Like the sudden end of photographic film and the saturation of digital cameras, electric cars and autonomous vehicles are poised to change our lives and if you want to pick a date, an independent US think tank called RethinkX has called 2021.
That’s the year that it says is the “disruption point” and in the 10 years leading to 2030, will shatter the automobile industry by deconstructing car dealerships, eradicating the used-car industry, shrinking the number of vehicles on the roads and slashing oil consumption.
There is not a lot of good news in RethinkX’s report. The business is described as one that analyses and forecasts the speed and scale of technology-driven disruption and its implications across society.
“We know of no other market where a 10x cost differential has not led to a disruption,” it said.
“This very significant cost differential will be the key driver for rapid and widespread transport as a service (TaaS) adoption for car owners.
“Potential car buyers will stop buying new cars. This will drive a rapid decline in production of new cars. As the volume of new-car sales falls, revenues will shrink and profits will drop even further.
“A vicious cycle will ensue, leading to factory closures and consolidation of production. The consequences of a shrinking industry will include a loss of economies of scale, which will lead to higher manufacturing costs for internal combustion engine (ICE) vehicles.
“The result of increased supply of TaaS and reduced demand for individual owned cars is that the resale value of all used cars will plummet.
“The rising cost of maintenance, gasoline and insurance; the cost of storing or taxing worthless vehicles; and the lack of a used-car market might mean that prices go to zero or even below. That is to say, owners may need to pay to dispose of their cars.
“New ICE vehicle sales are finished by 2024, just three years after the regulatory approval and commercial availability of autonomous EV technology.
“In 2024, the pre-existing vehicle stock can more than meet the passenger-mile requirement for transport under individual ownership.
“Car dealers cease to exist by 2024, with no new individual ownership car sales from 2024 onwards and no direct consumer purchases given that TaaS vehicles will be fleet owned.
“Car insurance will be disrupted by a 90 per cent fall in the insurance costs incurred by TaaS users (relative to individual ownership), which is driven by the elimination of theft and sharp reductions in insurer costs for liability, injury and vehicle damage.
“Almost $US50 billion in revenues from fuel taxes will be lost in the US, with the shift from an individual ownership vehicle to a shared autonomous EV fleet. However, governments whose budgets depend on this revenue could shift to taxing miles rather than gasoline or diesel.”
The gloomy report is the first in a series of RethinkX’s outlooks across a wide range of industries.
As you have read it pulls no punches: “We are on the cusp of one of the fastest, deepest, most consequential disruptions of transportation in history. By 2030, within 10 years of regulatory approval of autonomous vehicles (AVs), 95 per cent of US passenger miles traveled will be served by on-demand autonomous electric vehicles owned by fleets, not individuals, in a new business model we call “transport-as-a-service” (TaaS).
“The TaaS disruption will have enormous implications across the transportation and oil industries, decimating entire portions of their value chains, causing oil demand and prices to plummet, and destroying trillions of dollars in investor value – but also creating trillions of dollars in new business opportunities, consumer surplus and GDP growth.”
The report said that cost savings will drive this change.
“Using TaaS, the average American family will save more than $US5600 ($A7567) per year in transportation costs, equivalent to a wage raise of 10 per cent,” it said.
“This will keep an additional $US1 trillion ($A1.35 trillion) per year in Americans’ pockets by 2030, potentially generating the largest infusion of consumer spending in history.”
RethinkX’s report is based on the overriding presumption that the governments of the US – and other nations including Australia – will pass legislation by 2021-2024 allowing autonomous electric vehicles onto city streets. It also allows for these vehicles being primarily used as shared vehicles.
It also presupposes that the automotive and energy industries will have scaled up the production of electric vehicles and, more importantly, the energy supply – including infrastructure such as street-side recharging stations and solar panel farms – to cope with demand by 2030.
RethinkX said the role of public transportation authorities will change dramatically, from owning and managing transportation assets to managing TaaS providers to ensure equitable, universal access to low-cost transportation.
Potentially, society will demand that public transportation authorities help provide TaaS availability for the full population, as has happened previously with the provision of telephone, water and electricity.
“The TaaS disruption is not just about EVs replacing internal-combustion engine (ICE) vehicles when car owners buy new vehicles,” the report said.
“Electric vehicles will indeed disrupt new ICE vehicle sales but the TaaS disruption we present in this study is far more profound. Vehicle users will stop owning vehicles altogether, and will instead access them when needed.
“The TaaS disruption will end the model of car ownership itself. New car sales and the existing fleet of both ICE and EV vehicles (240 million vehicles in the US) will be displaced as car owners sell or abandon their vehicles and use TaaS.
“This disruption will happen largely because of the huge cost savings that all individual car owners will have when they choose to stop owning a car and use TaaS instead.”
Motorists now pay the upfront costs of buying cars and the ongoing operating costs.
RethinkX said that with TaaS, all of these costs will be replaced by a single per-usage charge “which will conservatively be two to 10 times cheaper than operating an individual-owned vehicle”.
“Behavioral issues such as love of driving, fear of strangers or habit are generally thought to pose initial barriers to consumer uptake,” it said.
“However, Pre-TaaS companies such as Uber, Lyft and Didi have invested billions of dollars developing technologies and services to overcome these issues. In 2016, Pre-TaaS companies drove 500,000 passengers per day in New York City alone.
“That was triple the number of passengers driven the previous year. The combination of the dramatically lower cost of TaaS compared with car ownership and exposure to the successful experience of peers will drive more widespread usage of the service.
“Adopting TaaS requires no investment and does not require any lock-in. Consumers can try it with ease and increase usage as their comfort level increases. Even in suburban and rural areas, where wait times and cost might be slightly higher, adoption is likely to be more extensive than generally forecast because of the greater impact of cost savings on lower income families.”
