# Exercise 36 – What is the market for driverless cars in the year 2020?

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bijan

I would taken a slightly different approach.

Let’s assume the market for driveless cars consists of 2 car groups in year 2020:

– Group 1 – low price driveless cars for carsharing companies .
These cars will have minimum functionalities and their only job is to move people around. Tesla Model 3 costs \$35,000 in 2017. This is a car that has self-driving capabilities and some extra features that is not needed for an Uber / Lyft car. E.g. LCD monitor. Let’s assume an Uber / Lyft driver-less car costs \$30,000.

Number of Uber / Lyft cars to be needed is estimated as followed:
Let’s say that in the U.S. 10% of Americans have signed up to Uber / Lyft. And they take 5 rides per week with it. Each ride takes 10 minutes. And currently, an average Uber / Lyft car works for 40 hours per week with 75% utilization. This means there are a total of

10% of 330million = 33million car sharing users
33 million users x 5 rides per week x 10 minutes per ride = 1650 million minutes of rides per week

Let’s assume Uber / Lyft will complete 10% of the rides with self-driving cars in year 2020. So, 10% of 1,650 million minutes = 165K million minutes per week of ride sharing will be completed by driver-less cars.

Let’s say that an average self-driving car works for 22 hours per day at 70% utilization. In other words, one self-driving car can complete 22 hours x 70% x 7 days x 60 minutes = 6,600 minutes of ride per week.

Number of cars needed to serve: 165K million minutes / 6,600 minutes = around 250K cars

That means Uber / Lyft will buy a total of 250,000 driverless cars. Total market size for ride-sharing driverless cars will be
250K x \$30,000 = \$7.5 billion

– Group 2- Personally owned cars.
Let’s say Tesla and Google will launch their self-driving cars by 2020. Tesla currently sells about 50,000 cars per year and is expecting to significantly ramp up production over the next two years. Let’s say Tesla will sell 500,000 of cars in year 2020.
Tesla cars are currently priced at \$35K, \$70K, \$100K, and \$120K. Given most of the volume is expected to come from the Model 3, I will assume the average price of a Tesla car to be \$40,000 by year 2020. In other words, I expect the total market of Tesla cars to be
500K x \$40K = \$20 billion

Google has not started making any cars yet so chances are that the number of cars produced by Google will be small by year 2020. Let’s assume it will be 10% of Tesla, meaning the total sales by Google will be \$20B x 10% = \$2B

Now, let’s calculate total market size of self-driving cars in the U.S. : \$7.5B + \$20B + \$2B = around \$30B

Key assumption made: carsharing companies are making their own cars and are not buying from Google and Tesla. If they were buying from Google and Tesla, then we just needed to estimate the volume of cars sold by Google and Tesla. I have also not included the market size of used Tesla cars that will be upgraded to support self-driving.

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guest

For group 1, I liked the length and process. Though, it made many challengeable assumptions like 10% of americans use rideshare 5 times a week.
For group 2, the core of the question is to estimate the number of such cars sold (say in US). I don’t thin we can make one big assumption for the core part of the question.

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Bijan

Hey there

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Anonymous

There is an aspect of new business opportunities with self driving cars: Children pickup/drop, people with disabilities now able to purchase cars; also delivery services like dry cleaning pick ups, grocery- Fresh pick up. Here is how I would estimate the # of new cars needed for these new biz:
US has 300M pop, lets assume 60% of this pop lives in cities where these business will be profitable. For every person living in a city: 20% will use services solutions, 10% will use ti for child pickup drop off, and 1% will be people with disability who will now buy cars:
(60% *300M* 41%) * \$20,000/car

Guest
Anonymous

Hi bijan
You mentioned uber / lyft will cover 10% if the rides in group 1.. what about cars for the remainder 90%.. are we counting that?
Thanks

Guest
nabspm

What is the market for driverless cars in 2020.

According to a BCG report, partially self driven cars adoption will start shooting up in 2017 and autonomous car usage will reach its peak in the next 2 decades.

Lets just calculate the market for driverless cars in the United states by 2020

Calculations to come up with the cost of a driverless car in 2020:

Cost of model 3 – which will be released soon is 35K.

Lets say that by 2020 – model 3 becomes driverless and Google’s automous vehicle is out as well. With more manufacturers coming in to the market, lets say the price for driverless cars drops to 25K (28% drop in price)

So price of driverless car in 2020 = 25K

Now lets calculate the market size in US:

Total population of US by 2020 = 350M
Total number of households = 350/3 = 117 M approx (120M households)

Lets say 95% of the population has cars = 95% of 120M = 114M households

Current market penetration for Tesla is 0.3% which might go up to 1% with the drastic price reduction for Model 3 and the introduction of new features including autonomous driving by 2020 (which is an aggressive 200+ % jump)
Lets assume that Google has managed to get Tesla’s original spot and has 0.3% penetration
And rest of the vendors have 0.1%

So total penetration of driverless cars (owned by families) is 1.4%

Therefore households containing driverless cars are 1.4% of 114M = 1.6M households

Market value = 1.6M * 25K = 40000000000 = 40B

In addition to households, Uber and Lyft and other rideshare services will also have driverless cars. The policeforce, nnews agencies etc may also start using driverless cars.
We can double our number to assume number of additional driverless cars for commercial/military purposes to arrive at : 80B

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nabspm

I like your approach better Bijan! Thanks