The driverless car will improve traffic, make roadways safer, reduce fatalities, increase productivity and, one more thing, save people A LOT of money. Chances are, you'll first see those savings reflected in your Uber bill. Experts predict that you'll be able to buy a driverless car in the next five years, and Uber plans to be one of the first to sign the paperwork.
If you live anywhere but under a rock, you know that the Uber has repeatedly alienated journalists, customers and its drivers this year. This month, the tech giant vowed to "become a smarter and more humble company," but the company is still getting shelled by the media and drivers are protesting and causing scandals around the world. Luckily for them, the company might not need the drivers for much longer, and they might have a solution for customers who are sick of high fares and surge pricing. According to Uber CEO, Travis Kalanick, "the reason Uber could be expensive is because you're not just paying for the car — you're paying for the other dude in the car."
In places with heavy traffic, like San Francisco and New York City, the introduction of an autonomous and electric Uber cars could reduce fares by over 75 percent! That ride from Brooklyn to the Lower East Side will go from $20 to $5 and you won't even have to worry about tipping. A fare from Chinatown to the Financial District could cost less than a gumball.
So how did we figure that driverless Uber could be so cheap? First we looked at the costs associated with operating an Uber vehicle. The big ticket items include insurance, driver salary and fuel. If Uber were to unleash a fleet of electric and driverless cars on big cities, the major expenses of fuel and driver salary would be wiped clean and the only major costs would be vehicle maintenance and insurance.
Insurance is already a tricky business for ride sharing companies, as our friend Aaron Crowe points out in this article. Uber drivers tend to own their own cars, but most personal insurance policies do not include coverage for commercial use. Drivers who are working with a transportation network company (TNC) can usually get additional coverage, but coverage can vary depending on whether or not the driver is giving a ride at the time of the accident. Uber drivers can pay dearly if they don't read the fine print carefully.
Nobody knows for sure how insurance companies will respond to driverless cars but, in the long run, insurance rates should go down due to increased safety. We don't know for sure how safe driverless cars will be on a large scale, so let's take a look at the numbers we do have. According to the National Safety Council, about 35,000 people die of crashes in the U.S. annually, with 90 percent of the accidents due to human error. Google's self-driving cars have logged over 700,000 miles without causing a single accident. If this trend scales, mass-market driverless cars will be safer than their human-operated counterparts by a significant margin.
Although the data implies that driverless cars will be safer, and thus should be less expensive to insure, we've kept the insurance costs constant in this study since nobody knows for sure. Based on conversations with New York City Uber drivers, it can cost $5,000 a year to insure their vehicles. Insurance is certainly more expensive in NYC than in the rest of the country, but we're sticking with the $5000 amount out of solidarity with our home town.
Alright, so at this point you're probably thinking we should pump the brakes. We don't know what the insurance companies are going to do, or if the driverless Uber cars will be powered by electricity. Well, you're right. But just as there is evidence to suggest that insurance costs won't rise for driverless cars, there is a good reason for believing that electricity will win out: Google's latest driverless car prototype is electric. In 2013, Google Venture poured over $250 million into Uber. Google has expressed interest in developing a fleet of "robo-taxis" and a partnership with Uber would be a viable way to make that happen.
Electric vehicle detractors often point to the battery as a weak point since, historically, electric cars have been plagued by expensive price tags, limited range and long charging times. However, these shortcomings will soon be negated. Although electric car batteries can be quite expensive right now, those costs will drop significantly as EV's become more and more common. The folks at Tesla are smart; I mean, Elon Musk is literally a rocket scientist. You can bet your bottom dollar that he calculated the economies of scale before building a $5 billion dollar 'Gigafactory' to produce batteries for the mass market.
OK, so Tesla is making electric vehicle components cheaper and more widely available. And the auto manufacturers are hustling to catch up. What does this mean for the future of Uber? Eliminating gas vehicles from its lineup would greatly reduce operating costs. We assumed the typical Uber car, a 2014 Toyota Camry or 2011 Lincoln Town Car, traveled about 70,000 miles a year – the same as a New York City taxi. If the average price for a gallon of gas is estimated at $3.00, then the cost of gas for a 2014 Camry 2.5L four cylinder driven 70,000 city miles is roughly $10,500. The annual cost of gas in the 2011 Lincoln Town Car at 70,000 city miles driven is an astronomical $16,500. Average the two together and you get a yearly fuel cost of $13,500.
Electric cars aren't free to operate, but they are pretty darn close to it. The EPA measures electric car fuel efficiency in kilowatt-hours per 100 miles driven, or kWh/100mi. As we previously covered, Range varies across EV models, but at the high end, the 2014 Tesla Model S will go 265 miles between charges at 38 kWh per 100 miles. The company has invested billions into making even better batteries and other OEMs like VW and BMW are scrambling to do the same. Given the intense competition, we can expect rapid progression of alternative fuel technology. By the time driverless cars are here, most if not all electric cars will have a kWh/100mi that is equal to or greater than the 2014 Model S. If the 2015 Suburban is rated at 23 highway miles per gallon, anything is possible.
Electricity costs vary widely around the country, but the EPA sets the average price at 12 cents per kWh. That means that if our driverless electric Uber was driven 70,000 miles, the fuel cost would be about $3,200 per year. That's less than a quarter of the yearly fuel cost of a gas-powered taxi.
