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The economics of autonomous cars may be disappointing

By Michael Ramsey | May 13, 2019 | 0 Comments

Tens of billions of dollars have been invested in autonomous taxis pursuing a disruptive business model that envisions removing the flawed human driver and replacing him with a robot that never sleeps, texts or drinks too much.

The market impact of autonomous cars has been forecast to explode in a little more than a decade. One study, commissioned by Intel, expects the market to be $7 trillion by 2050. Today, the entire market for new vehicle sales is around $2 trillion a year.

So much of the heat around autonomous vehicles is built around the idea that these robot taxis will replace our personally owned vehicles. And that we will give up our cars because robot taxis will be safer — but more importantly — cheaper.

Indeed, one of the implications of Uber and its IPO of last week was that the ride-hailing service will become profitable once you remove the drivers from the equation.

The economics of these assumptions always has been fraught and filled with assumptions that ignore potentially very expensive aspects of operation.

Two researchers from MIT, Ashley Nunes and Kristen D. Hernandez, recently exposed this conceit in a study: Autonomous Vehicles and Public Health: High Cost or High Opportunity Cost.

The study looked at San Francisco’s taxi industry and its costs and then factored in what it would cost to operate autonomous taxis in the same market. Importantly, the researchers estimated that these robot taxis would only cost $15,000 – an absurdly low cost that is likely 1/10th the actual cost of such a vehicle.

Big areas of expense include cab medallions, vehicle fleet monitoring and maintenance.

The research found that robot cabs would cost between $1.58 and $6.01 per mile of operation, compared with “conventionally driven vehicles.” The study finds that the only way to achieve parity would be to increase utilization of the cabs by nearly 100% and to lower the proft margin per mile by 37%.

To show how much this cost per mile varies from the common wisdom, Tesla CEO Elon Musk, recently said that vehicles operating autonomously could be used in ride-hailing fleets and cost just 18 cents per mile. Other estimates have been as low as 25 cents per mile of operation. The cost to operate a personally-owned car is around 62 cents per mile (although that’s a pretty inexpensive car).

Until the vehicles are actually on the road and operating, it will be difficult to know the true costs of implementation, but it is clear from this study that assuming robot cabs will be less expensive to operate than human-driven vehicles is wishful thinking at best.

We have numerous research reports on autonomy and mobility services at Gartner. In one report, based on a survey we conducted in 2017, we found that nearly half of people surveyed would not give up their personal vehicle for a mobility service — even if it saved them 75% of the cost. 


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