Automakers who are expecting to avoid a collapse in vehicle demand because autonomous vehicles will be replaced more frequently are in for a nasty shock because I calculate that their maths is wrong.
The most important factor in vehicle demand is miles driven because it is this that is the biggest determinant in how many vehicles need to present in a market and how often they need to be replaced.
Consequently, any realistic analysis of demand for vehicles whether they be manual or autonomous, petrol or electric must take this into account.
In an interview with The Daily Telegraph (see here), John Rich, the operations chief of Ford Autonomous Vehicles says that decreasing demand for vehicles is the issue that worries him the least.
He also goes on to say that he expects the life span of Ford’s autonomous vehicles will be four years.
It is not difficult to see where this estimate comes from and at a very high level, it is correct.
RFM calculates the capacity of an autonomous vehicle at 164,250 miles per year which is derived from US average speed of 25mph, 18 hours a day (6 hours charging), 365 days per year.
If the useful life of an electric vehicle is 500,000 miles (Tesla) then one would need to replace the vehicle every 3 years which is not so far from what Ford is saying.
However, this does not take into account miles driven which I believe will be the real driver of vehicle demand in any scenario.
In the USA 3.1tn miles are driven every year which is slowly expanding at a sub-economic growth rate and there are currently 250m vehicles present in the market.
RFM expects that this figure in by 2047 will have reached 3.4tn miles per year.
These vehicles travel 12,500 miles every year on average giving utilisation of just 4%.
In a fully autonomous scenario, RethinkX calculates (demographics, rush hour etc) that the USA market could be fully served with 44m vehicles.
RFM estimates that in 2047 (assuming no material change to demand), the transition to autonomy will be essentially complete with 44m vehicles present in the market.
If 44m vehicles are travelling 125,000 miles per year (which is what would be required to meet Ford’s 4-year life forecast), then the market would need to be demanding 5.5tn miles.
Furthermore, with every vehicle being replaced every 4 years, demand would still only be 11m units some 37% below where it is today.
Even in Ford’s scenario, declining vehicle demand is the biggest issue it faces in the long-term.
It would appear that the OEMs have not thought much past replacement rates and as a result are drastically underestimating how weak demand for vehicles may become.
RFM’s base case is 3.5tn miles driven by 44m vehicles giving 78,400 miles per year per vehicle and a requirement to replace each vehicle after 6.4 years.
This gives vehicle demand of 6.9m units some 60% below where demand is today.
In order to keep demand for vehicle flat at around 17m units, the market would need to demand 8.8tn miles driven by 53.6m vehicles being replaced every 3 years.
However inaccurate RFM’s miles driven forecast may be, I think it is very unlikely that the market will demand 8.8tn miles which is some 2.6x higher than RFM’s current forecast of 3.5tn in 2047.
Consequently, rapid replacement of vehicles will not save the OEMs which is why they must explore other revenue possibilities such as digital services in their vehicles.
Failure to achieve this is likely to result in massive consolidation resulting in the same number of brands but only 3 or 4 companies making vehicles globally.
I remain very cautious of any position in companies that make cars for a living.
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