Shared Autonomous Vehicles: A $450 Billion Opportunity For Google

| About: Alphabet Inc. (GOOG)

By Tasha Keeney, Analyst: Industrial Innovation

US automakers are beginning to anticipate the inevitable shift to shared autonomous vehicles (SAVs). By way of contrast, in 2012 when a Google (NASDAQ:GOOG) (NASDAQ:GOOGL) team met with various automakers, they felt that Google was "speaking a different language," and disagreed on almost every issue.

Since then, many original equipment manufacturers (OEMs) have begun autonomous vehicle or car sharing development programs. The graphic below1 describes why. By 2020, according to our calculations, a SAV network could generate roughly $450 billion in annual US revenue.

US personal vehicle travel costs 70₵ per mile,2 totaling $2.1 trillion dollars per year.

If Google SAVs were to account for 60% of miles driven, and priced at 25₵ per mile, the market size would be $450 billion.

Each shared autonomous vehicle will obviate the need for nine traditional vehicles,3 a significant threat to new car sales. Not surprisingly, automakers have said that self-driving cars face a "regulatory minefield," which may be an attempt to influence a slower integration process for autonomous vehicles. Google, however, has been working with lawmakers from the start. Its head of the Self-Driving Car Project, Chris Urmson, told the 2015 Automotive News World Congress that he foresees no significant federal regulatory hurdles for autonomous vehicles, and has a goal of commercialization by 2020.4

Google seems to be having an easier time finding auto-manufacturing partners now than it had two years ago. In January, General Motors (NYSE:GM) announced that it would be open to a Google partnership,5 though Ford (NYSE:F) may be the more likely partner because former Ford CEO Alan Mullaly joined Google's board in July 2014.

Avis (NASDAQ:CAR), Hertz (NYSE:HTZ), Uber, Lyft, and other sharing economy companies also will benefit from the evolving auto market. Not surprising, in February 2015 Uber announced a partnership, the Uber Advanced Technologies Center, with Carnegie Mellon University in Pittsburgh to explore autonomous driving.

Extremely detailed mapping systems are a crucial enabler for fully autonomous cars, presenting the possibility of geographic monopolies. As of April 2014, Google's driverless cars had driven more than 700,000 miles in the US, although the actual number of miles mapped is unknown. By comparison, Nokia's (NYSE:NOK) HERE has mapped more than 1.2 million miles in 30 countries. Autonomous vehicle expert Brad Templeton points out, however, that given Google's claims regarding the considerable cost of creating its maps, mapping 1.2 million miles in 15 months is remarkable. Either Nokia found a way to tremendously reduce mapping costs, or the HERE maps are not the same level of quality as Google's.

SAVs will likely be a "winner takes most" market, with Google and Nokia having a head start over peers. Aside from its mapping advantage, Google may have a better relationship with regulators than do its competitors. The US Secretary of Transportation Anthony Foxx recently unveiled his 30-year plan at Google's headquarters, lending credibility to the idea that autonomous cars could move forward without significant regulatory traffic jams.

  1. Source: ARK original research. For sources for estimates for the cost of personal and future travel, please see our past blogs, which are linked to in the text above.
  2. Assumes gas costs $2.252 per gallon as of 2/16/15. Note that the linked blog was using an older, more expensive price for gas, which is why the graph displays $0.76 per mile.
  3. As noted in the linked blog, studies show sharing services could increase vehicle utilization by eight- to twelve-fold. Also, ARK research shows that Zipcars have a 34% utilization rate, which is 8.5 times that of personal cars.
  4. Source: http://www.reuters.com/article/2015/01/14/us-autoshow-google-urmson-idUSKBN0KN29820150114
  5. Source: http://www.reuters.com/article/2015/01/12/autoshow-gm-google-idUSL1N0UR2MZ20150112

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