5-Hour Energy be damned, one driver can only stay behind the wheel for so long. Assuming that a driver works a 10 hour shift, there are 14 hours when their car isn't getting any use. A driverless car could work continuously throughout the day and night with periodic stops at a "home base" for cleaning and charging. Without a driver, the Uber car can operate for twice as long, still leaving 4 hours a day for upkeep.
Here's the thing, Uber's cut on a fare is only 20 percent, leaving 80 percent of that fare going toward the gas, insurance and maintenance paid for by the driver. A chunk of that money also goes into the driver's pocket. Even if the insurance and fuel costs are still in the mix, a percentage of money can be dropped from the fare when you eliminate the driver.
In an article this May, Uber claimed a median income of over $90,000 for its drivers in NYC. Many have questioned this figure, and with this summer's fare reduction of 20% across the board, it is more unlikely than ever that any Uber drivers are bringing in that kind of dough. Best case scenario, this number represents the initial influx of cash, not what the driver takes home after paying for fuel, insurance, cleaning services and other miscellaneous costs.
In a recent article, Slate argues that after car payments, insurance, fuel and other costs, NYC drivers are more likely to take home $12 an hour, or $480 for a 40-hour week. That's $25,000 a year that would be eliminated if Uber were to switch to driverless cars. And that doesn't even include the brand reputation costs that the drivers have incurred on their employer. Around the globe, drivers are in constant public protest, resulting in ride shortages for customers and a whole lot of stink in the press. Regardless of what Stephen Hawkins says about artificial intelligence, Uber could count on a lot less complaining from robot drivers.
AUTONOMOUS TECHNOLOGY COSTS
Today, it is not cheap to replace the eyes, ears and brain of a driver. Tomorrow is another question entirely. Like electric vehicle systems, the technology is rapidly moving towards mass market economic viability.
The most critical (and most expensive) component of the autonomous system is the LiDAR array. That's the big radar thing siting on top of the Google cars. Most companies experimenting with driverless cars are using equipment from Velodyne. The Google prototype uses the most robust Velodyne product, the HDL-64E. That unit has a price tag of $75,000 which means it is not feasible for the mass market. Earlier this year, Velodyne introduced the VLP-16, a LiDAR sensor that retails for $8,000, almost ten times cheaper than the HDL-64E. It doesn't have all the capabilities of the 64, but it is already being used extensively for autonomous testing.
The VLP-16 represents a huge leap forward in both cost and size reduction. In a conversation over the summer, Velodyne's Director of Sales and Marketing told us, "Velodyne's very compact (and very affordable) LiDAR Puck, we believe we can solve both sides of the equation."
Given the almost 10x reduction in Velodyne LiDAR cost in the past few years, it is not surprising that experts cited by the Washington Post predict autonomous technology will only add $3000 to $5000 t0 the cost of a vehicle by the time that driverless cars hit the main stream. According to the New York Taxi and Limousine Commission, the average age of a black car in NYC is 5.5 years. Conservatively, we can assume that in the future, a driverless Uber car will operate for at least 5 years. That means an additional cost of $1000 per year on the high end.
THE BIG PICTURE
Add these costs together and here's what you get. According to our simplified analysis, the cost to operate an Uber would drop 79% if the company were to switch over to driverless electric vehicles. If we are to take Travis Kalanick at his word, a dubious choice to be sure, we can assume that those savings will be passed on to the consumer in the form of a 79% reduction in fares.
Such a significant drop in Uber prices would have huge implications for the transportation industry. All of a sudden, Uber would cease to be a luxury good. The service would be accessible for people of all socioeconomic backgrounds. This would be a huge boon for New Yorkers who live in the outer boroughs where public transportation options are often limited.
Think about how many people wouldn't buy a car if there were cheap, driverless Ubers on call 24/7. Driving under the influence would be even more foolish if you could get such a cheap ride on demand. And bye-bye taxis. Uber and other ridesharing companies have already diminished the value of a NYC taxi medallion by 17% from their peak in 2013. If Uber is first to market with a driverless fleet, black might become the new yellow on the streets of the Big Apple.
FOR THE NAYSAYERS
This whole self-driving Uber idea isn't without detractors. The Economist argues the "combination of Uber and cheap labour could pose a formidable threat to the driverless car." The writer believes the cost of labor is cheap enough already, it simply wouldn't make sense for Uber to convert their fleet to driverless.
The Economist's argument continues to lose steam because what if the labor becomes too cheap? That's the problem Uber is facing right now after being accused of strong arming drivers to stay off the roads, not tipping drivers and decreasing cost of fares. This has led the Teamsters to step in, pressuring to Uber drivers to protest the app by not taking Uber fares or dropping the service entirely.
People want the best product at the cheapest possible price and when it comes to transportation, efficiency and price dominate the marketplace. The self driving car can check off all those boxes. And if Uber doesn't have to deal with driver protests and the Teamsters? Even better. Although it might not feel like it, driverless cars are right around the corner. Seven car companies have announced that they plan to launch a driverless car before 2020.
Moreover, Uber has already stated they want a driverless fleet and they want Google to build it. The upfront cost of a full driverless fleet will be astronomical, but long term profits and growth will be critical to keeping investors happy. Uber drivers have proven to be a massive liability for the company in recent months, so they have more reason than ever to adopt a driverless model.
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