The Great Car Crash of 2023
Imagine
you’re the captain of the RMS Titanic
at the very moment he realized they had no hope of avoiding a massive iceberg
in their path. Welcome to the internal combustion
engine producing automotive industry.
The
convergence of self-driving autonomy and electric cars will disrupt the
automotive and transportation industries, causing a number of internal
combustion engine (or, ICE) auto manufacturers to file for bankruptcy by 2022,
and the value of the majority of used ICE cars to fall below zero by 2023.
Let’s
reverse engineer this collapse, piece by piece.
The
adoption curve of electric cars is rapidly accelerating. The year over year growth rate of electric
car sales is over 100% in the US. All
major car manufacturers (who are predominantly ICE makers) are promising to ‘go
electric’ in the next few years, and several are already terminating a number
of their ICE models. Electric cars
generally cost more than ICE cars, but cost significantly less to operate, have
three times longer expected useful lives (in terms of miles), and are much more
compatible with autonomous technology.
Finally, the cost of solar electricity is steadily falling (20% per
year), which will impact all energy prices.
Soon the cost of charging an electric car will be nominal.
Full
self-driving autonomy will cause the cost of transportation as a service (TAAS)
to plummet for two primary reasons: low operating cost, and high fixed cost
absorption. Autonomous electric cars will
have very low operating costs due to: the absence of a driver, low maintenance cost
of electric cars, low cost of electricity, and lower insurance cost (due to
fewer accidents). The higher purchase
cost of an autonomous electric vehicle (approximately 20% higher) will be more
than offset by very high utilization. Currently,
privately owned vehicles sit idle 95% of the time. If an ICE vehicle cost $50,000 to buy, and
was driven 300,000 miles, the fixed cost per mile would be $.17/mile. An autonomous electric car which cost $60,000
and was driven 1,000,000 miles would have a fixed cost per mile of $.06/mile.
After
considering the full cost of vehicle ownership, including value depreciation
and storage (having a larger garage to accommodate multiple vehicles or renting
parking space), the vehicle ownership cost of an average American could fall
from approximately $10,000 per year to $2,000 per year by utilizing TAAS. This 80% savings will cause a majority of
Americans to choose not to own a vehicle, causing the size of the American auto
fleet to decline by 60% or more. The
impact of TAAS is already visible; in 2017 10% of all vehicle sellers did not
buy a replacement vehicle.
By
2021, the sales of new ICE vehicles will decline dramatically. First, there will be significantly fewer new
vehicle buyers due to TAAS adoption.
Second, a majority of the remaining new vehicle buyers will be choosing
electric vehicles. Third, the growing
number of used ICE vehicles available will cause the price of used vehicles to
fall, resulting in a new to used value comparison that is heavily in favor of
buying the used vehicle.
Due
to their enormous investment in ICE vehicle production capacity, few of the
current car makers will survive the transition to electric car manufacturing. Producers will have to completely redesign
their fleet, re-tool their production lines, and re-source their supply chains. Additionally their engine and transmission assembly
plants will have to be closed, and the overall scale of their operations will
have to be reduced by 60%. The demands
of long standing union contracts and debt heavy balance sheets will force many
into bankruptcy.
The
financial failures of big ICE producers may begin as soon as 2021 or 2022. As each one fails, a flood of unsold ICE car
inventory will be released into the market at discounted prices, causing more
downward acceleration in used ICE vehicle prices. Currently Ford and GM have more than 4
million new cars in their dealerships and inventory. By 2022, there will be virtually no demand
for these cars. The abundance of ICE
vehicles of all makes will cause most used cars to be sold for scrap. By 2023 we may be paying to have them
environmentally disposed, and abandoning a vehicle will be a crime.
For
today, consumers should avoid spending more than $20,000 on any ICE vehicle,
and make plans to economically dispose of your ICE vehicles by 2020. And the employees of ICE vehicle manufacturers? Please
calmly proceed to the lifeboats.
[This article was inspired by the work
of speaker and author Tony Seba, and the Now You Know vlog.]
