On the Economic Argument for Self-Driving Cars

[danieldwilliam]

I’m confident self-driving cars will eventually replace person-driven cars.  Why am I so confident?

Partly, it’s driven by the economics. Self-driving cars allow the costs of moving people around in small pods to fall significantly.

I think that the cost per mile travelled for self-driving cars is going to be about 1/3^rd the cost per mile for person-driven cars. (My back of a spread-sheet calcs suggest 30 pence per mile plays 10 pence per mile.)

That’s before I factor in the reduced costs of energy from more efficient driving and less congestion and the reduced costs of the thousands of avoided accidents every year.

The main driver for this is that capacity factor changes that are available from a change in ownership method that is much easier to do with self-driving cars than person-driven cars.  Most cars currently spend most of their time sitting idle.  You drive from home to work. The car sits idle in a car park for 8 hours. You drive home. The car sits idle outside your house for 16 hours.

In order to drive for 50 or so minutes to work and then 50 minutes back again you need to own and pay for a car for the remaining 22 hours of the day.  Because the car can’t easily be gotten from outside someone’s home or work to where someone else needs to be picked up it makes sense for most people who travel by car to own their own, sometimes two cars.

(Conversely, when it would be useful to have more than one car and driver, say a school run involving primary and secondary schools only one is available.)

A self-driving car can pick you up from your home and then drop you off at your office and then go to someone else’s home or office and pick them up and take them somewhere.  I’m envisaging an ownership structure somewhere between a car club and a taxi company. Individuals don’t own the cars they use. They hire the vehicle by the day or by the mile as and when they need them. No one needs to walk to get to where their shared car is parked up. No one needs to mess about with keys. Self-driving cars allows private individuals to share cars as if they were taxi-cabs without having to pay the salary of a driver.

The efficiency isn’t perfect.  There are periods of peak demand where the total demand for cars is significantly higher than it is during other times of the day.  A car cycling from a residential area to a factory area might spend quite a few of the return trips empty. You do get access to all the cars that are only currently driven at the weekend and a family where one parent drives to work at 7 am and the other parent does the school run at 8.30 doesn’t need two cars.

Compared to person-driven cars, self-driving cars allow more people to share a single car between them and spread the fixed costs over many more people.

These fixed costs include the cost of building the car, maintaining it, insuring it and registering it.

Rather than having one £10k car shared between 3.5 people we can share the car between 10-20 people.

There is also a capital efficiency gain.  The new car market in the UK is worth £49 billion a year.  Assume a car lasts about 20 years so the average age of a car is about ten years and this implies half a trillion pounds tied up in private vehicles.  That’s about £20 billion in financing costs. 

With fewer cars on the roads fewer car factories are needed to support them. That capital is also returned to the market to be invested in other things.

There are cashflow advantages.  With a shared ownership model spread over more users I don’t have to find a few thousand pounds if I discover I need regular access to a car.  That’s money available for a Keynesian stimulus or to fund the purchase of other capital goods.

Those are the personal economic advantages. I think there are advantages in personal utility as well which I’ll explore in a separate post.

Comments

[andrewducker]

Think of all the poor car workers out on the unemployment lines!

[danieldwilliam.livejournal.com]

Well I do.

Bad times for some car factory workers, taxi drivers, bus drivers, repair garage employees, insurance brokers, and meer cats.

Good times for owners and staff of country pubs, taxi and bus companies, grieving parents of road traffic accident victims, owners of cars, buyers of homes and supermarket shareholders.

It’s not all upside in the short term. I think it is a technology that has the potential to be hugely disruptive of the way things are currently done. This means change and change means opportunities or benefits for some and risks and losses for others.