TaaS and Electric Cars: The End of Car Ownership and Big Oil

In 2011, my love affair with Uber began while I was living in San Francisco. I had walked to the grocery store and, after shopping, hadn’t for the life of me been able to flag down a cab.

I felt like the guy ignored by the bartender at a crowded bar. Everyone around me kept getting served.

As my ice cream melted, I finally hit a button on my phone and, minutes later, a black limo arrived exactly where I had requested it. Magic! The driver got out of the car and helped me load my groceries.

I instantly went from schmuck to rock star. On that day, I became an evangelist for Uber, spreading the good word to all my friends. I was convinced that it was the beginning of the end for the cab industry.

A few months later, my wife and I decided to ditch our car. San Francisco is basically a European city that happens to be in California. It offers great public transportation, walkable streets, and lots of rental options.

Getting rid of the car was liberating: no more car insurance, no more trips to get the timing belt fixed or the oil changed. We were able to save $350 per month on our parking spot. Life became slightly easier and less expensive.

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Fast forward to 2017: We moved out of San Francisco and now live in Los Angeles with a couple of kids. We had to bite the bullet and get a car.

I’m now looking forward to a day in the near future when I and almost everyone else in major cities will ditch our cars. Technology is advancing in leaps and bounds, and I believe that day is getting closer.

What is TaaS?

Transport as a service or TaaS will massively disrupt the car industry and Big Oil in the Roaring 2020s. ReThinkX, an innovative research firm led by Tony Seba and James Arbib, has predicted that internal combustion engines (ICE) will go the way of the dinosaur.

The reason boils down to pure economics. When a new competing product or service is 10x cheaper than an incumbent one, the existing product never survives. This is an excellent presentation by Tony Seba discussing his firm’s framework for disruption:

ICE cars are simply much more expensive to operate than their electric counterparts. Pure electric cars use an energy source that is currently 10x cheaper (eventually the sun).

Plus, they require much less maintenance: Electric cars have around 20 moving parts compared to gas engines, which have about 2,000. A lot less can break!

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Tesloop has the evidence to back this up. The innovative company solely uses Teslas (pure electric cars) to shuttle people to and from major cities in Southern California.

Their fleet actually includes Teslas that have logged hundreds of thousands of miles with minimal maintenance and little impact to their battery capacity. Tesloop CEO, Rahul Sonnad, believes that the Teslas in his fleet could last up to 1.5 million miles!

So electric cars rock and are only getting better. But this is only half of the equation. The other half involves self-driving cars.

Apparently, cars spend 96% of their lives in parking spots. This is boring for the cars, but also not a very efficient use of capital or real estate. 

Self-driving technology and autonomous vehicles already exist. Every new Tesla that rolls off the factory line is equipped with full self-driving autonomy.

Tesla has the ability to remotely unlock these capabilities once the law allows it to. This is a video of a self-driving Tesla in action: 

Lose the Car!

Remember I told you I didn’t want to own a car anymore? It’s not just me. No-car households are becoming increasingly common. In 2015, about 9.1% of Americans didn’t own a car; that is an increase from the percentage recorded five years earlier.

This trend will only gain steam once the cost of an Uber or Lyft ride is a fraction of the present cost.

Autonomous electric cars will be very inexpensive to operate. The driver, a computer, doesn't require a paycheck, benefits or even sleep. What if an Uber ride that costs $5.00 today were to cost $0.50 in the future? What would the implications be?

Uber’s fleet of self-driving cars recently hit the milestone of 1 million autonomous miles. The company operates 200 self-driving cars in Pittsburgh, Tempe, and San Francisco.

So far, Uber has had only one major accident in the self-driving mode, and it was not at fault. The self driving technology will only get smarter as more and more miles are logged because the network is harnessing the power of artificial intelligence and machine learning. 

A Source of Passive Income

Imagine this happening one day: your car drops you off at work and then spends the entire day collecting taxi fares for you. Instead of paying for a parking spot during the day your car has actually made a profit for you. Not a bad trade off! 

