How Self-Driving Cars Will Kill Car Companies


Nvidia just started testing its market leading self-driving car technology in California on real roads.  I’m a fan of self-driving cars largely because they’d save something like 35,000 lives every year in the U.S. alone that would otherwise be lost in car accidents.  That’s 35,000 husbands, wives, sons, daughters, and a considerable number of those involve the bread winner in the household putting the family instantly both emotionally and financially in crisis.  However, there is an aspect of self-driving cars we don’t talk about much and that is the aspect promoted by services like Uber: that the car could easily become a service, not something you own. You can especially see that idea working  in cities like New York as an easy way to eliminate much of the traffic and parking problems; the city could simply eliminate, or massively tax, individual car ownership.

This is because our cars sit much of their lives, and that means they aren’t well utilized, while a car service could optimize a fleet, thus cutting down the number of cars needed by 50 percent or more.  Not only that, but while many of us replace our cars every three years, Uber, particularly if they went electric, could likely keep cars in service 10 or more years just swapping out components.  All told, this could cut the market for cars by up to two-thirds annually and eliminate entire car segments, like economy cars, because folks in those segments would virtually all use a car service. 

Most car companies won’t survive this unless they move to becoming a service themselves and move the vast majority of their business away from sales.  By the way, this suggests that firms like NVIDIA that make the technology for Self-Driving cars may be far better investments and more secure places to work than the car companies themselves will be.  Strangely, I think that will all be a good thing, but if the car companies don’t pivot, it won’t be a good thing for them. 

Why Car Services Are A Good Thing

Let’s first cover why moving from individual ownership to a car service is a good thing.  On almost any street in a high-density area you will see almost every piece of curb space taken up by a car.  Not only is this unsightly but we, and even self-driving cars, can’t see easily what is going on with those parked cars or people or pets walking between them.  In addition, if you get those cars off the sidewalk, you can put more cars in motion on the road.   This all means we’ll run over fewer children and pets, be able to use more of these roads to get around and our streets won’t look like used car lots. 

Services can use electrical cars far better than individuals can.  This is largely because a service car has to have places where it can go when not in use, and those places can have chargers.  You don’t need gas, or charging stations, all over a city, you just need them in places where the cars are standing by— ideally these will be parking structures where the cars can be deployed rapidly to areas where there are lots of people moving around.   Because you’ll need far fewer cars, you could use existing but updated parking structures for this.   That means fewer pollutants in cities, far less noise (both engine and horn) and far more efficient use of space.  By the way, you’d really only need to pave where the car wheels go and the rest of the road could be grass or some material that is far more environmentally friendly than asphalt.  (I’ll bet we don’t go that far until something like 2050 though).  

You also won’t need a garage and can use that for rental income, a man or woman cave, or place for your kids or pets if you want.

Finally, the cost of transportation should fall like a rock.  For a fraction of the cost of a car payment and car insurance, you’ll have a service that picks you up at your home and drops you off, and you can work in transit or go back to sleep.  

But Car Companies Have To Pivot

If car companies don’t pivot, their customers will drop down to just services like Uber and their sales will drop something like two-thirds.  To avoid this kind of catastrophic drop in revenues they’ll need to become the services or kill them.  I point out the latter because that is what GM effectively did in the first part of the last century when they bought up all of the light rail services that most cities had , and then shut them down so people would be forced to buy cars.  I doubt they’d get away with that twice but I expect this has occurred to more than one of them. 

As a service operator themselves, they would get the profits from the service and be able to sustain themselves through and after the transition.  This is why forward looking companies like Ford and GM are making moves into this segment.  One caution, however, is that services rarely make the stuff they provide.  American Airlines, for instance, doesn’t manufacture airplanes and Greyhound doesn’t build busses.  This is an economics of scale thing where it makes more sense to have a firm build for all of the services than for a service to build its own vehicles.  

By the way, this doesn’t even address the fact that human carrying drones, which are in test now, could make almost the entire car ecosystem obsolete. Once you can deliver packages by Drone, delivering people is just a size issue relatively easily fixed. 

Wrapping Up:  On The Cusp Of Massive Change  

I don’t think we have grasped how much change we will be experiencing over the next decade in personal transportation.  The need to even own a car is currently in question and kids are already choosing not to even learn how to drive a car, suggesting that, once the transition to self-driving cars and Uber-like services starts, it will move like lightening.  I expect the current car companies to either transition from cars to car services or from selling to individuals to selling to car services. Additionally, most car companies that exist today probably won’t exist by 2030.   And we may have new companies in segments like Apple selling car services that are unique, distinctive and still have a personal car in the luxury segment. 

You know, by 2030, the only folks in the U.S. still driving will likely be those that have a gaming system and a VR rig, can only drive in a virtual world, and where actually knowing how to drive is optional.  It’ll be a strange new world for sure.  

Edited by Alicia Young
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President and Principal Analyst, Enderle Group

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