Uber vs. Car Ownership

http://blog.samaltman.com/uber-vs-car-ownership

by ramykhuffash • 12 years ago

81 72 12 years ago

blog.samaltman.com

Imagine what will happen when we combine decentralized car use with autonomous driving. Uber is already cheaper than driving yourself around, but think how affordable it would be if no Uber driver was needed at all.

tesq• 12 years ago

Why do you think the consumer will see any significant price benefits from automation instead of having the profits diverted to shareholders, executives or as reinvestments?

icambron• 12 years ago

Because competition drives prices down until they're close to costs.

akavi• 12 years ago

Competition?

mmanfrin• 12 years ago

This is what excited me about Google buying part of Uber -- self-driving Uber taxis. Combine that with electric vehicles that can intelligently remove themselves from the swarm of cars and be replaced by a charged vehicle, and you have on-demand, cheap, and potentially environmentally more sound taxis.

gamblor9562• 12 years ago

Uber is only cheaper than driving yourself around if you points of comparison involve low-mileage use cases, a high-density area, an expensive car, and expensive gas. In other words, a wealthy individual who lives in San Francisco, New York, Chicago, or LA.

For everyone else, Uber is far more expensive than owning their own car.

vacri• 12 years ago

LA isn't a high-density area - it's very spread out, with lots of low-medium density housing.

How is Uber doing in LA, I wonder? Just watching it here on HN, you could be forgiven for thinking it was SF-only (due to the demographics of the site)

sama2• 12 years ago

this is not worthy of HN and the concept has been touched on many times here. i only blogged it because it was too long for a tweet and i wanted to reference it in a discussion. please don't upvote.

ramykhuffash• 12 years ago

I actually think it's an interesting topic and would have liked to see some discussion around it, what's the issue with that?

sien• 12 years ago

It was an interesting comment you made in your Econtalk podcast which was really very good.

The point could be taken further to work out how much people spend on average on a car and at what point they would get rid of their car.

Possibly for general use it is more applicable to self-driving cars than Uber but it's still interesting.

7Figures2Commas3• 12 years ago

This calculation is why I think Uber is still undervalued. The people who say Uber is only worth $4 billion or whatever don't think enough about people like me who will go from spending ~$500 a year on taxis and car service to ~$12,000 now that the experience and cost have reached a tipping point.

This is a lazy analysis.

Are there folks who will trade car ownership or public transportation for Uber and services like it? Absolutely. But what is the size of that market? How much of that market has Uber already tapped?

Sam's post assumes that Uber's current valuation doesn't take into account this segment of the market and that this segment of the market still offers Uber significant growth potential. Maybe he's right, but he provides absolutely no evidence and doesn't even attempt to come up with hypothetical numbers for consideration.

alooPotato• 12 years ago

"Are there folks who will trade car ownership or public transportation for Uber and services like it? Absolutely. But what is the size of that market?

Literally everyone. Everyone needs to move around their city. The size of the market is the size of the total city scale transportation market which includes car ownership, taxis, public transportation, good walking shoes, pedi cabs......etc.

How much of that market has Uber already tapped?

An insanely small percentage outside of SF and even in SF its small.

One question you didn't ask: Can Uber get even cheaper than it is now? My guess over a 10-15 year time horizon is absolutely yes when you remove the cost of the driver. I think the state of the world that Sam is referring to is when ubers (or services like it) are the predominant way people move about cities. In that world, who is best positioned to win? Uber.

foobarqux• 12 years ago

Expected future growth is priced in, the question is whether it has been mispriced.

7Figures2Commas3• 12 years ago

Literally everyone. Everyone needs to move around their city. The size of the market is the size of the total city scale transportation market...

Your approach to market sizing is eerily reminiscent of Ali G's[1]. Amusing, but not credible by any standard.

[1] http://www.youtube.com/watch?v=nkuOuxRD1Bc

GBKS• 12 years ago

Still not sure how this would work for anybody with a family and kids and/or living outside of urban areas (the majority of people). Has this been touched on in previous discussions? Would love to hear some thoughts.

maerF0x0• 12 years ago

"or living outside of urban areas (the majority of people)."

