The iPhone of Cars

Benedict Evans’s musings on Apple Car (this 6.5yo article) got me thinking about the future of transportation.

Transportation is three tiered: public (planes, trains, busses), private (cars mostly), and a messy middle. This middle was cabs, and is now Uber et al. Essentially it’s on-demand public transportation. Either point to point, or perhaps less private with stops along the way. The economics of each tier is fascinating. Breathtakingly expensive at one end, absurdly cheap at the other.

At the top end, planes, trains, and busses are so expensive that only governments or enormous corporations can afford them. Their construction, purchase, and operation expenses are prohibitive. At the bottom end, all but the poorest can afford some level of car.

This raises a challenge for new automakers like Tesla or Apple, and even for the old guard of Ford, Toyota, or GM. How do you build an entirely new vehicle – electric with state of the art software – and make it affordable?

The short answer: you can’t.

A truly outstanding car, one that is truly disruptive, the iPhone of cars, will be astonishingly expensive. Just as the iPhone was. Such a car, packed as much with computing horsepower as the more traditional kind, would be costly to invent, to build, to buy, and to operate.

It would include everything one dreams of: self-driving, with intra-traffic collision avoidance (allowing for packed highways at high speed), smart routing, self-storage w/ hailing, and so on. Such a technical marvel would cost 5x a high-end car today. Perhaps $500k. Or more. And the infrastructure to support it? The cloud systems to route and control it? The monthly costs would be huge as well.

All of which puts the market for such cars in the tiny range: the 0.01% of incomes or higher. Hard to envision an investment frenzy over that “unicorn”.

Unless of course, this vehicle is not targeted to individuals. But rather to that fat juicy middle of the transportation tiers. To the on-demand market. The future Ubers. It is there where the economics begin to make sense.

Just as a bus that often costs a similar amount is paid for by being in use all the time, so an ultra-costly self-driving car could be as well. A million dollar car sitting in a garage much of its life (as ours do today) makes little sense. But as an earner? It’s a slam-dunk.

A modern day cab company with a fleet of hundreds of these could keep them going 24/7. Needing no garage space, driver, gas, and little maintenance.

If available far more readily than today’s Uber, on a moment’s notice, individuals would be even less inclined to own one.

One can easily imagine tiers of very nice ones serving you point to point. The new Uber Black. Even limo-level service for special occasions. Others, more utilitarian, serving many as shared space, in a computer-choreographed sequence of stops and much more economically. And of course – off the top end – the wealthiest would still own their own, just as they own private jets today.

This, then, is the likely future of all the high-tech cars we see demonstrated in stumbling alpha versions today. Not quite the vision Elon seems to suggest.

Though self-driving ultra-high tech cars are inevitable, you and I likely will never own one. Nor will our grandchildren. Unless they do spectacularly well in life. But they’ll rely on them several times a day.

The world will be a better place for it. Far more efficient – their business owners would insist. Traveling roads that can be much more densely packed, reducing infrastructure investments. Individuals wouldn’t need the economic burden, nor their houses the garage space.

Yes, there will be an iPhone of cars. It will be a technical marvel that will disrupt the auto industry just as the iPhone did. And be as crazy expensive as the iPhone was. But rather than expand the car market, as the iPhone did the phone market, this car will destroy it.

Rather than selling millions of $20k cars, makers will be selling thousands of million dollar cars. And the customer will be a business, not a consumer. The makers who can see and build that world will thrive. I’m not sure that’s Apple. And I’m darn sure that’s not Tesla.

Talk about disrupting a business? The the car business is in for a complete do-over. Hold on tight, it’s going to be a bumpy ride.