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Paying for Self-driving By the Hour: Will It Pay Volkswagen's Bills Though?

VW has floated the idea that they could enable consumers to pay by the hour for self-driving functionality. Is this just a thought bubble, or something we should take seriously?

In an interview with German media outlet Die Welt, VW's board member for sales Klaus Zellmer said, “With autonomous driving, we can imagine that we switch it on by the hour… We assume a price of around seven euros per hour. So if you don't want to drive yourself for three hours, you can do so for 21 euros. That makes autonomous driving accessible for everyone — and not just for those who can afford a car with a five-digit surcharge."

This business model isn’t just limited to self-driving, or something that is still far off into future, with Zellmer suggesting that other extra digital services could come as early as Q2 next year as over the air updates to its ID series of electric cars. Basically, consumers will be able decide on extras for the car prior to renting a car and then book additional functions by the hour or by the day.

In terms of self-driving, rather than developing the technology strictly in-house like Tesla (the automaker that pioneered over the air updates and software add-ons that users can purchase after-sale) Volkswagen has partnered with several companies developing robotaxi services for passenger services. There are numerous robotaxi pilot projects taking place in China from Baidu, DeepRoute and AutoX and services have already started in Las Vegas from Motional and Lyft.

Personal Comment:

For years we’ve been reading about how self-driving cars are going to change the world – how much of a paradigm shift it’s going to be. Personal vehicles will be completely replaced by robotaxis... It won’t make sense anymore to even own a car because robotaxi rides will be so cheap... In a way, this announcement of sorts by VW is perhaps a bit more exciting than the hyperbole around self-diriving cars we’ve all grown used to reading by now. We’re actually getting a glimpse not into the big-picture vision of the utopian (or dystopian) future, but the actual nitty gritty of business-models. This suggests that VW at least thinks it might be close to putting something up on the table.

However, there are some big questions about whether this pay-per-use approach could actually be financially feasible. The main issue is two words, ‘cash flow’. Actual numbers for the current cost of a self-driving hardware stack (cameras, sensors, computing power and control systems) are hard to come by, but some figures were revealed by Waymo’s (now former) CEO in an interview in January this year. According to John Krafcik, “If we equip a Chrysler Pacifica Van or a Jaguar I-Pace with our sensors and computers, it costs no more than a moderately equipped Mercedes S-Class.” Some quick maths here subtracting the cost of a Jaguar I-Pace from even a base model Mercedes S-Class shows that there is at least a US$24,000 cost difference. It’s difficult to see how this upfront cost wouldn’t be a show-stopper for VW’s pay-per-use idea.

But let’s assume (for fun) that the hardware stack Volkswagen’s partners are working with are an order of magnitude less expensive than Waymo’s. In that case, if any auto company could pull this off, it would be the likes of a VW (or Toyota) who has the capital to spend on equipping their vehicles with self-driving hardware without worrying too much about recouping the costs right away. But at the end of the day, even those with deep pockets need to be realistic about cashflow and ROI. Users ultimately need to be willing to pay for the self-driving functionalities often enough (and soon enough after purchasing their vehicles) for the carmaker’s investment in the hardware stack to make sense. It is on this point that VW, unlike other smaller OEMs, can afford to experiment a bit (at least initially) with such a business model. Maybe it’ll pay off big-time and secure a recurring source of after-sales revenue for them – something that traditional automakers are craving for in an electric car world where they can no longer depend on selling spare-parts. But anyone else without such deep pockets probably shouldn’t bet on it.

Written by Bobby Chen
RISE Mobility & Systems (Elektromobilitet)