Understanding the future of car ownership

This post was originally part of my newsletter Making A Techie, an irregular newsletter Maria keeps to track her learnings in VC.

I went through a ton of research and hundreds of apps and picked the best of the best to recommend to you.

The Change.

Perception

The 1950s concept of driving as an expression of personal liberty has been replaced with the reality that driving and car ownership is now a pain in the butt. Cars cost an average of $35,000 and are only used 4% of the time, of which drivers are often subjected to bad traffic and potential accidents. Add in the hours spent maintaining, cleaning, and looking for affordable car insurance and it becomes a serious burden. Younger generations don’t have the car nostalgia previous ones did.

• For people aged 16 to 44, the percentage getting a driver’s license has been decreasing steadily since 1983.
• In 2014, just 24.5 percent of 16-year-olds had a license, a 47% decrease from 1983, when 46.2% did.

Landscape

Even if younger generations did demand cars at similar rates, the world they live in is much different. It is increasingly urban; while 50 years ago, every 3 out of 10 people lived in cities, today more than 5 out of 10. More people in densely populated areas results in rising parking costs and worsening traffic congestion further discourages car ownership. Overall, Americans drive fewer miles per year — down about 9% over the past two decades.

Mechanical

Most cars on the road these days are “good enough” and will get you “from point A to point B”, efficiently and comfortably. The industry has basically hit a plateau of mechanical innovation with only a few incremental mechanical improvements that are quickly copied and commoditized by all car manufacturers.

The Vision.

A world in which cars are driverless and roam the city streets ready to pick you up on demand for half the price of what Uber currently charges, a future with less traffic, less parking structures, far more pedestrian space and much less car ownership.

The Opportunity.

Existing car companies are locked into their business model. By law, they are not allowed to sell cars directly to consumers but must go through dealers as intermediaries. However, because of the way laws are written, new companies such as Tesla without existing dealerships can instead sell directly to consumers.

Manufacturers also don’t consider the end consumers as much as they should in this model. Think about it, their customers are not car owners, but dealers. This is why you can’t order the exact car you want but have to pick from what is at the dealer’s lot or hunt around for the dealer that has what you want.

The Solution.

So, what is the hype about Tesla and its’ cars? Investors view this company as the best positioned to make this vision a reality.

First, by not having dealerships as middlemen between them and the consumer, Tesla gets to decide what to do with the extra cash: 1) reinvest that money into re-thinking the car and revolutionizing it 2) selling similar cars but at lower prices. The latter is easy money and the former a lofty bet that can make them industry leaders in the new era of transportation.

Second, Tesla decided to build a battery electric vehicle from scratch unlike 99% of all other cars in the market. Why are electric cars good? They are more efficient, require less maintenance, and cost less long term. Dealers don’t have an incentive to sell electric cars. They make their profits from financing and maintenance. With just 1/3 the parts of conventional gasoline-powered vehicles, electric cars don’t require nearly as much service.

Third, now that mechanically, cars are what they are, any investment in the improvements will come from software. Tesla focused on software since day one with an over-the-air software updates system the way we update our phones overnight. A Tesla car is produced with all the necessary hardware for functioning and the company simply sells wireless software downloads to activate them — think of an app download on the app store but for your car.

Most significantly, based on the trends previously mentioned, consumers care less about owning cars and more about the experience of riding in it and their convenience of transportation. This explains the success of Uber. Customers are willing to pay for the service cars provide but not the car themselves.

Where does driverless fit into this? The ridesharing model costs more than 2x the operating costs of a personal vehicle, with more than half of that cost is associated with just the driver. Removing the driver and adding autonomous hardware will make car ownership unnecessary.

Other relevant stuff:

• 94% of road accidents can be attributed to human error. Cut out the human driving and this will likely drop.
• There are around eight parking spaces per car in the U.S. In total, parking takes up 45–65% of space in a typical U.S. city.
• Industry experts estimate that mobility service business models could sustain driverless cars costing as much as $250,000–300,000.
• PwC projects nearly 20% of industry revenues and 36% of the profit will shift from transportation as an asset (car sales) to transportation as a service by 2030.
• Research firm Gartner, estimates that by 2025, 20% of the vehicles in urban centers will be dedicated to shared use.

Betting on the future.

Part of my job requires conducting deep dives into industries and sub-categories of industries in technology to understand market trends, gaps, and projections. Here’s the curated list.

Driverless

Tesla a premium electric cars and SUV manufacturer and software. The software update, called Autopilot 8.1, lets the cars pretty much drive themselves on highways up to the posted speed limit (or a maximum of 80). The cars will stay in their lanes, turn around curves without driver intervention, and will pass vehicles automatically with a flick of the turn signal. Human drivers are notified to pay attention, and the system will send warnings if hands aren’t placed on the steering wheel periodically and will even slow down if the human fails to comply.

