Tesla is taking bold steps toward launching the Tesla Network, an Uber-like transportation service in which a self-driving Tesla will give you a ride. Recent research indicates that this could make big money for not only Tesla, but also Tesla owners who are willing to let their car participate in the Network while they’re not using it. But will it be profitable for owners that do this?
The Numbers Look Pretty Sweet…
I’ll start out by pointing readers to my recent article on Tesla’s latest moves. In short, they’re confident enough in their self-driving technology that they’re willing to bet big that the technology will be ready to drive completely unsupervised within 3 years. That’s a pretty big thing.
If you own a Model 3 or are considering one, this is becoming an increasingly important part of plans for future ownership. Cathie Wood, founder of ARK Invest, says that her group’s research indicates that Tesla owners will make a minimum of $10,000 annually participating fully in the Tesla Network. For a car that costs about $45,000 (basic Model 3 with FSD), that makes the difference between the car being a depreciating asset to an actual investment that goes out and earns its keep while you sleep.
Another factor that could sweeten the pot far more is the Model 3’s longevity. Few have driven Teslas around carrying passengers more than Tesloop, and they have shared their experiences and opinions on this. Not only does the car last a long time, but overall cost per mile plummets with the much longer lifetime Tesla vehicles have proven to get. People participating in the network could make a killing over time.
If ARK Invest and Tesloop numbers prove correct, a Tesla in the Tesla Network should be able to make the owner tens of thousands of dollars before it goes to the recyclers, assuming the car makes the estimated minimum. Some owners may make quite a bit more than the minimum, making a Model 3 an attractive investment.
Before anybody (mostly correctly) calls me a Tesla cheerleader, I do want to point out that I’ve heard all of these arguments before.
“Make hundreds of dollars in your spare time!”
“Be your own boss! Set your own schedule!”
“Earn as much as you want!”
Rideshare and delivery companies make some pretty bold, but intentionally vague, promises to recruit drivers. Faced with a floundering local photography business and a need to fill the gaps in 2017, I decided to give the “gig economy” a chance. There were times that it worked out OK and brought in the money part time. Later, I found myself doing it more and more, but once I went from small, part-time work to more of what normal people would consider a full-time job, the more it became clear that this isn’t something that keeps paying well during off-peak hours.
I fell into a trap that many fell into. The initial “toe dip” feels good with it, so you decide to get in but then find that the water isn’t the same as it was on the surface. 8 hour days turn into 12, then turn into 16, and then you’re just working until you drop, sleeping a bit, and then working some more. You gain weight, spend hours sitting in parking lots near airports, and desperately chase every little event in town. Pay drops, then drops again.
I don’t have reason to believe that the Tesla Network will turn out like the “gig economy” does for many people, but I do have reason to be very skeptical of it and watch out for the signs of it going the same way, and to watch out for signs that it’s going differently.
The Competitive Landscape Matters
One of the key things to look out for is the competitive landscape. Uber was great for drivers at first, as was Lyft. Engineers and even lawyers were leaving their jobs and hitting the road for the pay in some cities. And then the race to the bottom started. With little to set themselves apart, the services got into a price war that is still going on today. They dropped rates below any hope of making a profit for themselves, hoping to run out of investment money later than the opponent and then take the market over. When that didn’t work, they “improved” driver pay repeatedly to try to hide the driver pay cuts it took to keep lowering fares.
I can’t tell you in this article whether Tesla’s competition would force them into such a situation, but I can give a quick rundown of the competitors in the market they’d be up against. While some of this comes from my own experiences and observations, The Economist does a pretty good job summing it up in more depth.
First, there’s Waymo. Formerly a subsidiary of Google and Alphabet, the company is already giving rides in Arizona. They’re facing challenges, such as violent attacks, but also still struggle some with vehicles not quite doing it all on their own. There’s a person in the car as a backup, and the passengers have had to sign an NDA to get rides from the service.
GM has a fleet of self-driving variants of the Chevrolet Bolt that they’re using to create a driverless service. I’ve seen these testing on Arizona’s streets as well.
