Former Tesla and BMW exec says self-driving cars will start to kill car ownership in just 5 years

Excerpt from Business Insider, 14 December 2016

Millennials increasingly prefer to whip out an app when they need a ride rather that commit to the expenses associated with owning a car.  For example, a University of Michigan study published in January found the percentage of young people with a driver’s license to be in decline.

The adoption of autonomous tech adds another layer to the “death of car ownership” theory. A network of on-demand, self-driving cars will drive the cost of ride-hailing services even lower, meaning owning a car will become even less alluring with time.

Where the theory gets sticky is when we talk about when this will happen and to what extent.

Georg Bauer has been in the auto industry for over 30 years. He has held executive positions at Daimler, BMW, and, most recently, at Tesla. Bauer left Tesla recently to launch a new car-financing startup, Fair.

Bauer told Business Insider the rising costs associated with owning a car would lead to a subscription-based model in which customers pay a monthly fee to use a car when they want rather than own one outright. He added that advances in self-driving tech would accelerate that transition to the point at which car ownership could die in just five years.

“There are certain bits and pieces already out there and successfully so, and I think before autonomous driving comes into full force in the marketplace you will see these new ownership models being ahead of it,” Bauer said. “I think it’s something on the time horizon that we’ll see over the next five to 10 years.”

Five years may seem like an aggressive timeline, but Bauer isn’t the only one who thinks the transition is right around the corner.

John Zimmer, the cofounder and president of Lyft, said in September that car ownership would “all but end” in cities by 2025.

“Every year, more and more people are concluding that it is simpler and more affordable to live without a car,” Zimmer said in a Medium post. “And when networked autonomous vehicles come onto the scene, below the cost of car ownership, most city dwellers will stop using a personal car altogether.”

That caveat about cities is key, however. Bauer also said this kind of transition would take longer in rural and more suburban areas.

“If I think of Vermont or some of these states with great distances and no public transportation, yeah, it will exclude those really rural areas for a few decades,” he said. “Those really rural, country-like areas, I say it takes much longer to find an economic model that works.”

But overall it’s enough of a trend that the auto industry is preparing for a reality in which car sales will decline.

maven appAP/Paul Sancya

Take General Motors, for example, which launched its car-sharing service Maven in January. Maven expanded into San Francisco, its ninth city, in early October.

Dan Grossman, the chief operating officer of Maven, told Business Insider that launching the service was a way to prepare GM for the reality that millennials weren’t as interested in owning cars.

“What’s happening in general, millennials, younger people, car ownership in and of itself is not the most important thing,” Grossman said. “I got my license at 16 years old in one second. I got my car at 17. It was just very important. Nowadays, the whole notion of owning a car is changing.

“So if that’s changing, GM can either throw incentives at you, discount the car … Or, we can take that money and invest it in other businesses, like car sharing,” he continued. “All of this creates this additional revenue stream.”

Grossman added that Maven was also a natural extension of GM’s self-driving-car ambitions. GM invested $500 million in Lyft to build self-driving cars in January, and it acquired the autonomous-car startup Cruise Automation in March.

“If the autonomous world is going to be real, and everyone thinks it will, we already own a tremendous company [Cruise Automation] that can deploy either in a GM product or car sharing,” he said. “Meaning, maybe you get a Maven one day where it just shows up at your door.”

Tesla autopilotTesla

Of course, Maven is by no means the first attempt at a car-sharing service.

There’s also Zipcar, one of the first options that was founded in 2000. Getaround, a car-sharing service founded in 2009, gives drivers direct control of when and where they make their cars available. It received a roughly $10 million investment from Toyota in October.

Uber recently launched self-driving cars in Pittsburgh as part of a pilot program, highlighting its ambition to bring autonomous cars into its existing ride-hailing network. Tesla also plans to use its cars, which are being produced with self-driving hardware, for a ride-hailing service called Tesla Network.

BMW also has a car-sharing service called ReachNow, as does Ford with GoDrive.

Google is reportedly partnering with Fiat Chrysler to launch a fleet of robot taxis by the end of 2017.

All of these projects name only a few of the different strategies Silicon Valley startups and traditional automakers are taking to prepare for the decline in car ownership.

uber driverless carBusiness Insider/Corey Protin

But as with any theory, it’s important to take these timelines with a grain of salt.

Even if most automakers are able to produce a self-driving car by 2025, the regulatory environment will play a huge role in determining how the vehicles roll out.

The federal government has been more on board with bringing autonomous cars to fruition, as seen by its releasing regulatory guidelines for the technology. Elaine Chao, President-elect Donald Trump’s choice for transportation secretary, has supported Uber and Lyft when it comes to labor regulations.

Whether that support will translate over to self-driving cars has yet to be seen, but her existing support of the startups and belief that government “must not stifle the innovation” could bode well for companies looking to use self-driving cars in a taxi-fleet setting.

Still, whether people will embrace ride-hailing to the extent Bauer and Grossman are speaking to remains to be seen.

A new Strategic Vision Study also found that millennials would rather own a car than rely on ride-hailing services, Bloomberg first reported. In 2014, millennials bought more cars than Generation X for the first time.

So even though millennials are embracing ride-hailing services, the death of car ownership may not be as imminent as some experts think it is. Still, the auto industry is preparing regardless.