Using a self driving car service will cost so little that owning a car will become a thing of the past. Not only that, but it will provide the average American with thousands of extra dollars of disposable income annually.
As of 2015, the average person in the U.S. had expenditures of $55,978. Transportation accounted for $9,503, or 17% of those expenditures according to the U.S. Department of Labor.1 To give you a point of comparison, the largest expense, shelter, was $10,742. We spend almost as much on transportation as we do on anything else in our lives. Self driving cars are about to change all of that because they eliminate or drastically reduce the biggest costs associated with cars.
To understand the full impact, we have to look at the cost of car ownership and work our way backwards.
AAA Estimates Driving Costs
AAA provides a breakdown on the average vehicle transportation budget in their cost of driving analysis. Their numbers differ slightly from the Department of Labor, but are still in the same ball park. AAA states the average cost of new car ownership is $7,581 or $8,698 depending on if you drive 10,000 or 15,000 miles respectively. The average number of miles traveled in 2015 was 13,476.
Here is a list of expenses that AAA included.
- finance charges
- license and registration
All of these costs will be lower (except for license and registration) for companies that offer rides from self driving cars. Self driving fleets accumulate savings in a variety of ways from safer driving habits to wholesale pricing. Each category is a little different. Let’s take a look.
Oil-based energy is the most expensive fuel in the world. The average cost per mile for gasoline in the U.S. is 11.21 cents, while the average wholesale cost per mile for electricity generated by solar is 1.6 cents. Self driving cars will be electric, and they will be run off of solar for the same reason nearly all taxis are Priuses. It just costs less.
We are terrible drivers. It would be almost comical if it weren’t so dangerous. According to an Allstate driving survey:
- “Fifty-six percent of American drivers say they have been involved in an accident, but only 28 percent of them say the accident was their own fault.”…we are dangerous and delusional.
- “(64 percent) of American drivers rate themselves as ‘excellent’ or ‘very good’ drivers.” …the majority of us assume we are far above average.
- “Those 18-29 years of age are the most likely to text while driving (63 percent) with drivers ages 30-44 not far behind (58 percent)”…if we weren’t bad drivers already, we make sure to add a layer of difficulty.
Tesla has stated that it thinks the government will permit fully autonomous cars when self driving software is 10 times safer than a human driver. Combining that with the fact that large commercial fleets can self-insure in most states, insurance expenses for self driving fleet vehicles will be the equivalent of a rounding error.
If self driving cars really are ten times safer than human drivers, insurance costs will decrease by 90%. If vehicle fleets self-insure, costs will be even less.
As noted in the taxes and depreciation section, a self driving car could reach its lifetime mileage in 3 years. The average car loan length is between 5 and 6 years and heading higher. A self driving car company will have bought a car, paid off the vehicle, and made a handy profit before an individual owner is even half way through their payments.
An individual’s average for total loan interest payments would be $4,478. 2
A self driving car service would only pay $1,048.3
Financing for a privately owned car will be 4 times higher than a self driving vehicle owned by a fleet.
We don’t maintain our cars as per recommendations. You may be the exception to the rule if you keep a detailed spreadsheet on your mileage, and your visits to the service center correspond to your car’s ownership manual. If you are like the rest of us, you probably don’t even have a record of your car’s mileage when you last changed you oil.
Furthermore, when you take your car into the shop to get it serviced or fixed, you pay retail rates charged by the shop. Unless you are certain that you take your car to a reputable mechanic,4 You may also be paying for things you don’t need. A company that owns hundreds of fleet vehicles spends very little comparatively. It is difficult to find reliable information on what the savings would come to, but … it would be less.
Tires aren’t cheap, but we drive like they are.
By contrast self driving cars will accelerate gradually and brake slowly. What’s more, they don’t get distracted. They don’t text. They don’t drive drunk or sleep deprived. So they almost never slam on the brakes.
Self driving car tires will last longer.
Depreciation and Taxes:
The average cost of a new car is $33,666.5 Over the lifetime of a car,6 the value of that vehicle drops to $0. Individuals can’t expense a car like a business can, so ultimately, we get $33,666 worth of driving from the car if we own it from the time it is new until the time it goes to the junk yard.
NYC taxis are retired at 400,000 miles before being sold off to other taxi fleets. I would assume this to be the minimum lifetime for a self driving car. A self driving car can reach its lifetime mileage of 400,000 in 3 years. Over that 3 year period, the car could have been expensed at the IRS rate of $0.54 per mile. That equals expenses for tax purposes of $216,000.
Depreciation and Taxes Summary
- The average passenger vehicle provides $33,666 of value to its owner after more than a decade.
- The average fleet vehicle provides $216,000 of value to its owner in under 3 years.
Private car ownership will cost you more
Let’s see how the costs of car ownership compare to the costs incurred by a self driving fleet. I’ll use the average AAA driving costs at 10,000 miles for one year. The biggest difference between a self driving fleet vehicle and private car ownership is the lifetime depreciation value, which is an article on its own. The next three largest discounts are fuel costs, insurance, and finance charges.
Over 10,000 miles, a self driving fleet vehicle would cost approximately $2,500 less than a privately owned vehicle.
These numbers are based on AAA’s annual driving costs of $7,581. These 3 categories alone provide a self driving fleet saving of 32% over private car ownership. With the biggest savings likely to be in depreciation, it seems fairly straight forward that self driving cars are the future. Private car ownership, just like telephone landlines will become a symbol of the past.
The Next Step
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Footnotes and References:
- Bureau of Labor Statistics, Consumer Expenditures, 2015
- Assuming 6 year loan average rate of 4.2% and national average car price of $33,666
- Assuming 3-year loan average rate of 2.0% and national average car price of $33,666. This is a currently offered retail rate. The rate could possibly be lower for bulk purchasing. The length of the loan causes the difference in rates. The length of loan corresponds to the time it would take a self driving fleet car to reach 400,000 miles.
- And let’s face it, how can we possibly know if our mechanic is honest. This is me, the last time I took my car to the shop.
Me: My car is making a funny noise.
Mechanic: That will be $500 for blah blah blah, blah, blah blah
Me: Ummm… Okay.
- Kelly Blue Book average new car price March 2016
- According to the National Highway Traffic Safety Administration, a typical passenger car will only accumulate 157,137 lifetime miles.