RethinkX said that switching to TaaS will provide Americans with a significant disposable-income boost equivalent to $U5600 per household on average.
“For the first time in history, all consumers will have access to cheap and readily available road transport, without having to buy a car.”
It sees the switch first happening in high-density cities with high real-estate values, such as San Francisco and New York in the US and Sydney in Australia.
“Early adopters will likely include the young, disabled, poor, elderly and middle-income populations who don’t have access to convenient and affordable transportation, as well as those whose opportunity cost is high and who value the time freed by not driving,” the report said.
“All TaaS vehicles will be autonomous (AVs) based on EV technology (A-EVs). These vehicles will drive themselves with no human mechanical input (no pedals or steering wheel) and will offer both far lower cost and better service (utility) for the consumer – with no requirement to drive, park, maintain, insure or fuel the vehicle.
“TaaS will be available on-demand and offer faster travel times and the ability to do other things during a journey. These vehicles will have order-of-magnitude higher asset utilisation, leading to a far lower cost-per-mile than individually owned vehicles.”
It said the scale of the cost savings in relation to disposable income is important.
“The option of spending about $US3400 ($A4594) a year on driverless TaaS journeys (or $US1700 ($A2297) on TaaS Pool), rather than an average of approximately $US9000 ($A12,162) a year on a personally owned vehicle produces a very significant increase in disposable income.
“TaaS is cheap because it has a 40 per cent vehicle utilisation that is 10 times higher than individual-owned vehicle utilisation. Individually owned cars are used only four per cent of the time.
“While there will be fewer cars,TaaS vehicles will be available on-demand 24 hours per day, providing door-to-door transport to passengers.”
The report said that all future TaaS vehicles would be autonomous EVs because compared with ICEs, they were “far cheaper” to operate and more reliable so reduced downtime.
“TaaS vehicles will drive 500,000 miles over their lifetimes – 2.5 times more than ICEs,” it said.
“This dramatically lowers depreciation costs-per-mile, the largest cost component. Each mile covered by a TaaS vehicle costs just 1/500,000th of the upfront cost of the vehicle in depreciation.
“Autonomous EV vehicles are intrinsically more reliable and efficient than ICE vehicles, which leads to major savings in operating costs. These cost reductions include a 90 per cent decrease in finance costs, an 80 per cent decrease in maintenance costs, a 90 per cent decrease in insurance costs and a 70 per cent decrease in fuel costs.
“These points have largely been overlooked in most mainstream analyses, which have failed to account for the economic impact of the improved lifetimes of autonomous EVs and the scale of the operating-cost reductions”
On a bright note, RethinkX said that areas of opportunity will exist.
“While shared road passenger travel will drive down hardware margins and volumes, there will also be new opportunities, through the creation of higher-margin businesses in operating systems, TaaS platforms and services, and additional revenue streams, spurred by new business models built upon these platforms,” it said.
“The companies that develop autonomous EV operating systems stand to reap massive rewards, as has been the case for Microsoft, Apple, Google and Cisco through their development of computing, internet and smartphone operating systems.”
DISRUPTION POINT
This is the date RethinkX expects widespread approval of autonomous vehicle use on public roads is granted by authorities, starting from 2021.
PHASE 1: Early Adoption Phase. Years 1-3 (2021-2024)
Pre-TaaS companies convert their fleets to A-EVs and become TaaS providers. Urban users adopt TaaS for an increasing proportion of journeys. A-EVs become accepted by a growing number of mainstream users as exposure to them increases. In cities with the highest density and real estate prices, TaaS quickly begins to provide more passenger miles than IO vehicles. Car owners stop buying new cars and begin to sell their vehicles. Legislation is introduced to ban ICE vehicles and non-autonomous vehicles in central business districts in cities around the world.
PHASE 2: Mainstream Adoption Phase. Years 3-8 (2024-2030)
TaaS radiates outward beyond larger urban areas toward suburban areas, smaller cities and then rural regions. TaaS providers gradually merge, first in densely populated regions. Increasing numbers of users abandon car ownership altogether. Legislation to ban ICE and non-autonomous vehicles spreads to cities around the world.
PHASE 3: Plateau Phase. Years 8-10 (2030-2032)
The role of public transportation authorities will have changed dramatically, from owning and managing transportation assets to managing TaaS providers to ensure equitable, universal access to low-cost transportation. TaaS providers who may have lost the battle for the larger city markets expand into smaller cities and rural areas, filling in the remaining market gaps. Potentially, society will demand that public transportation authorities help provide TaaS availability for the full population, as has happened previously with the provision of telephony, water and electricity.
Summary of events
RethinkX said the TaaS disruption will have major implications across the automotive and oil chains. In the US, these include:
- The number of passenger miles will increase from four trillion miles in 2015 to six trillion in 2030
- The cost of delivering these miles will drop from $US1481 billion in 2015 to $US393 billion in 2030
- The size of the US vehicle fleet will drop from 247 million in 2020 to 44 million in 2030
- Annual manufacturing of new cars will drop by 70 per cent from 2020 to 2030
- Annual manufacturing of internal-combustion cars to individuals will drop to zero and car dealers will cease to exist by 2030
- Huge opportunities will emerge in vehicle operating systems, computing platforms and TaaS fleet platforms
- Global oil demand will drop to around $US25 a barrel
- Oil prices may collapse as soon as 2021
- High-cost oil fields will be stranded and infrastructure associated with these fields – including the Canada-US Keystone XL and Dakota Access pipelines – will also shut
- CO2 emissions reductions from light-duty vehicles will fall by 90 per cent
By Neil Dowling
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