Thread by @jpr007

WHAT ARE THE REAL ECONOMICS OF RUNNING A CALL-TAXI NETWORK ?

Two years ago we worked out the economics for various kinds of taxi fleets

- here is a typical case for an ICE Taxi Network Operator in a licensed Medallion market

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Here is a counterpart version for a BEV Call Taxi

Let us start with the actual vehicle operation

1. At $1.00 per mile a call taxi might earn $150 per day or $45,000 per year

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This depends on keeping the taxi busy in a world where demand is not constant 24/7 and where too many vehicles available can lead to excess capacity with vehicles sitting idle

- so there is asymmetric risk for less daily income with little opportunity for more daily income

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2. The fuel cost for a BEV call taxi is low if electricity is priced at $0.10 per kWh, being less than $7 per day or $2,045 per year

- $0.10 per kWh is my global benchmark for what we should be paying for electricity today anywhere in the world

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The real COST of electricity is going down from that level and will continue to do so as renewable energy essentially has a marginal cost of $0 with capital cost been the primary economic factor

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But the real PRICE that people are paying for electricity is often much higher than that because of poor government policy (e.g. Germany) or simply high markups imposed by charging networks

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It could easily cost 4x or more to charge a BEV on a third-party's system, or $8,000 per year

- so the Network Operator needs to work on providing a fair pricing environment for charging its BEV fleet

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For the sake of illustration, let's assume that the operator manages to average the charging cost to $0.20 per kWh or $4,000 per year

So now we have $45,000 - $4,000 = $41,000 Gross Margin left after paying for the fuel

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3. The Network Cost is the most obvious to be considered next, and here we have the two examples of Uber and Lyft

This is Lyft's Income Statements for the last five years

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And this is Uber's Income Statements for the last three years

Both 2020 10-K Reports are available at JPR007 Library

As best we can estimate, in both cases it costs about $0.70 per Revenue Mile to provide the Network service

- this is $105.00 per day or $31,500 per year

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4. We can expect the Network Cost to cover the same things as you get today from Uber and Lyft :

- Insurance for the period while the vehicle is in commercial operation, and this is both big and important

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- Marketing and Promotions to attract and keep customers, and remember that customers have no loyalty to the Network, so it is a continuous competition for their patronage

- Despatch system and its operation

- Billing and payment

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- overall Administration and Management, including all of the legal, regulatory and licensing requirements for every jurisdiction that the Network operates in

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5. So now we have the following annual income :

$45,000 Fare Income at $1.00 per mile

$ 4,000 Fuel Cost at $0.20 per kWh

$31,500 Network Cost at $0.70 per mile following the Uber and Lyft model

- that leaves $9,500 per year to cover the remaining costs

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6. These remaining costs need to include :

- Daily Cleaning Cost

- Maintenance and Repairs, including wear and tear on tires that must drive 90,000 miles per year

- Cost of the Vehicle

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7. What is a reasonable number for the Cost of the Vehicle ?

CASE A :

Purchase Price = $40,000 + $10,000 for FSD = $50,000

Residual Value = $0

Service Life = 5 years = 60 months

Interest rate = 10% per annum

Full Cost = $1,062 per month = $12,750 per year

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CASE B :

Purchase Price = $25,000 + $10,000 for FSD = $35,000

Residual Value = $0

Service Life = 5 years = 60 months

Interest rate = 5% per annum

Full Cost = $660 per month = $7,925 per year

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And remember that these are Fixed Costs

- the Vehicle Owner has to pay them regardless of whether the vehicle is working or not, and regardless of whether it earns any Revenue

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$45,000 Fare Income at $1.00 per mile

$ 4,000 Fuel Cost at $0.20 per kWh

$31,500 Network Cost at $0.70 per mile

$12,750 ~ $7,925 Vehicle Cost

Total = minus $3,250 ~ $1,575 per annum

BEFORE covering :

- Daily Cleaning Cost

- Maintenance and Repairs including tires

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Now of course, no-one is making a $25,000 vehicle at present, and certainly not one that is suitable for everyday call-taxi service

But even if they were, this business looks like a breakeven or loss-making proposition at best if you price it at $1.00 per mile

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