Thanks to technology, alternatives to car ownership are more prevalent and viable than ever. Leading the push are ridesharing companies like Uber and Lyft. Is the convenience and affordability of ridesharing enough to completely forego car ownership? Not yet, but that day isn't far away.
Uber vs Lyft
Initially, we wanted to compare Lyft and Uber head-to-head. Our goal was to find out which company offered the best overall ridesharing experience. That included pricing, wait time, driver quality, and more.
Our experiment consisted of two people commuting to and from work with rideshare for twenty days. I used Uber and Lyft to go to and from my office in Seattle. My colleague did the same thing at our Denver office. Together we completed 80 rides – 40 with Lyft and 40 with Uber.
We found that, in terms of cost and service, both companies are nearly identical. My commute was about 5 miles, and my average trip cost $19.89 and took 19 minutes and 53 seconds. My colleague in Denver paid $19.59 per ride for a 10-mile trip. In Denver, both Lyft and Uber charge a cheaper per-mile fee than Seattle.
Pricing varies by city (and surges), but the average cost for a ride is very similar for both companies. Most drivers we encountered did rideshare full-time for both Uber and Lyft. Anecdotally, many drivers say Lyft is better at communicating with drivers. On the other hand, many drivers credit Uber for having a larger customer base, meaning more potential rides.
It's no surprise that Lyft and Uber offer nearly identical pricing. Competition ensures that neither company can afford to charge more than the other. It's a race to the bottom line.
Once we concluded that the cost of Lyft and Uber is nearly indistinguishable, our focus shifted.
Is Using Uber and Lyft Cheaper Than Owning a Car?
I thoroughly enjoyed relying solely on rideshare to commute. Not having to drive in gridlocked traffic or pay sizeable sums for parking was a huge benefit. Instead of sitting in traffic behind the wheel, I spent my commute reading, chatting with the driver, or day dreaming. It's a better way to start the day, and I'd gladly trade my car for ridesharing – if it makes financial sense.
That brings up the crux of this article: is it worth it to forego car ownership for ridesharing?
We're approaching a point where owning a car won't be a necessity for convenient transportation. Uber has been transparent in their end goal. They want to make ridesharing so convenient and affordable that you don't need to own a car. In 2015, former Uber CEO Travis Kalanick said, "Uber doesn’t grow if car ownership is cheaper than taking Uber." We did the math, and their goal looks achievable.
Cost of using rideshare daily
Based on our experiment, relying solely on rideshare to get around Seattle costs $13,963 per year. It's slightly cheaper in Denver at $13,755 per year due to a lower per mile fee and per minute fee.
These numbers are based on two cross city trips a day for a year with rideshare. We excluded holidays. From our experiment, the average trip in Denver costs $19.59 and $19.89 in Seattle. Lyft adds a per mile fee of $1.35 and a per minute fee of 24 cents in Seattle. In Denver, Lyft charges $1 per mile and 13 cents per minute.
As it stands, exclusively using Lyft or Uber to get around town isn't cheap.
Cost of car ownership
We've established the current cost to use ridesharing for an entire year. Now let's put a price tag on car ownership. AAA tracks car costs across the board, and they release annual reports on the cost of owning a car. These are the average yearly costs to own and drive a new sedan:
These numbers account for several factors:
- Maintenance and repair
- License, taxes, and registration
- Finance charges
Interestingly, the cost of car ownership is trending downwards. It's dropped by over one percent a year since 2012. Propelling the decrease is primarily cheaper gas, lower finance rates, and alternative fuels.
If these trends hold up, forecasting an annual decrease in the cost of car ownership by about one percent a year isn't unreasonable. If that's correct, the annual cost of owning a car in 2027 will be $7,598.
When will it make sense to trade car ownership for rideshare?
The biggest roadblock for rideshare companies to lowering costs is obvious: human drivers.
To illustrate this, let's break down the $19.89 average Seattle trip. We'll use Lyft, because they are more transparent about their rates:
- Average trip distance was five miles. Lyft's charges a per mile fee of $1.35 in Seattle. That total comes out to $6.75
- Average trips length was about twenty minutes. Lyft charges a per minute fee of 24 cents in Seattle. That total comes out to $4.80
- Lyft charges a $2.00 service fee and a 24 cent Seattle city fee.
- Lyft charges a base fare of $1.35
When you add that up, it totals $15.14. That leaves an unaccounted $4.75. For simplicities sake, let's round that amount up to $5 and assume that amount goes entirely to the driver. In reality, part of the per mile and per minute fees go to the driver as well. Though Uber advertises their commission is 25 percent, its often closer to 50 percent. For this experiment, earmarking $5 (25 percent commission) for the driver is conservative.
If the experts are right, we're very close to a fundamental transformation in transportation as autonomous vehicles become common. In fact, driverless cars are already traveling on roads across America. Google, Uber, and Tesla are just some of the companies committing major resources to autonomous driving.