"as of 2010, more than half of all people live in an urban area. " [1]

[1] http://www.who.int/gho/urban_health/situation_trends/urban_p...

gautambay• 12 years ago

Two thoughts:

1. People will move back to cities as cities become more attractive (thanks in part to things like the shared economy). There's already some evidence of this trend among millennials. Reverse white-flight if you will.

2. Uber will eventually work just as well in suburban areas. The fundamental economics don't change (higher resource utilization => lower costs). It will take longer to get to penetration levels that result in sufficiently high utilization. But we'll eventually get there.

7Figures2Commas3• 12 years ago

Uber will eventually work just as well in suburban areas.

No, it won't.

The fundamental economics don't change...

They don't change for Uber, but they do for drivers.

It will take longer to get to penetration levels that result in sufficiently high utilization.

You seem to be under the belief that supply drives demand here. That's not the case.

The economics of utilizing a taxi service can be markedly different for suburban consumers than urban consumers. Point B is frequently more distant from Point A in suburbia, so the average cost of a taxi ride tends to be higher. Thus the relative attractiveness of paying for a taxi ride decreases.

pbreit• 12 years ago

Despite that suburban families are perhaps the least likely Uber demographic, it actually can work well and will likely continue to get better. First, kids in their teens to early 20s might not even have a car. Seniors might not be able to or want to drive. Parents might want to be driven to parties or nights out. Two driver family might be able to avoid that 3rd vehicle. And on and on.

It's not really that helpful to wonder about the worst scenario, especially without any imagination whatsoever.

crabasa2• 12 years ago

I'm a huge fan of Sam's blog posts and he is President of YCombinator for a reason, but I'm struggling to understand what Sam think that his personal data point (as a wealthy owner of a Tesla Roadster no less) says about the viability of Uber replacing a family vehicle for normal people. Does he not realize that plenty of people love to drive?

AVTizzle• 12 years ago

Sam's post has little to do with the emotion of "loving to drive."

It's a calculation about the cost of car ownership vs. taking alternative means of transportation.

crabasa2• 12 years ago

This of course leaves out the huge intangible of how much nicer it is not to drive...

I'm simply saying that it's often quite nice to drive, as Sam knows quite well as the owner of a Tesla Roadster.

daveymcgav• 12 years ago

Based on anecdotal evidence, I've found that almost none of my non-wealthy family and friends like driving. They all drive fairly average cars (Honda Civic, old minivan, etc) on fairly average commutes between home/work/school/etc.

For them, driving is just a means to an end. If there was something better that was cheaper and fulfilled their needs, I think they'd sell their cars in a heartbeat.

That being said, I do love driving, and you're gonna have to pry my car from my cold dead hands :).

CanSpice• 12 years ago

I would like to see a comparison between Uber, car sharing (like Zipcar or Car2Go or whatever local carsharing organization you might have) and car ownership. I'm a carsharer, and between me and my wife we spend about $500/month on carsharing, which looks about half of what it costs Mr. Altman to own and operate a Tesla Roadster.

craigmccaskill• 12 years ago

My wife and I moved to SF ~6 months ago from Mountain View. We sold one car almost as soon as we moved, as we definitely didn't need a car each. Just last week got rid of the last one as the math really didn't make sense.

All in, gas, insurance, car payment and parking spot we were spending over $900 a month on unavoidable monthly costs, at times this number would also go up based on using the car to get around the city and having to pay $10-40 to park the car at wherever we were going.

Add it all up and that same money can buy a lot of Uber/Lyft/Zipcar at 90% of the convenience. I've yet to see how much we'll spend monthly on various transportation services but so far it looks like we'll be saving close to $400/m.

xophe• 12 years ago

lol @ 5k a year depreciation, 3.5k maintenance, and 3.6k parking, i.e. the majority of this analysis.

In conclusion, paying someone to take you in their Toyota Prius is less expensive than paying for your own Tesla.

