What’s the biggest depreciating asset you own?
For many people, it would be their car.
The initial outlay is big. And, as the saying goes, “your new car loses half its value the second you drive it off the lot.”
In reality it doesn’t lose quite as much, quite as fast as that. But you can expect a new car to lose 10% the second you drive it off the lot and 30% in the first year.
However, for a lot of people, a car is an absolutely necessary expense. Not everyone lives in the centre of a big city, where they can walk or cycle to work. And getting around on trains is prohibitively expensive.
A car also brings you freedom and personal space.
You don’t have to wait for a bus, you don’t have to travel a set route at a set time, crammed in with people you’ve never met. You are free to go where you want, at your own pace and at whatever time you like.
Owning a car gives you a better quality of life. And that, for most people, is worth the cost.
But from a purely “business” perspective, your car is making you poorer.
That’s all about to change.
In the next few years your car could start handing you a sizeable income – literally while you sleep
Last week Tesla made some pretty big announcements. But the most intriguing of these was that next year it will launch a self-driving taxi service.
The key thing about this taxi service, though, is that Tesla owners will be able to rent out their cars as taxis when they aren’t using them.
If you know you won’t be needing your car for a few hours – say like when you get home from work – you’ll be able to let it drive off and become a self-driving taxi.
And you’ll keep 70% of the money it makes.
“Any customer will be able to add or remove their car to the Tesla network,” explained Musk. “Expect this to operate like a combination of the Uber or Airbnb model.”
Tesla will take “25 or 30 percent” of the revenue generated from each ride, which is roughly the amount Uber takes out of each ride fare. But that doesn’t mean participants won’t be able to make a decent amount of cash while they’re sleeping.
Tesla Network: How Much Money Could It Make You?
Tesla estimates that customers can make about 0.65 cents per mile. The company calculated that if a single robo taxi driver 90,000 miles in one year it could make about $30,000. That would be most of the money back from the purchase of a $35,000 Model 3.
These calculations were made using broad generalizations that could vary depending on how much someone needs to use their car. The company also states that loaning a vehicle at this rate would make it last about 11 years before it begins to significantly deteriorate.
Those figures, if accurate would make owning a Tesla a very sound investment. After the first year, you would be making $30,000 (around £23,250) a year for doing nothing.
Even after service costs, that would still be a decent amount. And imagine if you owned two or three Teslas… you could retire on that kind of income.
Especially when you consider that Tesla is planning to reduce its prices to $25,000 per car.
Musk predicts that two years from now, Tesla will produce cars without steering wheels or pedals, and he anticipates that within three years, those cars will cost $25,000 or less. That’ll be thanks in part to an upcoming battery pack designed for a million miles of operation and motors with 4.5 miles per kilowatt energy efficiency.
Given the figures that Musk quoted, it doesn’t seem like this would be sustainable.
Think about it. If you could spend $35,000 on a car that would bring you in $30,000 a year for the next 11 years – for zero time and zero work on your part – why the hell wouldn’t you do it?
Why wouldn’t everyone do it? Even if you didn’t have $35,000 to spare, surely if Tesla’s figures are accurate any bank would lend you the money you needed for the initial outlay.
Then I guess with so many self-driving taxis vying for your custom, prices would need to drop, and then you would earn less.
It will be very interesting to see where the price equilibrium is reached. If this idea takes off, it could bankrupt most other forms of transport.
In January last year I predicted that one day driverless cars would bankrupt the railways (you can read the article here). But I didn’t think it would start to happen quite so soon.
How soon could this start to happen? Well Musk said: “From our standpoint, if you fast-forward a year, maybe a year and three months… we’ll have over a million robo taxis on the road.”
What will happen to traditional taxi and car-sharing companies?
Clearly Tesla is ahead of the game here. But you can be assured that if this programme is a success, all other major carmakers will follow suit.
And then we have to consider what will happen, not only to traditional taxi companies, but even to Uber, Zipcar and the like.
If owners can lease out their cars directly to other people – a la Airbnb – they will be able to drastically undercut companies.
Zipcar, Enterprise Rent-A-Car, etc, all have overheads, staff, and payroll to deal with.
Even Uber, which famously pays its drivers a pittance, and is intending to cull them all when its own self-driving technology is release ready, has big company costs.
These companies are all essentially middlemen. Take the middlemen out of the equation and services become cheaper… and usually fairer.
If we take this idea a step further, it makes sense that manufacturers themselves will be able to undercut even private car owners. This seems to be Uber’s masterplan.
But I guess the question is, will they want to?
Will carmakers want to become self-driving taxi companies, or will they be happy letting their customers do it and taking their cut?
Remember, Musk said that Tesla will take 25% to 30% of every fare. Perhaps in the end that will make Tesla more money than simply creating a fleet of driverless taxis. It’s a pretty nice recurring income.
Or perhaps carmakers will try both approaches and see which brings them in more money.
Is this all simply too good to be true?
I have been reporting on self-driving car developments for a couple of years now, and this is by far the most exciting thing I have seen.
I’m sure there will be reasons it won’t work out this way, but imagine if in a few years instead of people being obsessed with buy-to-let houses we switched over to buy-to-let cars.
Much, much less outlay, and according to Musk’s figures, a much, much higher rate of return… and without the headache of becoming a landlord.
Yes, regulations will need to catch up. But things are moving fast in that area. Give it a couple more years and everything could be in place.
What do you think of this idea and vision of the future, could it really be this great, or am I missing something? After all, “there’s no such thing as a free lunch”, right? Let me know: firstname.lastname@example.org.
And if you’d like to find out how to play the electric and driverless car revolution sooner than that, I have good news.
Next week, my colleague Eoin Treacy will be revealing his latest research into this area.
He has been looking into the impact electric driverless cars will have for a very long time, and he has come up with an investment he believes could hand you as much as 1,800% profit.
As he’ll show, the electric car revolution is just one story in a much bigger global event. Get clued up on the bigger story, and you could stand to make even more than that… as Eoin will show next week.
Until next time,
Editor, Exponential Investor