Peak Car Ownership the Market Opportunity of Electric Automated Mobility Services

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EXECUTIVE SUMMARY PEAK CAR OWNERSHIP THE MARKET OPPORTUNITY OF ELECTRIC AUTOMATED MOBILITY SERVICES

BY CHARLIE JOHNSON AND JONATHAN WALKER AUTHORS & ACKNOWLEDGMENTS

AUTHORS ACKNOWLEDGMENTS Charlie Johnson and Jonathan Walker The authors thank the following individuals for offering their insights and perspectives on this work. * Authors listed alphabetically. All authors are from Rocky Mountain Institute unless otherwise noted. Josh Agenbroad, Rocky Mountain Institute Rutt Bridges, Author Jackson Crane, Rocky Mountain Institute CONTACTS Lynn Daniels, Rocky Mountain Institute Jonathan Walker, [email protected] Garrett Fitzgerald, Rocky Mountain Institute Leia Guccione, Rocky Mountain Institute EJ Klock-McCook, Rocky Mountain Institute SUGGESTED CITATION Jesse Morris, Rocky Mountain Institute Walker, Jonathan and Charlie Johnson. Peak Car Chris Nelder, Rocky Mountain Institute Ownership: The Market Opportunity of Electric Greg Rucks, Rocky Mountain Institute Automated Mobility Services. Anand Shah, Albright Stonebridge Group Rocky Mountain Institute, 2016. Jiayin Song, Rocky Mountain Institute http://www.rmi.org/peak_car_ownership Bianca Wachtel, Rocky Mountain Institute Jerry Weiland, Rocky Mountain Institute EDITORIAL/DESIGN Editorial Director: Cindie Baker Editor: Laurie Guevara-Stone Art Director: Romy Purshouse

Images courtesy of iStock unless otherwise noted.

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I N E STIT U T ABOUT US

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ABOUT ROCKY MOUNTAIN INSTITUTE Rocky Mountain Institute (RMI)—an independent nonprofit founded in 1982—transforms global energy use to create a clean, prosperous, and secure low-carbon future. It engages businesses, communities, institutions, and entrepreneurs to accelerate the adoption of market-based solutions that cost-effectively shift from fossil fuels to efficiency and renewables. In 2014, RMI merged with Carbon War Room (CWR), whose business-led market interventions advance a low-carbon economy. The combined organization has offices in Basalt and Boulder, Colorado; New York City; Washington, D.C.; and Beijing.

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ABOUT MOBILITY TRANSFORMATION Rocky Mountain Institute’s Mobility Transformation program brings together public and private stakeholders to codevelop and implement shared, electrified, and eventually autonomous mobility solutions. Working with U.S. cities, it leverages emerging technologies and new business models to reduce congestion, decrease costs, increase convenience, enhance safety, curb emissions, and ensure economic growth. Please visit http://www.rmi.org/mobility for more information.

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I N E STIT U T The rise of automated mobility services could be one of the most interesting and complex disruptions of the modern era. INTRODUCTION

Personal vehicles have dominated the U.S. mobility system for nearly 100 years. But we are now in the formative stages of a powerful confluence of cultural, technological, and societal forces. It is possible that a new mobility system will emerge in the next few years that is superior to our existing system in almost every way. This report provides guidance on what to expect so that stakeholders can prepare today.

Analysis by leading organizations and experts indicates the technical, logistical, and economic plausibility of a future where most mobility needs are met by mobility services, enabled by autonomous driving technology, and powered by electric powertrains. This future system has the potential to

reduce costs by over $1 trillion, reduce CO2 emissions by a gigatonne, and save tens of thousands of lives per year in the U.S. alone.

With so many advantages, hundreds of billions of dollars could shift away from personal vehicle products and services to mobility service providers like transportation network companies (TNCs), technology companies, and the nimble automakers that are able to pivot. What is unclear is the rate and scope at which the disruption could occur and the impact it will have on determining winners and losers, both of which are highly dependent on the decisions made today by stakeholders (financial institutions, automakers, new entrants, electric utilities, governments, etc.).

