Published on October 20th, 2019 | by Paul Fosse0
What If We Go From Paying For Transportation To Being Paid To Go Places?
October 20th, 2019 by Paul Fosse
This week I read a series of tweets that inspired me to write this article on declining transportation costs and how they could fundamentally change the markets for personal transportation.
I had this crazy thought in the shower today.
Right now transportation costs $1 – $2 per mile. The biggest components of this cost are gasoline and human labor.
Those are about to be eliminated at the exact same time. The price of transportation will go to free, then negative pic.twitter.com/U2QC67B5qP
— Steve Jobs Ghost 👻 (@tesla_truth) October 15, 2019
This one got me thinking about total cost of ownership. We write a lot about the total cost of ownership here on CleanTechnica, since it is important to educate people that a car that has a higher price tag could have a lower cost of ownership, depending on fuel, maintenance, and deprecation costs.
The thing that I notice is missing is that we don’t have any cost for the driver. In all of our TCO articles, we assume the driver is free. Well, in my first economics class, I learned that even if you don’t have to pay yourself to drive your car, there is an opportunity cost, or “the value of the next-highest-valued alternative use of that resource.” For example, depending on the day, instead of driving, I might want to work at my software engineering job or I might want to take a nap so that I’m well rested when I get to the destination or maybe I would just want to watch a show on Netflix or catch up on emails and social media. I have those options if I take a Lyft or Uber, but if I drive myself, I can only drive.
What is the value of my time? It varies by the person and the task you could do, but I think for most people, it would have a value of at least $10 an hour. If you put 15,000 miles a year on your car and average 30 miles an hour while driving, you would be spending 500 hours a year with an opportunity cost of $5,000 a year, or $25,000 over a 5 year period. “Steve Jobs Ghost” is correct that this is the biggest cost of driving a car. Tesla is working hard to eliminate it for owners.
He said fuel was the second largest cost. My figures show depreciation is bigger than fuel, but fuel is the third biggest cost. It is well known that EVs cut fuel costs dramatically (at least, that is known by readers of this website). I usually figure $1,000 a year is a good figure, but if you want a more exact answer, here is an article that should help.
Next let’s talk about depreciation. Tesla, through its work extending the usable life of a car to a million miles, through enhancing battery chemistry (see here and here) and designing motors to last a million miles (available now), could reduce depreciation considerably. What are the reasons you pay less for a used car, causing depreciation?
- The car is partially worn out. If the main parts of the car are good for a million miles, you won’t feel like it is worn out after 75,000 miles.
- The car looks dated because new ones have been restyled. This happens less frequently with Tesla vehicles, because Tesla doesn’t make a lot of cosmetic changes to its cars, and if you want your older Tesla to look like a new one, you can find an aftermarket shop that can update the look.
- The older car doesn’t have the features the new ones have. Tesla does a great job giving older cars the same features as the newest vehicles about 90% of the time. Sometimes it can’t (like cars build before October 2016 that don’t have improved hardware for Autopilot).
- The car you are buying has some wear and tear. Tesla builds its cars to be pretty durable, but things do get scratched and dented up with use.
- Used cars frequently have shorter warranties or no warranty.
In light of the above points, I would expect that Tesla vehicles will depreciate more slowly than many other vehicles in terms of mileage alone, but still suffer average deprecation based on time/years. This means they will be relatively more economical for people who drive a lot of miles than for people who put few miles on their cars.
What about the other costs of ownership? Insurance is certainly based on the probability of causing human or property damage to the owners or others. Tesla’s leading safety record should lower rates of damage for both owners and others. As this is proven, the insurance rates will drop to reflect the enhanced safety of the car.
So, Tesla is working to radically reduce all the costs of ownership of a vehicle. That’s part 1. On to part 2.
If you don’t have to own a vehicle, you can just call a robotaxi when you need one. You then don’t have to suffer depreciation on the car for the 23 hours a day you don’t need it. This brings us the second observation on this topic from Steve Jobs Ghost:
This is where it gets cheap enough that others will embed the price of getting you to the store into the price of other products. We have advertiser-supported TV (traditional TV that you get with antennas). You have those places that offer you free Disney tickets if you attend their timeshare presentation (not recommended for the faint of will). In May, I wrote about advertiser-supported free transportation here. What new advertiser-supporting models will be spawned from a great reduction in transportation costs?
This series of tweets certainly gave me something to think about. Maybe it gives you an idea that you can use to promote your business or start a business. Let us know in the comments how declining transportation costs changes things for you or society as a whole.
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