Waymo the autonomous car company from Google’s parent company Alphabet teamed up with Chrysler’s Pacifica. Waymo says its driverless cars have driven 3.5 million miles in 22 test cities, racked up 2.5 billion miles in simulated tests last year alone and have been challenged by about 20,000 what-if scenarios they might encounter on highways and city streets. Waymo is believed to be the first company to test vehicles on public roads without a driver ready to take over in an emergency.

New Lease Models

Fair provides no commitment, all-in leases, allowing its customers to drive the vehicle for as short or as long as they’d like. Dealerships sign up to offer inventory via the Fair app, and customers use the app to browse available inventory. It includes a limited warranty, roadside assistance, and routine maintenance coverage. You use a mobile app to do everything: searching, authenticating, and paying. You only need to give five days notice to return the car.

In the Canvas model, customers lease vehicles on a month-to-month basis, with no long-term commitments, with a single monthly payment that covers the cost of vehicle maintenance, warranty, roadside assistance and car insurance, as well as the cost of the car itself. The company buys used Ford vehicles coming off lease for this.

• Book by Cadillac, a monthly subscription-based concierge service for all Cadillac cars. Users pay a flat fee ($1,500) and have access to whatever Cadillac car they want, whenever they want. The Book service includes 18 car exchanges within 12 months, unlimited mileage, maintenance, insurance, and registration costs are included. Users can use the app to prompt white-glove concierge pickup and delivery to their requested locations.
• Porsche Passport, allows frequent vehicle exchanges, unrestricted mileage, and on-demand access for up to 22 different Porsche models. Membership plans include vehicle tax and registration, insurance, and maintenance, as well as detailing, for the fixed monthly fee ($2–3k)

Short-Term Car Rental

Skurt is a rental car on-demand service. Customers request a rental on their phone and can have a car delivered to them within 60 minutes of booking. When they’re done, they set up a pick-up time and someone comes to get the car from wherever they are. Unlimited miles are included with each rental; prices range from just $21 per day for a sedan to $59 per day for a luxury car. 80% of Skurt’s customers are millennials as the company only requires to be 21+ of age.

• Zipcar, offers a vehicle for unlimited and exclusive use from 5AM Monday through 7PM Friday, at monthly fees of $199 to $299 depending on the city. The cost includes gas, insurance, maintenance, and cleaning, as well as a dedicated parking spot. Zipcar typically has offered membership plans that included a $70-a-year fee, plus an hourly and daily rate for the use of a vehicle.
• Silvercar, was the first major car rental company exclusively featuring silver Audi A4 models that allow bookings and vehicle check in and check out via a mobile phone. This combined with personal concierges that pick up and drop off anywhere.
• Maven, GM car-sharing service appeals to millennials’ mobility habits. Currently, 80% of Maven’s users are between the ages of 18 and 34. Users pay an hourly rate per trip, which will vary based on what kind of car you reserve. Maven will automatically show you where you are in relation to its garages.

Used Car Sharing

• Getaround, offers a mobile app and marketplace for owners to rent out their cars when they’re not using them. Yes, it’s like an Airbnb for automobiles. Through the Getaround app, renters can reserve, locate, and even unlock their vehicles without the need for a physical key — the renter receives a code to unlock cars directly to their mobile phones. Uber partnered with the company so that approved drivers in the program can rent a car and then be paid to transport other people around.
• Turo, similar model as Getaround but focused on high-end cars, allows customers to rent out their cars to stranges via app. One of Turo’s big selling points is the potential for “hosts” to offset the cost of financing a brand new vehicle by renting out their car or truck just a handful of days each month. For example, Turo says owners of new Tesla Model S vehicles can earn $1,021 on average per month by renting the electric vehicle out an average of seven days a month. Turo estimates it costs $1,020 a month to finance a new Tesla Model S.

New Car Purchases

• Vroom brings the entire car-buying process online, from financing to purchase. Its private-seller acquisition model allows customers to get a cash offer for their vehicle in minutes. Both buyers and sellers enjoy home delivery and pickup. It offers customers transparent, no-haggle pricing and a 7-day return window with a money-back guarantee. The company’s 3,000+ low-mileage vehicles are thoroughly inspected and reconditioned before being sold. The majority of Vroom’s inventory is still under manufacturer warranty.
• Shift, a used car on-demand selling platform is betting on a particular market not yet plugged into the car-sharing system. Only 20% of jobs in the U.S. are reachable by mass transit in less than 90 minutes. The company delivers cars for on-demand test drives, helps finance loans from a smartphone. Although the company is fairly new, it recently partnered with Hertz to expand past its 3 metro hubs.