The Business Model of Autonomous Tesla Taxis

Musk recently announced that from next year Tesla owners will be able to convert their cars into robot taxis and earn money while you sleep. Anything from Elon should be taken with a grain of salt, but it is an intriguing proposition. Companies like Waymo, Ford, Baidu, Audi etc are all working on autonomous vehicles and may launch similar services to entice customers into purchasing and maintaining a new car with the promise of increased personal revenue.

Is this really a good deal for potential car owners? How could these impact taxi companies look to deploy a fleet of robot taxis? And how could this concept develop with respect to market differentiation and integration with services? Let’s take a look.

Lean Canvas Takedown

The Problem

• People want safe, inexpensive, reliable and convenient access to transport
• Cost of owning and maintaining a car is high

For many people, access to transport is an important part of being able to function in the modern world. We need to get to physical places of employment, see friends and family, your job may require you to drive, get access to supplies, transport goods etc.

At some point a person needs to move something from location A to location B.

Regardless of how this is solved, the problems of transport include safety, cost, speed, reliability and convenience. The challenge is to improve the experience around any of these pain points.

Existing car owners may have access to convenient transport but it comes at a high financial cost. If there was a way to offset these costs or better, make a profit that would reduce this pain point. Some people arguably already do this by providing transport through services like Uber, Deliveroo or Amazon Flex.

Customer Segments

• People who require access to a personal vehicle
• People who require access to personal transport

In this scenario we are exploring the following question — can we offset the high cost of owning a vehicle while helping people get better access to affordable transport?

People with access to personal transport like a car have to pay all the upfront and ongoing costs associated with their vehicle. It provides convenience, but at a high cost.

On the other hand, you have people who need access to transport but can not afford the upfront costs of a car/personal taxi. They instead rely on public transport systems at a low to medium cost but sacrifice convenience and destination flexibility.

Solution

• Allow your vehicle to work autonomously while not in use
• Allow people to request transportation jobs from a vehicle
• Provide integrations with services to allow your vehicle to perform jobs

For our solution, we are assuming the problem of autonomous driving cars has been solved.

The solution works by allowing car owners to connect their vehicle to a taxi or delivery request service and then set its availability for work. The general public can then use services such as ride-hailing to book a taxi ride with your car directly or indirectly through online shopping or food delivery. In return for this service, the customer pays a fee.

Multiple services may be eligible to take advantage of such infrastructure.

It may even result in a bidding war for vehicles where grocery deliveries try to outbid a taxi ride to deliver high priority tomatoes.

Bonus points for any enterprising readers who create a software solution which incorporates all these different services as described by Ben Thompson’s aggregation theory model and helps optimise an autonomous car for maximum ROI.

The Market

• Supply and demand
• Risk of saturation

Transport and logistics may become more like a utility than a service. Within this idea are some interesting scenarios.

If you are a taxi company it may make sense to replace or supplement your workforce with autonomous vehicles. Now let’s say the service provided by those vehicles is the same as your competitors — any market differentiation may become eroded over time. All that matters is having a car near a customer at exactly the time they need it.

As a result, companies will race to scale up operations and get as many vehicles on the road to ensure saturation of market demand.

Following the Uber model, it makes sense drop the price below market rates (likely at a loss) to force competitors out of the market and focus on building brand. Because everyone now has similar operating costs, the company which survives longest will most likely become the dominant market player.

As a private individual looking to make money from a robotaxi side hustle, the gains are likely to be short lived.

Ignoring private companies and assuming ideal conditions (great traffic, access to customers, no accidents etc), let’s imagine it’s 2021 and the Tesla Robotaxi service in full swing.

The first few months are great and we are making money, however, riding on the news of your success more and more cars are added to the network. The market becomes saturated, the demand is met and suddenly it’s much harder for you to find work.

Your car needs to go further and further out to find opportunities and may only be able to find low-value work. Your expensive investment starts to gather dust, while companies building the service reap the rewards without any of the overhead costs of owning a fleet of vehicles.