Still, I see sama's point. I own/maintain my own motorcycle and I uber/lyft when I can't do that. Best of both worlds.

sama2• 12 years ago

it's definitely an extreme data point, though car ownership in SF is expensive no matter how you cut it (most of that maintenance goes into fixing stuff that happens to it when parked on the street, and parking garages are always expensive).

i could definitely get a car that depreciates less. it's old battery tech at this point.

recalibrator• 12 years ago

Sam. You own a Tesla Roadster, a car for people who don't have to niggle over money.

Most people a) don't live in SF b) have your money c) have access to Uber and d) have a Tesla Roadster.

You're essentially talking to yourself and a few choice friends who live in the same bubble as you.

jonknee• 12 years ago

Which makes HN the perfect place to talk about it.

tdicola2• 12 years ago

Not to mention since the car is paid off/owned outright the calculation doesn't take into account the price of the car. I would wager a majority of car owners are financing or leasing their cars and pay a monthly cost to do so. I guess depreciation kind of counts in his calculation, but it also applies to financing a car. Adding this cost would actually help his argument.

mikeash5• 12 years ago

Depreciation is the ongoing cost of the price of the car. Depreciation applies to financing a car too, but you don't count it in addition to your principal payments. Quick smell test: if you finance a $25,000 car, by the time you've reduced the value to zero it will have depreciated $25,000 and you will have made $25,000 in car payments on the principal, but you will not have paid $50,000 total, you will have paid $25,000 plus interest. Depreciation is ultimately just "take the price of the car, average it out over time" with potentially some games to take into account the nonlinearity of the curve.

I'm not sure if $5,000/year is right, though. The car cost at least $109,000 new and probably more. At that rate it would take 21 years to fully depreciate, but the average life of a car is more like a decade. It's nonlinear, but the car is at most six years old. I think this may be an underestimate.

While we're at it, I'm struck by the maintenance figure of $3,500/year. That's a big pile of cash! I had a (much more boring, plain old gasoline) car of similar age until last year and the yearly maintenance on it averaged well under $500 and I drove it twice as many miles per year. I don't know enough about the Roadster to say whether that's correct or why it would be that way, but it reinforces that this is a highly unusual calculation whose numbers will apply only to a tiny number of people.

Taking a quick whack at the calculation for myself, I currently do around 8,000 miles/year, insurance is about $1,000, maintenance is $28 (preventive maintenance is bundled in the price of the car for another year, and nothing should break, so I'm just on the hook for the state inspection), depreciation is, somewhat wild guess vaguely informed by my perusal of the used car market last year, maybe $2,000, parking is zero, and my cost per mile is about 8 cents. (Amusing side note: I did that last calculation with Google and it defaulted to giving me the result in dollars per meter.)

Putting it all together, and I have about $3,000 in fixed costs and $640 in per-mile costs, so $3,640/year total for ownership. At $2/mile, UberX would cost me $16,000/year for the same distance driven, about five times the cost.

cjbarber• 12 years ago

To be fair: It seems like Sam wrote this in response to queries after he posted this tweet

"just did the math. it's now cheaper for me to get rid of my car and uber everywhere (gas, parking, maintianence, insurance, depreciation) ."

And then he posted the calculation on Twitter.

mikeash5• 12 years ago

That would be fine if the article was just about his personal costs. But it's not. The last paragraph makes it clear that he thinks this calculation applies to enough people to make a difference of billions of dollars in Uber's valuation.

rusabd• 12 years ago

In Kazakhstan you can hail any car on the street - the cost of travel would be about 5 dollars. People still buy cars because for certain trips it is inconvenient (e.g. going to/from an airport, shopping, travels outside cities, non-popular routes). This system also coexists with normal taxi services which are more expensive but the fares are still suppressed.

hackuser• 12 years ago

you can hail any car on the street

This makes a lot of sense. New Yorkers might charge more. I would guess the biggest objection would be safety -- how do you know you're not getting in the car of a kidnapper, thief, rapist, etc.?

On one hand, I think people greatly over-estimate that risk. On the other, many criminals likely would take advantage of the service to find victims.

What do the Kazaks do about that?

yoodenvranx• 12 years ago

I used to live in a smallish german town which had an excellent car sharing service. They had about 15 cars of all sizes all around town which you could rent vja phone or web for as long as you needed then. I paid 11 euro per month and in addition 3 to 10 euros an hour (depending on the car) and some cents per km.