Cars could actually become an additional source of income for people in just a few years. In fact, this is part of Tesla’s master plan. You could have your car basically pay for itself by becoming an Uber or Lyft vehicle while you are at home or at work.

I highly recommend reading this analysis by the innovative consulting firm, ReThinkX. They believe that downward price pressure on transport as a service will get to a point where only the very wealthy will choose to own cars.

In fact, ReThinkX predicts that by 2030, 95% of the miles driven on the road will be attributable to self-driving autonomous vehicles. 

The million-dollar question is “When will it be legal for a car to drive itself?” ReThinkX believes that, by 2020, some major cities will allow driverless cars to operate autonomously. This will be the tipping point at which TaaS massively disrupts car manufacturers and oil.

 https://climate.nasa.gov/evidence/

https://climate.nasa.gov/evidence/

What are the implications?

I’m most excited about safe travel and the shift away from dirty fossil fuels. The vast majority of scientists – 97% – believe that human-made global warming is real and that we need to make immediate changes if we don’t want to cook the Earth.

Those living in densely populated cities would see their air quality vastly improve. Air pollution kills an estimated 7 million people worldwide, and actually lowers life expectancy. Imagine a city like Los Angeles without exhaust fumes. 

Nearly 1.3 million people die in road crashes each year, and as many as 50 million are injured or disabled in them. The convenience of driving comes at a major humanitarian cost. According to USA Today, car crashes cost the US $871 billion a year. 

Less Cars = More Parks

In addition, think about all the real estate that cars and parking lots gobble up. In Los Angeles, getting rid of parking would allow one to fit an additional three San Franciscos within the city.

Cities could be redesigned for people instead of cars. This means more parks, trails, biking and walking options.

Big Losses for Big Oil

These possibilities do not bode well for Big Oil. Forecasts by ReThink have the total amount of oil usage dropping from a peak of 100 million barrels a day worldwide in 2020 to 70 million barrels a day worldwide by 2030.

At that level, oil would only cost about $25 per barrel, forcing major oil companies to write off massive amounts of stranded assets.

Goodbye Keystone

At $25 a barrel, the Keystone Pipeline would essentially be worthless. The Canadian oil sands and most of the Bakken shelf wouldn’t be economically viable. You would see major oil companies getting crushed under the weight of their efforts to service their debts.

Car Sales Could Drop by 70%

In the scenario that ReThink presents, car sales would decrease by 70% from a peak of 18 million in 2020 to only 5.6 million in 2030. This would massively disrupt the incumbent car manufacturers.

Every major car company wants to be able to compete but just like the technology sector, it will most likely be a winner-take-all scenario. Uber, Lyft, Didi, and Tesla already have a major first-mover advantage.

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Should You Buy a Car Today?

So how does this affect you today? You may want to consider a couple of things. First, does it actually make sense to buy a gasoline-powered car today? Doing so could be the equivalent of buying a $35k Nokia flip phone right before the smartphone revolution.

ReThinkX believes that by the mid-2020s, used cars could become worthless or even negative in value since no one will be buying them. Think about that for a moment. You may have to pay someone to dispose of your car!

Instead of buying, you should consider leasing an electric car if possible. The average length of car ownership is 6 years. If you buy one today, you may find yourself trying to sell it right as consumers are shifting away from ownership and the new and used car markets are cratering.

Join the Movement and Divest!

I also recommend divesting from fossil fuel companies, especially if you are investing for the long-term. I believe the next couple of years will be the calm before the storm hits these companies. 

My wealth management firm, Impact Fiduciary, focuses on sustainable investments that are free from fossil fuel companies. 

Think you don’t own oil companies? If you own mutual funds or the S&P 500 then, unfortunately, a significant portion of your portfolio is invested in Big Oil and fossil fuel companies.

Exponential technologies have a way of surprising everyone. Ten years ago, very few people could have predicted the power that smartphones would unleash. Imagine living without them today.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Patrick Dinan, and all rights are reserved.