. ~50% market is airport market, those servicing de-planing passengers. Remaining 50% is neighbourhood market. (https://skift.com/2013/05/08/what-a-24-billion-car-rental-market-means-to-the-u-s-travel-industry/).
Business travel market was the largest customer base for these services. Factors such as high-labor costs, long distances promoted self-drive adoption in US. However over the past couple of years Uber/Lyft and other car hailing services has started eroding market share from self-drive car rentals.
As per the data the Rental car transactions amongst business travellers have fallen 15 percentage points in two years. The decline isn’t quite as steep as the one experienced by taxis, which fell 23 percentage points over the same period. Given convenience, no-parking hassle, point-to-point service and frictionless payments, app based car-hailing services are winning over the business travellers.
Food for thought here is if the natural market evolution is from self-drive rentals to on-demand cab services (Uber). In India are we looking at this in the opposite fashion where Uber/Ola have come in already and now the self-drive is coming through. This means that the business travel market may not gravitate towards self-drive and we are left mostly with the recreational market.
Network Effect
For Uber and Ola which run two sided network — Drivers and Riders, the network effect kicks in. If more riders are on Uber, more drivers will sign up and vice-versa. Since the supply and demand is both independently sourced, the network effect can create a great profitable moat. However in the self-drive car rental, the supply is the leased car, which is a standardized commodity. As long as I get a sedan I am not (necessarily) bothered by the platform, provided the pricing is competitive. Thus there seem to be limited network effect here. It’s cost and availability that counts.
Winner takes all?
Can this be a winner takes all (in a particular geography if not whole). Since the network effect is limited and the product is standardised (car), the switching cost is low/none. Users will gravitate to any service as long as pricing is similar and availability is high and ETA is lower. Thus, the supply is the critical piece here. Need more pick-up and drop points to create user stickiness. Low switching costs also means high competition between players for the same share of wallet.
Given the nature of the business the discounting game can get market share but not defend it. So in the long run there might be a few players that will win a few geographies. It will become an island play if a lot of players enter the market and create strong holds.
In the steady state most players will have high utilization on weekends and thus would reach a steady state where weekend/weekday utilization makes results in net profitability. For anybody else to enter the market it would mean cash-burn for both parties (Game theory proponents — price-wars are not fun).
Regulatory Framework
1) It’s a hard place for government which on one hand wants to boost Make in India but also wants to curb pollution. Making car ownership expensive by introducing BS VI norms might be a deterrent to people buying second cars.
2) Favourable regulation around giving private cars for car sharing may increase supply and make current models asset-light.
Market Size:
Self-drive car rentals can be used for outstation and intra-city. However the focus mostly will be on outstation as intra-city is more likely to be captured by Ola/Uber/Public Transport and Personal cars.
Case in point: Delhi. Will appropriately adjust it to pan-India
a) Outstation Travel — Commercial Taxi and Personal Cars
(i) Outstation Trips by Commercial Taxi Fleet (Delhi)
Currently there are about 80k taxis in Delhi. Out of this around 30% have all India Tourist permit (~25K taxi). At any point lets say 80% are available in service = 20k. Assuming that make 4 trips every month on average = 20k*4*12 = 960K trips.
Within outstation, let’s assume business vs. recreational — 70/30 split. Business travel will still primarily depend on driver + Taxi model. So, ~300K recreational trips. Ticket size here is around Rs10/km for average trip of 1000 kms (return).
(ii) Outstation Trips by Personal Cars (Delhi)
Number of Cars and Jeeps in Delhi = ~ 30lacs (delhi statistical handbook)
Assuming one family per car, and an average of .75 trip per family per year, we are looking at 22 lac trips per year in Delhi. (these numbers are on the higher side)
Total Outstation Market in Delhi: = Personal Cars outstation trips (Delhi)+ Taxi outstation trips (Delhi)
= 22lacs + 3lacs = 25 lac trips/annum
The up take for such business will be in big cities — Delhi, Bombay, Bangalore, Hyderabad, Chennai etc which have recreational places nearby and have high paying capacity.
Assuming Delhi is 25% of the over all market, total market India= 25*4 = 1 cr trips/annum
At average ticket size per trip = Rs 10,000
Over all outstation travel market pan-India = Rs 10,000 cr = $1.5bn (INR 65/USD)
This is the overall relevant outstation market. How much market share can self-drive car rental take away?
Assuming a 10% mkt share, total self drive rental outstation market = $150mn
(b) Intra-city trips
Uber has around 30k cabs in delhi (as per my discussion with their Delhi GM last week). Total daily trips around 2 lacs. Assuming Uber is around 30% of the market, total trips = 6 lacs per day.
Total Delhi market @Rs 500 per ride = Rs 30cr/day = Rs 9000 cr per annum (300 days)
Assuming delhi is 25% of over all market = Rs 36000 cr = $5.5bn
What percentage of this can be captured here?
Low percentage because a parking hassle, no point-to-point pickup and drop, comfort of Ola/Uber and self-drive rental might be more expensive or comparable.
At 10% share:
Total intra-city self drive rental market = $550mn
Total intra-city + outstation market =$550+ $150 = $700mn
Assuming 25% YoY growth, total market in 2021= $1.7bn
I believe it’s a small market and I am constantly struggling with the question - Will India skip directly to self-drive autonomous cars? Already folks around me don’t want to own cars and rely on Ola/Uber for local travel. Will this become the norm and over the next decade, will the robots(autonomous cars) take over? Exciting times for sure!