Tbis service was perfect! Need to go shopping for the weekend? Take the vw golf. Cat needs to go to cat doctor? Take the smart. Want to help a friend with moving? Take the mercedes sprinter. Want to go to the beach with some friends? Take the vw passat.

All in all i paid 20 to 50 euro for _all_ my car needs and i never had to think about refilling gas, switching to winter tires, do checkups and so on.

Unfortunately i had to move to a different town where such a service does not exist and i really really feel limited. I need a car only once or twice a month so buying one is out of question. And renting from a normal car renting company is too expensive.

bicknergseng2• 12 years ago

To be fair, the Tesla Roadster is a pretty odd example. I'm not sure $5,000/year depreciation with $3,500/year for maintenance seems reasonable for almost anything. Am I wrong in thinking that most cars depreciating at that rate will have very low or 0 maintenance costs not covered under warranty?

For example, a 2014 Honda Civic with 1 mile on it (example) is ~$17k, while a 2013 with 6k miles is ~$15k (KBB values). There should be very few things not covered by warranty since they're <3 years and 36k miles.

VW, BMW, and some others have also started including free maintenance for things like oil changes and wipers and brakes as part of the new car warranty.

On the flip side, I'm impressed your insurance is so cheap.

jamesaguilar• 12 years ago

"Pretty odd" is generous of you. Nonsense is what it is. It's like saying that drinking craft beer for all your hydration needs is cheaper than drinking water, but citing one of these[1] as your baseline for comparison.

[1] http://www.therichest.com/expensive-lifestyle/entertainment/...

bicknergseng2• 12 years ago

Depends on what city you live in. Drinking craft beer for all hydration needs is perfectly acceptable in Portland, OR.

mastermojo2• 12 years ago

I actually have some personal numbers after owning a second hand 2000 Mustang for 1 year from 112k to 121k miles exactly since yesterday. I got the car for 6000.

  Uber 9000 miles x $2 = 18000
  Personal Car: 7000
  Maintenance 2500 
     - new bumper (old one taken off while street parked) 1000
     - replaced foggy headlamps 400. purely cosmetic reasons
     - side window smashed 800. never park in oakland =(
     - oil changes etc? (200 at most) 
  Insurance 600 (checkout AAA) 
  Depreciation 2000(?)
  Gas 1800 ($4/gallon @ 20 miles/gallon)

No contest for me, really. Even if I payed 300 bucks a month for a commuter parking spot in SF, and got an occasional parking ticket here and there.

For people who can get to and from work easily using public transportation, perhaps owning a car does not make sense as much as Zipcar/Uber. Owning a car can cost a lot of money, but for people who want one as a form of transportation it can be very affordable (i.e dont buy new). Also, the average car is expected to travel 10-12k miles a year.

dsil• 12 years ago

Hold on, what you're missing is the last part of the essay, the difference in value of time spent driving vs time spent riding an Uber.

Say you averaged going 45mph. Then your 9000 miles took 200 hours. And you'd spend $4000 extra to use Uber, so not having to drive would cost $20/hour.

Depends how you'd use that time, but for many it would be well worth $20/hour to be able to do other things, like bill hours.

wise_young_man• 12 years ago

Do you take hour long Uber rides? Because if most are 10-20 minute rides the distractions are not going to be helpful for productivity, so it may be hard to bill anything.

btilly• 12 years ago

And if you're prone to motion sickness, like I am, then the value of that time you get back is approximately $0.

mastermojo2• 12 years ago

Most people are always balancing the time/money tradeoff with how much they enjoy the task.

i.e do I do my own laundry, clean my own place, drive my own car, cook my own food?

doorhammer• 12 years ago

When I lived in st. louis, I drove all second hand cars. I really actually loved the 1986 toyota truck I had. 22R carb engine. I knew how to fix everything on that truck. It was at 230k miles and the engine ran great until I accidentally killed it (fingered tightened the oil plug while draining some out, forgot to really tighten it down, it vibrated out on the highway, screeching noise, kaput).

That's kind of an aside; I just like old cars and working on them when I don't have to work on them.

