During Tesla’s Autonomy Day in April 2019, Elon Musk & Tesla unveiled that Tesla would distribute the Robotaxi network — a ride-sharing application basically. In other words, a direct competitor to Uber & Lyft. While I was watching the Youtube live stream in my bedroom, I did not fully grasp this how much of a slam dunk this was. It was like LeBron (33-year old at the time) dunking on a 7 foot dude that is basically 10 years younger than him. Except, this was literally Tesla dunking over Uber, Lyft, and all legacy car manufacturers.
Known to be a depreciating asset and contributing factor to global warming, ICE vehicles have been the long standing tradition for our previous generations. Tesla changed the game by going full electric and are now attempting to appreciate this asset.
Let that sink for a second. A vehicle you drive could be an appreciating in price.
Uber, Lyft, and some other players around the world disrupted the taxi business. Reading Super Pumped’s book by Mike Isaac, I could not believe how much shit Uber went through! After all, it does make sense, you’re disrupting an industry that has a high barrier of entry (taxi medallions are expensive!) Everyone appreciates innovation until it hits their revenues negatively.
I wanted to write this post to dig deeper into the Robotaxi project. I wish to analyze the potential market, and how it could work. Perhaps dive deep into the longer-term plans of Tesla for this.
Potential Market Worldwide
According to Statista, the Ride-Hailing & Taxi segment represented $302B USD revenues in 2019. Although 2020’s numbers will be projected lower due to the pandemic, in 2024 it is expected to grow past $365B USD. Within the next few years, there will over 1.5 billion users in this business segment. We’re barely looking at a penetration rate of 20%. The penetration in U.S. is merely 28.1%, and Canada stands at 21.9%. Countries like France, Germany and Denmark are well below 20%.
Tesla already has worldwide presence with their EV’s distribution. With their cars delivered in China, and their ever-growing presence in both Europe and North America, it only makes sense that there is serious market potential for users to use Robotaxi. Assuring that your drivers (Tesla vehicles’ owners) have significant revenue to cover their driving costs will not be an issue. This is an issue that Uber or Lyft face even today due to their drivers being mostly driven in ICE vehicles (gas and maintenance costs add up!) One may argue that Tesla will need to make sure there are enough drivers on the Robotaxi network to keep the Robitaxi’s customers. I think that’s a legitimate argument, but because EV’s are the future and there is literally no competition to this day to Tesla’s EV’s, I do not believe there will be a shortage of drivers. Besides, who doesn’t want their car to make significant revenue?
For drivers, CleanTechnica stated the following
Tesla expects to undercut existing ridesharing services with a consumer price of ~$1.00 per mile, operate on a $0.18 per mile cost basis, drive 90,000 miles per car per year, and generate ~$30,000 gross profit per car per year.
Tesla expects a million-mile operational period for vehicles with minimal maintenance through upcoming “hyper-efficient robotaxi optimizations.”
Tesla may be able to bring the manufacturing cost of next-gen robotaxis down to $25,000.
Elon expects the NPV (net present value) of FSD-equipped Teslas to dramatically increase once the network is live.
$30K gross profit per car every year is all drivers need to hear to have more drivers on the Robotaxi network.
The only really challenge here is for Tesla to find customers. Considering Tesla’s brand is quite known worldwide and in social media, I do not forsee this issue.
Software Complexity of an “App”
Making a software application such as a Ride-Hailing application is not easy. I’m not sure where this “it’s just an app” came from. There’s a lot of so-called financial experts and gurus disregarding the software engineering that goes behind some of this products. I can’t really put the full blame on them, many of the technology companies are valued extremely high — something that we have never seen in the past, except maybe during the Dotcom bubble in the early 2000’s.
Just because you have thousands of applications on the App Store or Play Store doesn’t mean all of them are good. In fact, most of them are garbage. Only a handful of them can exist in this competitive market. Attention is limited, and resources are finite — so if you’re going to put an Android or iOS application out, you better make sure your application stands out from the rest.
This is why I cannot trust legacy car manufacturers such as Ford or Toyota to compete with Tesla’s Robotaxi. Outsourcing is not an option — not considering that the future is heading towards self-driving. Can you imagine your C300 Mercedez-Benz being managed by a software company located in China? Would you even trust that car? Better yet, Boeing couldn’t even have the 737-Max in the market for long due to [many] software issues. Yet, the software is developed and handled by the company itself. If it was software outsourced by some Indian company, would you dare to step on that plane?
Software has dominated in the recent decades, and it’s going to be taking off to a whole new level. Just look at the top market capitalization companies — all of them are heavily involved in technology. They employ thousands of software engineers, and it takes time to build a culture where you can practice software engineering successfully.
Costs of Robotaxi lower compared to Ride-Sharing apps.
As I add on to the complexity of a ride-sharing application, there are many segments that can be quite costly to anyone entering this market. The first big one I already addressed — payments. Can you assure your drivers that they will be paid significantly more than the costs going to necessities of engaging in the ride-sharing business? Can ride costs be lower enough for customers, but rewarding enough for drivers? Tesla has a significant advantage over companies like Uber and Lyft in this. ✔ (Refer to my ICE vs EV brief discussion above)
Registration & verification. Every city has its own regulations, and companies like Uber had to do the “dirty work” to get through some of the major cities. Since Tesla already has drivers’ information from when they ordered their EV, this should not be an issue. Tesla has this covered. ✔
Today, many ride-sharing drivers need to have their own smartphone using their own Internet data. Tesla’s cars don’t require you to have a separate gadget to have the Robotaxi installed. Tesla has this covered. ✔
What I’m interested is whether or not Tesla will use Google Maps for geolocation & routing. Companies pay a hefty amount to Google for using their Maps service, and this can be significant costs. I’m not sure what’s Tesla’s plans on this.
I did not rent a car for my business travels in 2018. I remember my manager asking me whether I would need to rent a car for work. I laughed, and said no “I’ll Uber it”. I can only imagine one day saying “I’ll Robotaxi it”.
Let’s make it happen. Robotaxi is going to reward both drivers and riders.