This report provides strategic decision makers with potential market sizes and plausible rates of mobility service proliferation that could occur under reasonable circumstances. The report is the product of analysis to determine key economic tipping points combined with relevant consumer-adoption data and trends to estimate market sizes, growth rates, and impacts on demand for personal vehicles, gasoline, electricity,

and CO2 emissions. The results suggest that key stakeholders must shift their business models and policies to benefit from this mobility transformation.

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I N E STIT U T KEY FINDINGS

1. By 2018, solely using autonomous taxis for transportation could cost the same as owning and operating a car.

FIGURE 1: BY 2018, AUTONOMOUS VEHICLES COULD PROVIDE TRANSPORTATION SERVICES AT NEAR COST PARITY TO THE TOTAL COST OF OWNING AND OPERATING A PERSONAL VEHICLE—UNDER $1.00 PER MILE.

Effects of Automation on Cost per Mile of TNC Service

$2.50 Automation Fleet Management Costs Cost Autonomous Hardware Driver Net Earnings $2.00 TNC Costs TNC Revenue License, registration Insurance Ownership Costs Financing $1.50 Time Depreciation Parking Maintenance Operating $1.00 Costs Fuel Cost Mileage Depreciation

$0.50 Average Cost per Passenger-Mile Traveled ($ 2015) Traveled Cost per Passenger-Mile Average

$0.00 Personal TNC Automation Automation Automated Vehicle (e.g., Uber) Costs Savings TNC (e.g., Camry)

Upon debut, fully autonomous vehicles could reduce exclusively over a personal vehicle (see Figure 1). the cost of on-demand point-to-point mobility services Despite current technological and potential regulatory like Uber and Lyft to near cost parity with owning barriers, many of the world’s most powerful companies and driving a car (around $0.85 per mile), allowing are racing to deploy automated mobility services as consumers to economically choose these services soon as 2017 in certain U.S. cities.

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I N E STIT U T KEY FINDINGS

2. Electric vehicles make strong economic sense to provide automated mobility service.

FIGURE 2: MODEL YEAR 2018 ELECTRIC VEHICLES WILL HAVE IMMEDIATE COST ADVANTAGES OVER TRADITIONAL GASOLINE VEHICLES IN MOBILITY SERVICES. THIS ADVANTAGE WILL ONLY GROW AS EV TECHNOLOGY MATURES.

Gasoline vs. Electric Vehicle in 2018: Annual Cost Difference per Service Vehicle

+$3K

+$2K

+$1K $1,019 annual savings per vehicle Baseline EVSE Cost

-$1K EV Capital Cost Premium Maintenance -$2K Cost Savings Fuel Cost Savings -$3K EV Cost

Annual Cost per Vehicle at 70,000 miles per year ($ 2015) at 70,000 Annual Cost per Vehicle Gasoline Vehicle Cost

Gasoline Vehicle EV Costs EV Savings Electric Vehicle

At the high mileage driven by mobility service (even without subsidies). As battery costs fall and EV vehicles, model year 2018 electric vehicles (EVs) production reaches full scale, the cost advantages of such as the Chevy Bolt and Tesla Model 3 could save EVs will only grow and should lead to at least $4,000 mobility services providers over $1,000 annually annual savings per vehicle by 2030, equivalent to per vehicle versus a comparable gasoline vehicle ~$200 billion in total fleet savings per year. Economics (see Figure 2). This is due to lower operating costs should impel automated service providers to deploy that more than compensate for higher capital costs electric autonomous vehicles (EAVs).

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I N E STIT U T KEY FINDINGS

3. The total mobility market of the first 26 U.S cities where automated mobility service will likely launch is worth ~$600 billion.

FIGURE 3: RANKING THE MOBILITY MARKET OF VARIOUS U.S. CITIES. IN THESE MARKETS, AT $1.00 PER MILE, ANNUAL REVENUE FROM AUTOMATED MOBILITY SERVICES COULD BE OVER $100 BILLION—OR ABOUT 10% OF THE TOTAL U.S. MOBILITY MARKET IN 2025.