Anyhow, the real part I was going to say is that I moved to Atlanta with my wife. She has to drive all over creation because she teaches ballet. We have a new hyundai accent which runs great, but my number one priority was to be close to work so I wouldn't need a car. I live about 1.5 miles from work. I walk to work a lot of days (not so much in the summer). This city sucks for having no car, but if you really plan around, you can. The biggest thing was being willing to live closer to work.

Obviously it's not that easy for people in tons of circumstances that aren't mine, but I wanted to throw my anecdote into the mix fwiw.

I used to commute exclusively by bike in oklahoma. I rode about five or six miles to work and five or six miles back. Had to structure where I looked to live around that as well.

Again, not saying this is viable for everyone, but if you approach it as a lifestyle, it can make a bit more tractable, depending on your context (I have no kids, which makes it a lot easier to)

I didn't do it for the outright savings so much as I hate commuting. I can't stand staring at the road, and eventually I run out of podcasts.

sah88• 12 years ago

I agree with most of the posters here that the market for Uber totally replacing household vehicles is pretty slim. However I think there could be a larger market for Uber replacing 2nd/3rd vehicles.

That said, there are already taxis and car share programs. Uber may be able to take customers from them but I'm not sure that Uber really provides something compelling enough that it would push a large number of people who are at the margin over the edge. Disclaimer: I've never actually used Uber

stormbrew• 12 years ago

Uber definitely provides a significant improvement over taxis in pretty much every way. Day to day use of taxis in most jurisdictions is pretty much impossible because, if this is even possible, they are even less reliable than public transportation.

With a taxi, unless you're going from a dense main drag (of either people or taxi-needing people, ie. bars) you call for a cab and it may or may not come some time between now and 2 hours from now, depending on if the cab that's supposed to pick you up got flagged down for a better fare.

And then, in most places, the cabbie will tell you he can't take anything but cash. After some grumbling they might let you pay with a credit card, or they might make you take them to a cash machine.

With Uber you say you want a car and it tells you where the car that's coming is and how long it'll take to get to you. And then when you get there you pay by clicking a button.

tptacek• 12 years ago

I'm a little confused about the valuation point. People have been doing the math on taxicabs versus car ownership since... forever. Whole cities, like NYC, are organized around that tradeoff. How is this not already priced into Uber?

nraynaud• 12 years ago

and what's the price difference with a normal taxi?

absherwin• 12 years ago

For those people who see this argument as inapplicable, you're right for many people today. Sam worries about UberX rates going up. The exact opposite will happen. They have steadily pushed prices down since inception. They've also started realigning the price more towards time and away from mileage and have much farther to go.

UberX will eventually charge prices more like $0.60 per minute plus $0.20 per mile.

A rough estimate based on the distribution of miles driven is that 30% of Americans should give up their cars under these numbers. Of course, many won't because owning a car isn't purely a financial decision and humans change slowly.

Discussions and imagination move much faster than reality but the world will catch up.

Technical note: The price per hour should be (time-related depreciation)/miles + hourly wage divided by the utilization rate. Mileage should be the sum of fuel costs per mile, maintenance cost per mile, and mileage based depreciation.

Running these numbers for a driver expecting $20 per hour (Average for a Taxi driver is ~$12) with 2/3 utilization and driving a Prius yields a pricing structure of ~$0.60 per minute and ~$0.20 per mile.

tdicola2• 12 years ago

As a counterpoint I bought a car for about $3000 4 years ago and have put a bit over 40k miles on it. Maintenance, insurance, registration, etc. have added up to about $7k (you don't need full coverage insurance on a $3k car). Fuel costs are about $10k (13 miles per gallon at about $3.30/gallon). Total cost of ownership is about $20k.

An uberX at $2.00/mile would have cost me $80k.

I could have bought 4 cars and driven them the same mileage for the price of uberX. I've been able to drive this car deep into the cascades, olympic peninsula, etc. for awesome camping trips--something uberX would never let me do. I also never worry about parking on the street because, hey it's a $3000 car who cares?

edit: Car is a '99 Jeep Cherokee if anyone cares, with over 180k miles on it now (and should easily go to 250k+ miles with regular maintenance).

hyh1048576• 12 years ago

So you made a good point. If UberX can lower its cost to about $0.5/mile then it's way more competitive.