Uber CEO Dara Khosrowshahi recently told Bloomberg that he expects the company to have self-driving cars picking up passengers by mid 2019. He also stated that he expects most cities to have self-driving Uber service in the next 10 to 15 years. Experts estimate that driverless cars will cost 35 cents per mile for customers. Compare that to Seattle's current Lyft rate of $1.35 per mile.
If Khosrowshahi is right, most cities will have autonomous Ubers on the road as early as 2027. And if the predicted 35 cents per mile fee for autonomous ridesharing is true, it'll allow ridesharing companies to dominate transportation. When 2027 comes around, owning a car might be an unnecessary luxury.
With forecasted car ownership and autonomous rideshare costs, let's do the math to see what the future looks like.
From our experiment, we know that an average rideshare trip in Seattle costs $19.89 trip. Let's update it to account for the future of self-driving cars:
- Change the per mile driver fee from $1.35 to the estimated driverless per mile fee of 35 cents.
- Remove the $5 driver's commission.
- With self-driving cars, that $19.89 trip ends up costing $9.89.
- With average trips costing $9.89, the cost of using rideshare for an entire year in Seattle falls to $6,943. That's a substantial discount from the current estimate of $13,963 per year.
Following the math in Seattle, here's how things would shake out in Denver:
- Change per mile driver fee from the current $1 to the projected driverless fee of 35 cents.
- Remove $5 driver's cut.
- With self driving cars, that $19.59 trip comes out to $8.09.
- That's $5,679 per year compared to the current $13,755.
This graph shows the trajectory of the cost of rideshare versus owning a car:
So, what do all these stats mean?
Yes, that’s a lot of data to process. But when you lay it out on the table, one thing becomes clear: by 2027, owning a car may very well cost more than relying exclusively on rideshare companies like Uber and Lyft. Let's summarize the key points discussed above and shown in the graph:
- Uber’s CEO states that most cities will have self-driving rideshare cars by 2027.
- Experts estimate that driverless cars will come with a 35 cent per mile fee. Currently, Lyft charges $1.35 per mile in Seattle.
- According to AAA, the cost to own a car is decreasing by about one percent a year. If that holds up, owning a car will cost about $7,598 per year when driverless cars hit the streets in 2027. This number includes fuel, insurance, maintenance, depreciation, and more.
- Our study found that an average rideshare trip currently costs $19.89 in Seattle and $19.59 in Denver. Relying only on rideshare comes with a yearly cost of $13,963 in Seattle and $13,755 in Denver. And we conservatively estimate a $5 cut for drivers per ride.
- With driverless cars, we can remove the driver’s cut and lower the per mile fee to 35 cents. That drops the price of an average ride from $19.89 in Seattle and $19.59 in Denver to $9.89 and $8.09, respectively. Self-driving cars put the yearly price of rideshare at $6,943 in Seattle and $5,679 in Denver.
Let’s tie it all together. By 2027, once driverless cars are common, relying exclusively on rideshare will cost less than owning a car. Car ownership will cost an estimated $7,598. Ridesharing will cost $6,311, thanks to no driver fee and a lower per mile fee.
Of course, there are several factors that could impact this timeline.
Our math experiment is not flawless. There are a few issues to consider.
First, ridesharing is most viable in dense areas where parking is at a premium and rideshares are readily available. Our experiment focuses on two urban areas – Seattle and Denver – for that exact reason. It'll take much more than a decade before it makes sense for someone in Wyoming, for example, to ditch their car.
Another major problem is monopolization. A huge reason that Lyft and Uber rides are so affordable is because both companies are competing. Without competition, Uber would certainly charge higher rates. If one company can monopolize autonomous ridesharing, prices won't stay stable.
Fortunately, there's a ton of competition in the transportation market. Between Google, Lyft, Uber, Car2Go, ReachNow, Tesla, the rideshare race is on. A robust and competitive market should ensure that consumers have plenty of options to choose from.
The advent of electric vehicles will also radically transform the car and ridesharing landscape. Ideally, lowered fuel prices will drop transportation costs. Tesla founder Elon Musk is clear in his goal to revolutionize car sharing. He envisions a future where Tesla owners can allow their car to autonomously rideshare when they aren't using it. That will certainly impact the rideshare economy.
Finally, there will be growing pains for autonomous cars. Car accidents claim the lives of tens of thousands of Americans every year, and about 94 percent of accidents are due to human error. Even so, the rare fatality involving a driverless car is controversial to say the least. Two recent fatal accidents with self-driving cars from Tesla and Uber have set off considerable debates and discussion. Even though autonomous cars are statistically safer, there's an underlying fear. A recent poll shows that about 50 percent of people think self-driving cars are less safe than human drivers.
A lot must happen before our roads are filled with self-driving cars. But the writing is on the wall, and fundamental transportation changes are underway. Experts are boldly claiming that children born today won't learn to drive. Let's hope it's a positive change.