The $120 Billion Opportunity of Automated Mobility Services in the U.S. by 2025 3.3B SEATTLE 5.4B BOSTON 2.8B 20.3B NEW YORK CITY PORTLAND 3.5B MINNEAPOLIS 3.2B 1.6B DETROIT PITTSBURGH 9.6B 4.6B 5.7B PHILADELPHIA SAN FRANCISCO 3.2B CHICAGO $2.0B DENVER COLUMBUS 1.6B KANSAS CITY 1.8B 6.1B WASHINGTON, D.C. 11.7B CHARLOTTE LOS ANGELES 3.5B 6.3B PHOENIX DALLAS 4.3B 3.3B Likely launch markets SAN DIEGO ATLANTA Likely early markets 2.5B 1.8B Risky regulatory markets** Markets with snow AUSTIN ORLANDO 1.8B 5.0B Risky regulatory markets HOUSTON SAN ANTONIO 2.6B TAMPA 5.3B MIAMI Providers in Texas alone could generate about $15B in revenue by 2025

Who stands to proﬁt? Consumers Cities Electrical utilities Car makers Mobility service providers Suppliers

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*Americans spend $600 billion annually on transportation in the 26 cities shown. Of this, automated mobility services could capture up to $120 billion in annual revenue based on analysis of consumer opinion and early adoption behavior. © AUGUST 2016 RMI **The CA DMV is considering regulation that would essentially ban driverless vehicles.

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I N E STIT U T KEY FINDINGS

FIGURE 4: ESTIMATED GROWTH RATE OF AUTOMATED MOBILITY SERVICE IN FIRST 26 MARKETS

Estimated Growth Rate of Automated Mobility Service in First 26 Markets

Fast Growth Scenario Slow Growth Scenario 2,500,000 12%

10% 2,000,000

1,500,000

1,000,000 4% Mobility Market Share S Mobility Market U. Total Number of Autonomous Vehicles Deployed Vehicles Number of Autonomous 500,000 2%

0 0%

2018 2019 2020 2021 2022 2023 2024

Based on existing use of services like Uber and point of $1.00 per mile or lower. By rolling out service Lyft, paired with surveys of consumer acceptance of strategically in U.S. markets, early-to-market automated autonomous vehicles and automated mobility services, mobility service providers could capture over $100 billion the U.S. “early adopter” pool for automated mobility in revenue at the expense of incumbents like oil companies service appears to be quite large, particularly at a price and traditional carmakers.

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I N E STIT U T KEY FINDINGS

4. Automated mobility services could capture two-thirds of the entire U.S. mobility market in 15–20 years.

FIGURE 5: COST OF AUTOMATED MOBILITY VS. PERSONAL SEDAN

Automated Mobility vs. Personal Sedan: 20-year Cost Projection Fleet $1.00 Management Personal Sedan TCO Cost $0.90 Autonomous Hardware $0.80 Mobility $0.70 Provider Automated Mobility Service Revenue (EV Sedan) $0.60 License, Registration $0.50 Insurance Personal Sedan OpEx $0.40 Financing EVSE $0.30 Maintenance Consumer Cost per Mile ($ 2015) $0.20 Battery replacement $0.10 Mileage Depreciation $0.00 Fuel Cost 2015 2020 2025 2030 2035

Second-generation electric autonomous vehicles and would open most of the mobility market to automated services could reduce automated mobility costs below mobility service providers. Potential pitfalls and the operating cost of a personal vehicle (~$0.30/mile). unknowns may limit automated mobility service growth, At this price, car owners could utilize automated mobility but tech leaders, governments, and other stakeholders services frequently/exclusively with no cost increase are working on making the proliferation of electric over driving their own vehicle. Low cost, combined with automated mobility service a reality. increasing breadth of vehicle and service offerings,

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I N E STIT U T KEY FINDINGS

5. Oil companies will lose revenue, utilities will gain, and carmakers will be split.

FIGURE 6: GASOLINE DEMAND WILL DROP SHARPLY AS ELECTRIC SERVICE VEHICLES DISPLACE PERSONAL GASOLINE-POWERED VEHICLES.

