Rough Economics for Driverless Vehicles

Waymo has begun offering (“selling”) driverless rides to members of the general public in the Phoenix area. This is super-exciting, both because of the technological achievement and also because of what this advancement will make possible. And that relates to economics.

With paying customers in the vehicle, each ride covers (or at least subsidizes) its own cost. This means that, over time, Waymo can afford to drive many more miles than it could if it had to cover the cost of each ride for testing purposes.

Let’s do some math to see how that works out.

Waymo is currently logging about 1 million self-driving miles per month. Let’s assume all of these miles are part of the Waymo One service in Arizona — just for the purpose of this exercise.

Waymo’s blog post this week shared that “5–10% of our rides in 2020 were fully driverless.” To keep the numbers easy, let’s multiply 1 million by 10%, which yields 100,000 driverless miles per month.

How much money does Waymo save by going fully driverless?

Presumably the driverless vehicles are operating in low-speed environments, at least to start. That means lots of intersections and stopping. Let’s assume the driverless vehicles average 10 miles per hour. That means that, in order to log 100,000 driverless miles in a month, Waymo would have to drive for 10,000 hours.

I’m honestly uncertain of the policies and economics at Waymo One, but let’s imagine that a vehicle normally has a single operator that costs Waymo $30 per hour (wage plus taxes and benefits). That implies an operator cost of $300,000 per month (10,000 hours times $30 per hour), or $4 million per year, to log driverless miles.

That is a lot of money to me, but it doesn’t actually feel like that much money for Waymo. But now imagine scaling up.

On average, for human-driven vehicles (not Waymo), an automotive fatality occurs once every 100 million miles. Imagine that we want Waymo to drive an order of magnitude more than that, every month, in order to validate the safety of its vehicles. That’s 1 billion miles per month. Now the driver cost becomes 1 billion miles, divided by 10 miles per hour, times $30 per hour, equals $3 billion per month. That’s prohibitive, even for Waymo.

But if the vehicle becomes driverless, those costs go away.

For me, that’s one of the really exciting aspects of Waymo opening to the general public. If riders will pay enough to cover the marginal cost of the ride without a driver, then it becomes possible to massively scale testing and validation.

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