Tesla Will Challenge Uber In Rideshare

Last week saw the release of Part Deux of Elon Musk’s master plan for Tesla — bringing with it all the media frenzy one would expect of statements from the iconic founder. While many aspects of the plan would not surprise anyone who follows the company closely, one thing that did stand out was the allusion to Tesla’s eventual launch of an autonomous rideshare service:

You will also be able to add your car to the Tesla shared fleet just by tapping a button on the Tesla phone app and have it generate income for you while you’re at work or on vacation, significantly offsetting and at times potentially exceeding the monthly loan or lease cost. This dramatically lowers the true cost of ownership to the point where almost anyone could own a Tesla. Since most cars are only in use by their owner for 5% to 10% of the day, the fundamental economic utility of a true self-driving car is likely to be several times that of a car which is not.

This component of the plan represents a shot across the bow of Uber, which has repeatedly signaled plans to integrate its own autonomous fleet (possibly even one purchased from Tesla). Should Uber, a company that recently gave its two billionth ride, really be worried about competition from a small car company that only sold 140,000 units to date? Absolutely. Tesla brings two important advantages to the battle for the rideshare market: a cult-like brand following and a software-driven approach to premium customer experiences.

While Tesla’s actual footprint on the road may not be large, Elon Musk has undoubtedly managed to build widespread passion for the brand. Pre-orders of the Model 3 smashed market expectations, crossing 300,000 units within the first week alone. Even more amazing is that these customers were willing to wait up to several years for their orders to materialize — putting them squarely in the realm of “early adopters.” As delivery times come down, it’s not unreasonable to expect a much larger “majority” waiting in the wings for a chance to finally own a sedan of their own. Taking advantage of this latent market demand, a Tesla rideshare app wouldn’t have a tough time winning real estate across a large number of consumer smartphones.

Brand loyalty, however, is not enough to take on the market leader in the rideshare space. Retaining consumers for a Tesla rideshare service will require delivering on the magic that users have come to expect from the product. This means providing a premium experience, with distinct advantages over existing alternatives. The good news is that Tesla is no stranger to starting at the higher end of a market. Focusing on the Roadster for its initial launch helped capture the public imagination and built enough of a following to enable expansion into larger consumer segments. It’s no coincidence that Uber took a similar approach in its early days, with a focus on Uber Black when tackling the taxi business.

So what makes for a premium Tesla rideshare experience? For starters, a higher consistency among vehicles. Whereas Uber’s fleet is comprised of a wide array of cars (and quality), Tesla will be able to offer a much more standardized experience. That standard also happens to include things like panoramic roofs, silent cabins and roomy interiors — all wrapped in a beautiful package.

Even more important are the digital features that Tesla can enable. As I’ve written previously, I’m a strong believer in the idea that the value of modern vehicles will be defined more by their digital touchpoints than precision engineering. Tesla sits at the heart of this trend. Each of their cars comes with standard internet connectivity, an advanced infotainment system, and mobile integration. By leveraging these features, Tesla could easily save rideshare customer preferences and then seamlessly implement them across each summoned vehicle. For example, standard capabilities may include proactively adjusting the display configuration, seat positioning, or even driving behavior. Uber would find such features very difficult to replicate, coming from a place much further removed from the vehicle’s internal workings and with a higher degree of variability across inventory.

While we’ll likely never see a world where Tesla actually surpasses Uber in the rideshare market, the arrival of fully-autonomous cars will represent a key inflection point in the industry. With it will come the ability to unlock the massive excess capacity in today’s privately owned vehicles, as well as a dramatic reduction in the cost of on-demand transportation. Many companies will see this as a new low-cost opportunity to carve out a stake of the growing rideshare industry, but Tesla seems like one of the few with the vision, audience and expertise to actually make it work.

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