Work on wheels. Source IDEO

Unfair Advantage

• First mover advantage
• Pricing
• Access to multiple vehicles
• Access to charging infrastructure and service centres
• High-density population with access to medium-high net worth households
• Unique taxi ride experiences

As mentioned above, getting to market quickly will be one of the most important factors here especially if you are just an individual owner with a single car.

For private enterprises, building your fleet of vehicles quickly will be important to ensure convenience for customers and help build your brand reputation. If your services can be pitched below market value it will make it very hard for competitors to compete especially as everyone is essentially providing the same service.

Building on that note, I would not be surprised if we start to see an emphasis on improving the rider experience to help companies differentiate.

This could include things like playing your favourite soundtrack, setting a preference for a scenic route or event audio commentary about passing locations.

Taking this further, the idea of themed vehicles that allow you to conduct meetings or even sit in a sauna may not be too crazy.

Perhaps the price of your journey can be supplemented if you are happy for companies like Amazon to learn more about your journey intention and allow them to target products based on it.

Revenue Streams

• Income from taxi rides
• Leasing out a vehicle to businesses for a set number of hours
• Delivery/courier services
• Other Autonomous vehicle services

Income is defined by the number of revenue-generating trips your vehicle can conduct within a given day. There is also potential to lease your vehicle out completely to the third party who will pay you a set amount per month regardless of anyone booking a trip with you — similar to what we have seen in the Airbnb management economy.

But how much could you actually make from a robot taxi? ARK Invest conducted research in 2016 which showed that a Model 3 Tesla will generate cash flow of $10,000 per year at a minimum on an autonomous taxi platform. This is how it breaks down:

The revenue earned from sending a car to drive for $2.50 per mile (the stated cost of an UberX in San Francisco at the time of the report’s publication) for one and a half hours each day would equate to $29,018 per year.

• The lease would cost $1,480.
• Insurance would come to $1,000.
• Charging would cost $672.
• Maintenance would cost $1,185.
• Tires cost $498.
• Other operating costs would amount to $300.
• Cleaning would come to $832.
• Parking would cost $774.
• Depreciation would come to $4,612.

Ongoing cash flow, the revenue minus the costs listed above, would come to $17,655.

Taking a down payment of $7,000 off the $17,665 ongoing cash flow leaves $10,655 first-year cash flow.

This analysis is not without criticism, but similar revenue projections have been made by other firms like Loup Ventures who in March 2018 stated the service could provide owners with $6,892 per year after a 10 per cent payment to Tesla.

Business Costs

• Cost of vehicle or lease
• Charging and vehicle maintenance
• Service repairs
• Valeting
• Parking
• Road tolls
• Insurance
• Service fees (if using a third party to access market requests)

Focusing on leasing out a vehicle as a private individual your costs are going to include of course a downpayment, lease, insurance, maintenance etc.

It’s important to note that all the additional driving your car is doing is going to wear down the mechanic's faster increasing ongoing maintenance costs. I do wonder if we will start to see specialised cleaning services for Robo taxis as I can see demand increasing.

Final Thoughts

From Adrian

The autonomous revolution of taxi, delivery and logistic services is in a story of service becoming a utility much like electricity or water. The best way to think about it is like having access to your very own portal. When you can move anything from point A to point B in a scalable and affordable way how does that change the way you think about the world?

My hope this that this provides a stimulus for the economy and encourages more people to travel and socialise. It could be a great enabler for the elderly or people with physical disabilities, providing a new degree of personal transport freedom.

When you can leave your house midnight one day and wake up ready at work in another country at 7 AM we could see major shifts in the job market and a probably a different approach to work-life balance. Vehicles over time will become customised to focus on tasks such as comfort, sleeping, working and entertainment. We may also see an expansion in the type of services which come directly to you such as a gym, shop or sauna (I really want to see this) on wheels.

Exciting times ahead, assuming we are not all stuck in traffic.