* Or UberX can be lucrative for people who doesn't need 10k miles per year.

bigfoot13442• 12 years ago

I did some back of the napkin math of my own and this is way of base. I don't live anywhere even close to somewhere that uber operates so it doesn't really matter but it made me think, "am I really spending that much on owning a car?" The per mile number is what got me so I came up with a number myself and I'm way closer to $0.50 per mile.

I have a Chevrolet cobalt that I bought 5 years ago for $6000. I will have this car until it dies so depreciation isn't really a factor. Instead I just divided $6000 by 5 years. I live in Canada and gas here is the equivalent of about $5.29 per gallon. It's been a good car and has only cost me about $2000 per year in maintenance (I do some minor stuff myself). Factor in registration, license, insurance and at 12000 miles per year at my measured fuel efficiency, I come in at a little less than $0.50 per mile.

If it was going to cost me $2 per mile I think I would have to just stay home.

icandownvote• 12 years ago

I have to be driving less than 7000mi/year for Uber to make financial sense over my Model S P85+.

Let me repeat that: from purely economical perspective, if driving more than 7000 miles/year, Tesla Model S P85+ is cheaper than Uber.

Here are the numbers. Basic assumptions:

    gas : $4/gal (don't know if it's even a valid number anymore)
    power: $.1/kWh

Tesla Model S P85+:

    depreciation: $1/mile + $300/month (the $300 per months is a sandbagging factor, in reality it doesn't exist)
    power: $.033/mile
    maint: $600/year covers everything
    tires: $1600 (P85+ goes through the full set once a year, depending on how you drive)
    registration: $60/year
    insurance: $600/year
    parking: $300/year (suburbia, I hear you say. yeah, that's right)
    ---------
    7000 miles => $13993

Uber:

    7000 miles => $14000

For comparison: My old BMW M Roadster (yr. 2000, ~100K miles on the clock):

    depreciation: $1500/year
    gas: $1470 for the 7K miles
    maint: ~$2000/year (it's old)
    tires: $1000/year (chews through one set of good, soft tires. I like fast corners)
    tabs: $100/year
    insurance: $600/year
    parking: $300/year
    ---------
    7000 miles => ~$7000

yazaddaruvala• 12 years ago

While this is very specific to 20+ year olds, Uber has allowed me to lower my rent significantly.

Being in my early 20s I frequent bars often. I like my car but I can't go to a bar in my car.

Previously, to accommodate my lifestyle I lived in downtown Seattle. This year I moved away, not very far, a 30-40min walk, and am saving about $1000 a month. According to Mint I've only spent $150 (about $6 a ride) on UberX this month.

calvinbhai• 12 years ago

Its definitely cheaper because

1) UberX is covered by personal insurance, drives a lot of other people around (hence the cost is shared over many rides).

Your personal car also is covered by personal insurance but drives only "you" around.

Of course, UberX has an insurance advantage!

2) UberX driver is doing it part time, so he/she certainly has a lower paying job (~minimum minimum wage) or no job at all, at which point, the UberX driver's hourly rate is wayyy less than that of a Silicon Valley techie.

3) Since an UberX waiting for a passenger is probably idling somewhere or is driving around the high density of pickups area, the vehicle, technically is not required to pay for parking at any point, but if you driver your own car, you have to leave it somewhere, and pay for the parking (at work, and in SF, at home too).

Bottomline: UberX can be (strike that), will be cheaper than owning and operating own car once Uber + autonomous vehicle becomes a reality.

why?

1) Insurance: Less human error --> Lower premium

2) No need to pay a driver: 50% of UberX price goes to pay the driver (assuming 30% costs, 20% Uber commission). If Uber just keeps that 20% of commission, and costs remain the same, the fares can go down an another 50%!!!!

3) More people moving to autonomous UberX will lead to increase in premiums for manually driven cars (Insurance company has to make profits!).

Until this Autonomous UberX happens, all other explanations of UberX is cheaper than driving, needs to be taken with a pinch of salt

Uber vs. Car Ownership

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