Tesla May Have Announced the Breakthrough Needed to Make EVs Affordable for Everyone

Jul 27, 2023

Before Powerwall 2.0, the solar roof, and a strong third-quarter earnings call, the big news from Tesla was that all new vehicles would be equipped and shipped with fully automated driving hardware installed.

With the new hardware installed -- and Tesla's announcement that it has achieved all necessary technological breakthroughs for fully automated driving (if true) -- it seems that we are now simply waiting on regulators to allow fully automated driving.

But there's another less-discussed part of Tesla's announcement -- and it may be even more important for achieving electric-vehicle ubiquity.

Tesla announced its upcoming Tesla Network, which will primarily be made up of its own fleet of self-driving cars and its own ride-hailing app much like Uber and Lyft -- so watch out, Uber and Lyft, you’ve got a muscular new competitor playing on your turf.

But here's the real game-changer: Tesla stated that regular drivers may opt in to the Tesla Network and rent out their car for ride-hailing revenue. This is not the same as Uber or Lyft today, where you use your own car, on your time and on your own schedule, to pick up passengers for some extra money.

Rather, this new option would (at least in theory) allow you to hit a button on your phone to make your self-driving car available to people seeking rides. You could then sit on your couch watching football and drinking beer while your car makes you some money. And since the car never gets tired or needs a break, except to charge, it could conceivably make you a decent amount of money.

This is really cool simply as cutting-edge new technology, and shows how far and how fast we’ve come (assuming this will actually happen anytime soon, which I’ll discuss further below). It could transform the market by making EVs more accessible and affordable -- a development that industry watchers like me have acknowledged is required in order for EVs to gain significant market share.

EVs still make up less than 1 percent of global EV sales, but that figure is growing rapidly. The key hurdle to date has been the lack of an affordable long-range EV model. Now, we’re on the cusp of clearing that hurdle as the Chevy Bolt goes on sale this year and the Tesla Model 3 comes to market late next year.

But affordability is a highly relative concept. Most industry watchers have agreed that the Bolt and Model 3 qualify as "affordable" because after tax credits and state rebates they’ll be in the high-$20,000 to low-$30,000 range new. With options, however, these prices may rise substantially.

In 2016, the average cost of a new car in the U.S. is close to $34,000. But the bestselling cars -- the Toyota Camry and Corolla, the Honda Accord, the Nissan Altima and the Honda Civic -- have average price tags that are far lower. It seems likely that for EV sales to really take off, the full price will have to be well under $30,000.

Even though fuel costs for EVs, as well as maintenance costs, are quite a bit lower than they are for traditional cars, it can be challenging for consumers to factor these lower lifetime costs into their purchasing decisions. At the same time, many people simply don't know about the benefits of EVs, or even of their existence. Lack of consumer awareness and outreach continues to be a major problem.

We are faced, then, with the twin problems of relatively expensive vehicles -- from the viewpoint of the average consumer, anyway -- and a lack of awareness about the costs and benefits of EVs.

If, however, a new Tesla Model 3 owner could volunteer her car to make money while she lounges at the pool, or while she works, or while she sleeps, and can make a sizable sum of money by doing so, we can see the potential for true affordability to quickly influence consumer decisions.

What if a new Model 3 could pay for itself or even make the owner money? What kind of impact would this have on EV adoption rates?

Let's look at some numbers. I am the proud owner of a Model 3 reservation, made on the first day that the reservation became possible earlier this year. I will supposedly receive my Model 3 in late 2017. A friend of mine currently works for Uber part-time in Santa Barbara, and I’m going to use her income information as the basis for my calculations here.

She currently makes about $15 an hour when she's working, though it varies by time of week and time of day. I’m just going to use the average figure here. If I were to rent out my car for 15 hours a week of ride-hailing on Tesla Network, at this hourly rate I can expect to receive $225 a week in income, or about $964 a month.

Subtracting $80 in monthly electricity costs, insurance costs, as well as 35 percent in taxes, reduces my $964 to $504 a month.

Monthly loan payments for a $27,500 car, with $1,000 down and 5 percent interest over five years, come to just over $500. So my total cost of ownership would be a positive $4. If this is actually feasible, as Musk himself seems to think it is, a person with decent credit could get an amazing car for free, essentially, other than the assumed $1,000 down payment.

Figure: Income Potential for Self-Driving Tesla Network Cars

With over 140 million miles of Autopilot use logged as of last August, Tesla drivers reported zero fatalities over the first 130 million miles, compared to a U.S. fatality rate in conventional cars of 1 every 94 million miles. This is not a huge difference at this point, so we’ll stay tuned for more data to establish exactly how safe self-driving will be.

There have been some highly publicized and unfortunate accidents while Tesla vehicles have been in autopilot mode. German and Dutch regulators have urged or even required Tesla to change the name of its Autopilot feature to let consumers know that it's not meant to be a true autopilot. Clearly, there is room for improvement in Tesla's technology.

But even if we assume the handful of accidents that have been reported were indeed due to Autopilot mistakes, we should keep in mind the positive track record for Autopilot so far compared to driving -- and the fact that it's still a very early-stage technology that is all but guaranteed to improve dramatically in the coming years.

Will this kind of data be enough to sway regulators and the public to believe that cars with no drivers should even be allowed on the road?

Whipping out my trusty crystal ball again, I don't see cars without drivers being allowed in the next five years -- even if Tesla has cracked the technological problems entailed in fully automated driving under all conditions. I think we’ll need to see a track record of fully automated cars with their drivers in them, at least for a few years, before regulators begin to allow driverless cars.

Five years, however, is essentially nothing in the grand scheme of things. If I’m right, it means I’ll actually have to make monthly payments on my Model 3 when it arrives. And that's a bummer. No free car for me just yet. But give it a few years and that gorgeous Model 3 may well be earning me some money.