Could the Tesla Model 3 Become the Cheapest Car on the Road?
ARK believes the advent of autonomous electric vehicles will change the economics of car ownership as we know it. For instance, if the Tesla Model 3 [TSLA] debuts with fully autonomous capability, it will effectively become the most affordable car on the road. The last section of Elon Musk’s Second Master Plan reads, “You will also be able to add your car to the Tesla shared fleet…and have it generate income for you while you’re at work.” ARK’s analysis demonstrates that a personally owned part-time shared autonomous vehicle could pay for itself in five years, and it could offer over a 200% return on investment for early owners.
In our opinion, the two biggest factors impacting the economics of a part-time shared autonomous vehicle are the price and frequency of ride sharing. Based on ARK’s research, the graph below illustrates how many hours per day one has to share a car to fully pay for the vehicle over five years. In other words, the car would pay for itself by serving as a taxi service while its owner is at work or home. Shared for just one and a half hours per day, the car would pay for itself if the going rate per mile were $1.45 or higher. For context, an UberX in San Francisco currently costs roughly $2.50 per mile.
We think the first owners of autonomous vehicles will likely be able to rent their cars out at a similar price to UberX if not higher. ARK’s analysis indicates that during their first year of ownership, owners of autonomous vehicles sharing their cars for just one and a half hours a day at $2.50 per mile would enjoy a positive cash flow of more than $10,000, even taking into account a $7,000 down payment for the car! Consequently, it is our opinion that anyone with the credit to lease the vehicle could more than pay for it in the first year and generate revenue for the duration of its lease.
Of course, the ability to charge $2.50 per mile will last only while there is an undersupply of shareable vehicles. As more autonomous vehicles enter the market, the price will fall until it hits equilibrium. ARK expects the equilibrium price for shared autonomous vehicles to be roughly $0.35 per mile, a price that happens to be cheaper than walking.
In prior blogs, ARK has shared an analysis suggesting that global demand for EVs could comprise half the market by the early 2020s, given the current cost decline in lithium-ion batteries. That forecast did not take into account ride sharing, which would help to defray the cost of the vehicle. With shared autonomous capability, we think the EV market would open up even more dramatically. Those who have put down deposits for the Tesla Model 3 first could be acquiring a license to print money, as they will be able to charge the highest price per mile until additional supplies of autonomous vehicles become available. That said, although Tesla may have a head start, it may not be the first company to achieve autonomous capability. Indeed, this analysis is company agnostic. ARK believes that the first owners of personally owned part-time shared autonomous vehicles will likely profit tremendously, and the companies providing the technology will see disproportionate demand.