Projected U.S. Gasoline Consumption: Baseline and Electric, Automated Mobility Proliferation

Electric, Automated Mobility (Fast) Growth Baseline with CAFE Compliance 4,000

3,000

2,000

1,000

non-vehicle demand Annual U.S. Gasoline Consumption (megabarrels) Annual U.S.

0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Electric vehicles could displace gasoline vehicles very Due to compelling economics, most of the automated quickly in a mobility service paradigm. Due to high service vehicles should be electric by 2025. This quick annual mileage, service vehicles will turn over in about introduction and quick turnover could lead to gasoline five years instead of ten to fifteen for personal vehicles. demand dropping by two-thirds by 2035.

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I N E STIT U T KEY FINDINGS

FIGURE 7: THE INCREASE IN ELECTRIC VEHICLE MILES TRAVELED (EVMT) COULD INCREASE DEMAND FOR ENERGY FROM ELECTRICAL UTILITIES BY 10%.

U.S. Electricity Demand: Baseline and Electric Automated Mobility Proliferation 6

1 U.S. Electricity Demand (trillions of kWh) U.S.

2015 2020 2025 2030 2035 2040

EIA Electricity Demand Projection With Electric Automated Mobility “Fast” Growth

FIGURE 8: WITH MASS AMOUNTS OF EVS FUELED BY A RELATIVELY CLEAN GRID, CARBON DIOXIDE FROM PERSONAL MOBILITY PLUMMETS.

CO2 Reduction in the “Fast” Growth Scenario of Electric, Automated Mobility Services

Reduced Gasoline CO2e Net CO2 Decrease with Added Electrical Grid CO2

Net CO2 Decrease with Added Electrical Grid CO2 (DOUBLE VMT) 1000

900

800

700

600

500 Emissions per Year 2 400

300 (Megatonnes) (2015 Baseline) Avoided CO Avoided 200

100

2015 2020 2025 2030 2035

It is critical that electrical utilities are prepared for a fast vehicle supply equipment (EVSE) siting will be critical influx of electric vehicle demand. Rate design and electric considerations to ensure charging is a boon to the grid.

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I N E STIT U T KEY FINDINGS

FIGURE 9: PERSONAL VEHICLE DEMAND COULD DROP 40% AS FEWER VEHICLES DO MORE WORK, BALANCED BY NEW REVENUE SOURCES FOR THE CARMAKERS THAT EMBRACE THE CHANGING MARKET AND DEPLOY THEIR VEHICLES IN THE AUTOMATED SERVICE PARADIGM.

Peak Car Ownership: Annual LDV Projected Light-Duty Vehicle (LDV) Demand Demand 20

15 Personal Vehicles

Automated 10 Mobility Service Vehicles Millions

EIA Projected 5 LDV Sales Peak Car Ownership 0 2015 2020 2025 2030 2035

Years

OUTLOOK According to our modeling, peak car ownership in the On the positive side, carmakers that excel in providing United States will occur around 2020 and will drop autonomous vehicles and automated mobility services quickly after that. This could lead to a clear delineation stand to prosper greatly in the next two decades. between winners and losers based on which auto As personal vehicle demand drops, demand for companies capitalize on emerging business models autonomous vehicles to perform mobility services will for mobility services and which do not. In addition, grow. Demand for autonomous service vehicles will the speed and complexity of this disruption could compensate for lost demand for personal vehicles favor new entrants that are used to a rapidly changing for several years, but ultimately the vehicle fleet consumer and technology landscape and fast turnover will shrink considerably. But carmakers that provide of product. New entrants also have lower risk of mobility services and autonomous vehicles could reap stranded assets that are already deployed (or planned) substantial profit since our current system costs around for a personal vehicle-centric market. $0.80 per mile, and mature electric automated mobility service could cost only $0.30 per mile. That difference of $0.50 per mile equates to over $1 trillion in total savings that will be split between society, consumers, and the mobility service providers of the future.

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