Waymo just announced a new trial for their self-driving program. It seems like they are getting closer to providing a commercial self-driving taxi service.

What about the economics of self-driving cars? How much money there is in providing such a service?

My back-of-envelope calculations inevitably lead to at least $100 million/year in profit from San Francisco alone assuming being at least 2x cheaper than taxi or Uber, drinking all of their milkshake.

How big is the market?

In San Francisco alone there are 1.8k taxis and 45k registered Uber and Lyft drivers.

Let's split the difference and say that replacing current usage of taxis and Uber requires 10k cars.

Method 1: taxi drivers salary

According to Wikipedia, in US there are 234k taxi drivers making $22.8k per year on average.

For simple math let's say the salary is $20k. Multiply by 10k cabs, it's $200 million per year. That's profit margin Waymo has to play with it. Let's say they decide to pocket only half of that, using the other half to make their service cheaper than taxis. That's still $100 million from a single city in the US.

Method 2: Waymo cost vs. taxi rates

Let's try a different way of calculating this.

The cheapest UberX fare from San Francisco Airport to San Francisco Downtown is $25. The distance is 13 miles. IRS federal mileage rate is $.54 per mile. This is meant to cover TCO (Total Cost of Ownership) i.e. gas + car depreciation cost. That's $7.02 dollars, let's round it down to $7. Let's say they decide to make $7 profit, so the cost to user is $14. That's $11 less than Uber. Let's say a single car makes the equivalent of 4 such trips (~2hrs of active driving on average per day), making $28 per day of profit. That's around $10k per year. Again we arrive at $100 million per year profit while still offering radically cheaper prices.

Method 3: Waymo cost based on ZipCar cost

ZipCar costs $10/hr and has a very similar cost structure to potential self-driving fleet of taxis. ZipCar pays for the car and gas and manages to make a profit. They have 148 locations, probably 500-1000 cars.

Uber ride sfo downtown -> sfo airport is ~40 minutes and costs $25. So Waymo could ask $37.5 for 1hr. Assuming they can make a profit on $10/hr, they could ask for $18/hr and be half as cheap as Uber. The result is similar to what method 2 gives us.

Random thoughts

Let's multiply that by 10 big cities in only sunny U.S. states (California, Nevada, Arizona, Florida, Texas etc.). We're up to 100k cars and $1 billion profit.

I believe those are conservative numbers.

On one hand self-driving hardware will increase the cost of the car which might not be covered by $.55 IRS guidelines.

On the other hand, buying 100k cars means that you can expect at least 20% price reduction compared to what a taxi driver would pay. You save on dealership fees of 4%-15%. Buying in such bulk means the car company will be willing to forfeit a bit of profit margin for large, upfront order. They have 10%-20% to play with.