My friend Evgeny published a great blog post today called, On Car Ownership And The Future Of Transportation.
And in it he made the argument that instead of buying a car and an expensive downtown Toronto parking spot (average price: $40,000 - 60,000), most of us urbanites would be better of just taking a taxi or Uber.
This got me thinking: At what point does it really make sense to completely forgo owning a car? (Full disclosure: I own both a car and a downtown parking spot.) So I decided to dig into the numbers a bit more and compare 4 mobility options:
Owning a car ($25,000 upfront) + downtown parking spot ($40,000 upfront) and driving yourself everywhere
Taking a regular taxi exclusively ($3.25 base + $1.75 per km)
Taking an UberX exclusively ($2.50 base + $1 per km)
Or, taking a futuristic driverless car everywhere (here I assumed $1.50 base + $0.25 per km)
With the above numbers, I then assumed 15,000 km traveled per year and an average trip length of 15 km (so 1,000 trips per year). The trip length and number of trips per year matter because of the “base fare” that is charged when you take a taxi or Uber.
I also assumed that the cost of owning a car is $0.60 per km (estimated from this Globe and Mail article) and that there is an opportunity cost to NOT renting out your downtown parking spot ($200/month). That is, every month that you spend driving yourself around and parking your car, you are forfeiting parking revenue.
Finally, I looked at a 10 year time horizon and then “discounted” all the costs back to today’s dollars so that I could compare each mobility option.
So what did I find?
What this says is that if you’re driving 15,000 km per year (average trip length 15km), then you’re better off taking UberX everywhere, as opposed to going out, buying a car and parking spot, and driving yourself around.
But does this hold true at different travel distances?
Based on my model, once you hit around 18,000 km per year, then you’re better of with option 1 (owning a car). That’s because the per km savings associated with driving yourself around are enough to offset the upfront costs of the car and parking spot.
On the flip side, when you drop below 7,500 km traveled per year, even a regular taxi starts to make sense. That’s because you’re simply not traveling enough to reap the benefits of owning a car/parking spot. Again, high upfront costs; lower per km operating costs.
Of course, there are a number of things I didn’t consider in my model. For one, most people finance their car and parking spot (it is bundled into their home mortgage). So I’m sure there are ways that you could change the above outcomes using leverage.
At the same time, I didn’t account for the fact that when you’re being driven around (as opposed to driving around) you have the flexibility of doing work, responding to emails, and so on. If you want to attach a value to your time, then the scale would tip back in favor of taxis and Uber.
But all of this was really just to make one point: look how cheap it could be to ride around in a driverless car. When that becomes the reality in our cities, which it will, it’s going to completely transform our current beliefs around cars, parking, and many other things.
I guess that’s why General Motors just invested $500 million in the peer-to-peer ridesharing company, Lyft. They know the shit is coming.