Both Uber and Lyft are anxious to get into the driverless taxi game. Clearly, their interest is to cut the drivers out entirely to keep their race to the bottom going, at least for now. Neither has had much success, and Uber took a lot of heat after an inattentive test driver chose to watch reality TV instead of the road while the emergency braking system was disabled.
There are dozens of other small players, each with their own slightly different approaches, but at the end of the day, the bottom line is that there is plenty of competition out there trying to enter the driverless taxi market
If Tesla goes in without a competitive advantage, they’ll eventually get to the point where they, too, are in the race to the bottom. This can only go on until investors get wise to the endless cash burn, and the race comes to an ignominious end. However, unlike current ridesharing with the same drivers and same cars doing the same work, it’s far from clear at this point whether any of the players will get it right, and whether such a race to the bottom could develop at all.
To do this, Tesla has to start with a clear advantage and hold that advantage for years. The Tesloop founders seem to think Tesla’s technology will dominate the others and do this. Other researchers are also saying this.
As I pointed out in a prior article, Elon Musk feels very confident in this. He thinks Autopilot and Full Self Driving are already better than the others and are improving much faster than the competition. Tesla already gathers far more data from human drivers, Autopilot disengagements, and many other things through the cars’ LTE connections. Other competitors don’t seem to be close right now.
This issue, and the technological advantages that set Tesla apart from the other players, are going to be a big part of Elon Musk’s presentation on the 22nd. If you’re considering using Full Self Driving as a moneymaker or supplemental income in the future, you’ll want to see what he has to say and whether the technology is going to keep Tesla Network out of a race to the bottom.
Other Challenges & Factors To Consider
One of the other challenges ridesharing and other vehicle-based gig economy services face is a lack of economies of scale. Insurance costs don’t go down with volume. More rides, more insurance costs. The same is true for driver pay. The per-minute and per-mile pay for drivers doesn’t get better with more rides. No driver is going to give Uber or Lyft a volume discount, especially when pay is already so low.
This could prove to be a mixed bag for them. Tesla Network won’t have the driver problem, but Model 3 owners are going to expect Tesla to pay for its miles used. That rate won’t improve with scale. Tesla may have a way out of the problem of insurance not scaling. If they can prove that their technology is massively safer than the competition, they can perhaps demand lower premiums.
From the owner’s perspective, there are a number of factors that will affect their income from vehicles lent out to Tesla Network.
Location is going to be a big one. Larger cities with more demand will have higher rates charged to passengers. This may lead to differing pay in different cities like it does for rideshare drivers. If that’s the case, an owner could find that they’re better off leaving the car(s) in a better market that earns more money.
Times of car availability are also going to be big. I don’t know if Tesla Network will have demand pricing like Uber’s “surge” or Lyft’s “PrimeTime,” but if there is, it could be more profitable for some owners than others. If you always use the car during peak commute times, you may make less money that other owners who let the car go work during that time. If you’re squeamish about people vomiting in your car, you might decide to not let the car go work on weekend nights, but you may miss out on the best money, especially when the bars close.
There’s also the question of downtime after damage/messes caused by passengers. If, for example, a passenger does vomit at 2:10 AM on Sunday morning after being kicked out of the local bar, and this happens in your vehicle, will you be compensated for this by Tesla, or will they just clean it up and put it back out to work? Keep in mind that the vehicle will be out of service from 2:15 until 3:00 or 4:00 AM, and miss the income from the peak hours. How Tesla handles that situation will matter in big ways.
There are many other things I could relay about making money giving people rides, but my larger point here is that there are many factors that will affect your income if you are a Tesla owner sending the car out to work for you. It pays to know about these challenges beforehand. You may want to talk to local rideshare and taxi drivers, and maybe do a little rideshare yourself to get a hang of the business before sending the car out.
The key thing here is that Tesla Network will not be entering a new industry, but Tesla could change it up in big ways. How they change the factors that affect income will matter.
It’s also true that some existing challenges in the rideshare and taxi world will translate to Tesla Network’s business model. A wise owner trying to make money in this needs to know what factors affect their income from it, and play the game smart to max out income.
Either way, there is great potential, and there will be winners and losers.
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