Feb 7, 2019 - Technology

Parsing the profit formula for robotaxis

Autonomous vehicle interior

GM's self-driving Chevrolet Bolt EV. Photo: GM

Automakers like GM and Ford are banking on the the assumption that if they can lower the cost per mile of self-driving taxis to $1 or less, demand will skyrocket. But a new analysis in the Harvard Business Review suggests their model may be flawed.

Why it matters: Carmakers are tearing apart their traditional businesses — exiting underperforming markets, closing factories and laying off workers — while diverting investment into future mobility technologies. But if self-driving taxi fleets don't take off as expected, their financial plans could be at risk.

What they're saying: Ride-hailing costs around $3 per mile today, according to GM, but only accounts for 1% of miles traveled. The driver represents most of that cost.

  • Without a driver, the cost per mile falls to around $1 per mile.
  • At that point, robotaxis will be so cheap everyone will travel that way — or so the theory goes. It's all about deploying at scale, as GM Cruise CEO Dan Ammann likes to say.

Yes, but: Authors Ashley Nunes and Kristen Hernandez see it differently.

  • They found the estimated cost per mile of a robotaxi in San Francisco was 3 times higher than the cost of owning an older vehicle.
  • The gap was due to lower utilization rates than carmakers assume. (Current taxis are in use about 50% of the time.)
  • Even if robotaxis had substantially higher utilization rates, the cost of providing remote oversight by humans must be factored in.
  • The only way for robotaxis to be cost competitive with older cars is if the remote operators are paid well below minimum wage, the authors said.

Consumer subsidies will be needed to realize the life-saving benefits of AVs, they conclude.

The bottom line: Self-driving cars need to be affordable to serve those who need them most, and to keep carmakers' strategies afloat.

Go deeper: Here come the robotaxis

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