Driverless cars will bankrupt the railways

“The service keeps getting worse, but the prices keep going up.”

This was the sentiment of most people interviewed on the news this week about the record-breaking rail price hikes.

No one was surprised. Everyone was annoyed. And they all knew there was nothing they could do about it.

Over the past 60 years the railways have gone from being synonymous with travel, tourism and adventure to a running joke… that usually doesn’t even run on time.

We will pay whatever they charge, we will cram into what little space they provide us, and we will do it over and over again because we have no other choice.

At least we didn’t used to. But soon, very soon, we will.

Why passenger rail is doomed to fail

It doesn’t matter how many news stories we see about poor services and high prices. Or how many people lose their jobs due to rail strikes. Or how many people petition their MPs – nothing will change.

These companies don’t care about us because they don’t have to.

If you want to go from London to Edinburgh, flying is around half the price of rail. This is fine for occasional trips, but if you’re travelling regularly the faff of the airport isn’t worth it.

And you can’t commute by plane. It’s just not practical.

For shorter distances you could drive. Leeds to London, for example, takes 3hr 43m and costs about £37 in a car. On a train, booking for the next day, it’s £80.50 and takes 2h 14m.

The train is well over twice the price, but it does save you an hour and a half.

Travelling by car also has some other disadvantages, namely parking and the fact you have to concentrate on driving the whole way.

On a train you can go on your laptop or phone, or just go to sleep. Sleeping while driving is not advisable.

So what if there was a way to travel:

  • More than 12 times cheaper than the train – London to Leeds would cost £6.50
  • While being able to sleep, go on your laptop, phone, etc
  • In the comfort of your own carriage
  • By getting picked up and dropped off at your door
  • And for it to take less time than the train…

That’s exactly the service that driverless cars will provide.

Why would you ever choose a cramped, expensive and inconvenient train over that?

Once driverless cars really take off, the trains simply won’t be able to compete. Their years of distain for their customers will finally come back to bite them.

And with such low passenger numbers, I suspect many rail companies will go bankrupt.

But will driverless cars really provide the kind of service I’ve outlined above? It probably sounds fanciful reading it now. Especially if you’re reading this in a crowded commuter train. So let me prove it.

Will driverless cars really be that fast and cheap?

First let’s look at the costs.

  • At the moment a Tesla Model S 100d gets a 393 mile range from its 100 kWh battery.
  • In London, electricity costs 13.1p per kWh on an E.ON electric high-user tier.
  • So that Tesla costs £13.10 to fully charge.
  • At a 393 mile range, that’s 3.3p per mile.
  • London to Leeds is 195 miles.
  • Giving us a cost of £6.50 in “fuel” from London to Leeds.

Now, of course, you have to buy and maintain the car. However, once driverless cars come in, services like Uber will start using them.

With no driver wages to pay, their prices will likely be not much higher than the cost of the trip itself as they will have to compete with other driverless firms.

Even if they more than triple the fuel cost and charge £20 for such a trip, it’s still ¼ the price of the train – and much more convenient.

And now the travelling time

Because driverless cars can respond much faster and travel much closer together than human drivers can, the current estimate is they’ll cruise on motorways at around 100mph.

Traffic will be virtually non-existent as all the cars will be connected to each other and will adapt to take the fastest routes and reduce congestion. Think Google’s or Waze’s traffic alerts if everyone reported every incident and traffic jam in real time and took action to avoid it instantly.

The average speed of your London to Leeds journey won’t be 100mph because there will be some parts in the city and not on motorways. So let’s say you average 90mph. In fact, let’s say 80mph.

The road distance from London to Leeds is 195 miles. At 80mph this would take you 2hr 26m.

That’s 12 minutes slower than the train. But don’t forget that you have to get to and from the train station. The driverless car will take you door to door and then go park itself. So it will – unless you live essentially in a station – actually be faster.

And that’s before you even account for waiting time at the station because trains run to schedules.

Just as we used to only be able to watch programmes when the TV channels told us we could, we can now only travel when the train companies tell us we can.

Driverless cars will be like Netflix coming to travel.

That’s all well and good, but aren’t driverless cars decades away?

In short: no.

Driverless cars started being tested on public UK roads last year.

And ahead of the Autumn Budget last year, Chancellor Philip Hammond told the BBC his aim was to see “fully driverless cars” in use by 2021.

He described driverless transport as the “next industrial revolution”.

So you see, the driverless car revolution is coming to us at staggering speed. In as little as three to five years, this has a very high chance of being a reality.

And as with any superior technology, it will become ubiquitous before you know it. People always choose the easiest and cheapest option. And that will be driverless cars.

After all, why wouldn’t you choose to travel for 1/12th the price of a train, in luxury, and get picked up from your door?

Of course, government subsidies will sustain the railway companies for a while, but they can’t do forever. It would be completely ridiculous in the long run.

The average mile of railway costs £1,021,783 to maintain per year. The average mile of road… £43,000.

That’s over 23 times as expensive. It’s a colossal amount. And if travellers aren’t paying extortionate fares to keep it maintained any more it simply cannot survive.

This will change more than just transport

Along with this huge shift in people’s travel habits, it will also bring some big changes to the economy.

Think what might happen to the current property hotspots if commuting from far out of cities becomes super-fast and super-cheap. People may start moving to nicer places. Villages could become the new suburbs. The scope of this story will be huge, especially for property.

And we’ll keep covering it, as it all unfolds.

But for now there are real ways you can profit from it. My colleague Sam Volkering has been writing about and showing people how to invest in this driverless car revolution for years.

He is one of our foremost experts in the field of driverless cars and how you can make money investing in them.

We’re not talking car companies here. We’re talking the small tech companies supplying the car makers. These are the ones that will really jump as driverless cars take off.

If you’d like to read Sam’s driverless car report and discover his top driverless car stock pick, click here to get started.

Until next time,

Harry Hamburg
Editor, Exponential Investor

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