The Future of Transportation

"If I had asked what people wanted, they would have said faster horses." 

-Henry Ford

I've been wanting to write about this topic for quite some time, and given the recent buzz from Google and others, now seems to be a good time. The topic is self-driving, electric vehicle car-sharing, and I believe it has an amazing potential to change how we view personal transportation.

I've mentioned before in this blog the interplay between efficiency and economics of electric vehicles. Electric vehicles may be about $10K more expensive, but they are 1/6th the cost to operate. I had said that in the case of high gas price, EVs become much more economically attractive. They also become much more attractive if the mileage on them increases; the farther you drive, the more you leverage lower operating costs to your advantage. The problem is Americans don't drive enough. Well...I mean, Americans drive plenty, but not enough to currently offset the spread between our extremely cheap gasoline and electricity. In order to make the spread work more in our favor, we have to increase the number of miles traveled/vehicle; that means car sharing. Car sharing is a great idea. We are terrible at making good use of our own cars; we drive them just 30 miles/day on average, and we're in them only for an hour a day, leaving them sitting unused for the remaining 23 hours [1] (as an aside, the National Household Travel Survey from the US Department of Transportation is a pretty interesting report; you ought to take a look). Car sharing drives up vehicle utility.

To look at how electric vehicles could impact a traditional car sharing company, I looked up one of Zipcar's last shareholder annual reports before they were bought by Avis [2]. In addition to having to look up the difference between "revenue" and "income," I also had to look up some assumptions for cost of vehicle ownership [3], fleet mpg [4], gas prices [5], and some of Zipcar's historical data from Wikipedia [6]. Here's the breakdown from 2012:

• 770,000 members, 10,000 vehicles
• $280 million in revenue, $15 million in profit ($10 million from some "tax thing")
• From revenues:
• $40 million from membership fees
• $240 million from usage payments (I simply assumed the remaining revenue)
• From estimates on costs:
• $100 million for gas
• $24 million for vehicle acquisition in 2012
• $24 million for parking space costs
• $12 million for insurance
• $5 million for maintenance

It was here I realized I was $115 million short on costs. I also failed to remember Zipcar is a company that needs to do things like "pay employees" and "run marketing efforts," so I included those [7].

• Additional estimates for costs:
• $70 million for payroll
• $20 million for customer acquisition
• Sum total of costs: $255 million

Not bad for an estimate of an entire company's cost and revenue structure; we're less than 10% off. If we were to wave the vehicle electrification wand, it would primarily impact gas costs (the largest fraction of costs) and vehicle acquisition. To that end, gas costs would now become electricity costs at $23 million based on similar vehicle class efficiency figures (I used the Nissan Leaf) [8] and 2012 electricity prices [9]. Vehicle acquisition costs would increase to $36 million. In this scenario, revenues are still $280 million, but costs are now $190 million, raising profits from basically break even to $65 million; a healthy 23% profit margin.

That was a straight swap of EVs for gas cars in an existing car sharing company. What about invoking the self-driving component? Well, that one is a little tricky. The closest analogy is Uber, and it took some research to figure out how they actually operate, as well as a leaked 5-week snapshot to get an idea of finances [10]. Uber works as the marketplace for taxis and black car services; they actually don't own any vehicles themselves. As such, I don't have a feel for operating expenses like I did with Zipcar. All I know is that from the fare the customer pays, Uber (primarily a software and marketing company) takes 20%, leaving the 80% and the rest of the vehicle ownership, maintenance, insurance, payroll, etc. to the taxi or black car company. Rather disappointingly opaque, but most Silicon Valley startups are like this.

Let's consider hypothetically starting our own company using shared self-driving EVs. In honor of rolling out fleets of Google self-driving cars, let's call it "Gaggle" (a terrible name; no one ever use this name). Gaggle's usage statistics are similar to Zipcar's: there are 77 members/vehicle, 6hrs of use/day on each vehicle, 180 miles driven/day in each vehicle. If we use the NHTS data, this means there are 6 trips in each vehicle/day. For simplicity, Gaggle charges on a "per trip" basis; think of it like a flat fee, or like a bus pass. Let's consider 2 scenarios corresponding to 2 prices: a $12/trip scenario and a $6/trip scenario. And let's do a simple payback period analysis where trip revenue pays for the initial purchase of the car. Consider a $20,000 base car, $10,000 for self-driving capabilities [11], and $10,000 for a battery pack. At $12/trip, the gas and electric self-driving vehicles don't look that much different. Gaggle's electric self-driving vehicle pays for itself in 1.6 years and racks up 109,000 on the odometer, while the gas self-driving vehicle pays for itself in 1.8 years and hits 117,000 miles. The $12/trip cost is roughly half that of Uber and about equal to Zipcar's economics. What about the $6/trip case? The electric vehicle pays for itself in a longer time, 3.6 years and climbs up to 240,000 miles: high but given EVs lower maintenance requirements, definitely achievable (would be about 2500 battery charge/discharge cycles). The gas vehicle on the other hand requires 8.2 years and needs 540,000 miles to pay it back; this is definitely a vehicle replacement, further impacting economics.

Due to the lower operating cost of self-driving electric vehicles, Gaggle can offer cheap, convenient private transportation that makes a strong business case for profitability. Gaggle can reduce traffic, reduce pollution, and reduce frustration, all for about the cost of grabbing lunch out. Car sharing has never been better.

World: meet Gaggle.

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[1] http://nhts.ornl.gov/2009/pub/stt.pdf
[2] http://www.zipcar.com/press/releases/zipcar-reports-fourth-quarter-and-full-2012-results
[3] http://org.elon.edu/sustainability/documents/Zipcar%20FAQs.pdf
[4] http://www.nhtsa.gov/staticfiles/rulemaking/pdf/cafe/April_2013_Summary_Report.pdf
[5] http://www.eia.gov/dnav/pet/pet_pri_gnd_dcus_nus_a.htm
[6] http://en.wikipedia.org/wiki/Zipcar
[7] http://www.marketingsherpa.com/data/members/handbooks/2012-Lead-Generation-Benchmark-Report-EXCERPT-5-23-12.pdf
[8] http://www.fueleconomy.gov/feg/Find.do?action=sbs&id=30979
[9] http://www.eia.gov/electricity/monthly/pdf/chap5.pdf
[10] http://valleywag.gawker.com/matt-durham-an-analyst-at-an-ecommerce-company-crunche-1476549437
[11] http://www.fastcompany.com/3025722/will-you-ever-be-able-to-afford-a-self-driving-car