Questionable economics of AV taxis (FTAlphaville)

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Alphaville has long held the suspicion that, despite the hype, the economics of a self-driving fleet of taxis, as an alternative to owning a car, simply won’t work.

A new paper out Monday, written by researchers at the Massachusetts Institute of Technology and exclusively shared with FT Alphaville, agrees. It suggests that, at current prices, an automated hive of driverless taxis will actually be more expensive for a consumer to use than the old-world way of owning four wheels.

Drawing on a wealth of publicly available data, it suggests that the price for taking an autonomous taxi will be between $1.58 to $6.01 on a per-mile basis, versus the $0.72 cost of owning a car. Using San Francisco’s taxi market as its test area, the academics examined a vast array of costs such as licensing, maintenance, fuel and insurance for their calculations.

The news comes as the arms race to deliver an autonomous taxi service reaches full-speed in Silicon Valley. Both Lyft and Uber have committed hundreds of millions of dollars to developing the technology, with Uber chief executive Dara Khosrowshahi declaring at a recent FT conference that “if there’s one big goal for Uber it’s to replace car ownership”. Along the same lines, Alphabet-owned Waymo has been operating a robo-taxi service in Phoenix, Arizona since December.

A robo-taxi service have two main economic flaws, according to the paper. First is what academics refer to as “capacity utilisation” — the amount of time an autonomous vehicle is carrying a customer. According to the paper, the taxi occupancy rate stands at 52 per cent in San Francisco. Whereas in car ownership fuel and usage are directly correlated, a taxi is only being used around half the time.

In San Francisco, traditional taxi fleet operators circumvent this issue by charging drivers a set fee, which covers their administrative costs, in return for leasing one of their cars. This means “existing taxi business models ensure revenue generation independent of capacity utilisation”.

However an operator of a self-driving fleet is in effect the driver, and therefore must either absorb the cost of when the vehicle is not being utilised, or pass it on to the consumer in the form of higher prices. At a 52 per cent occupancy rate this is particularly problematic, in part because the operating costs of ensuring the safe running of a self-driving fleet will be high, mainly due to the human oversight required. A driverless taxi, it turns out, will not be people-less.

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Written by Long Branch Mike