In this article, originally published on qwekee.com, Nerio Celkonas, founder of qwekee, analyze the profitability of car sharing.
Many are asking me whether car sharing is a lucrative business, and whether it is profitable. After all, automotive industry is about to change in the recent years. It’s starting to irritate us because it takes us out of the comfort zone. This is understandable, nobody likes changes. But let’s not be Nokia, Blackberry or Kodak, and at least try to calculate.
I will briefly remind you that the automotive industry is rapidly evolving in two different directions at the same time – because trends simply tear it apart in different directions, but there is no other way.
One direction is the use of excessive resources or increase of efficiency.
Cars are sold at their full value but only used 5% of the time. Therefore, there are only two logical outcomes.
1. Car manufacturers offer the on-demand service, i.e. to pay only for 5% – only as much as you use. If you notice, this is already happening (all TOP10 brands have already invested in sharing or rental platforms).
2. Car owners come together to sharing platforms and groups (collective collaboration) and monetize surplus resources. This is already happening (Getaround, Drivy, Turo).
The second direction is the introduction and development of new technologies. This is cost reduction.
1. Electric cars and infrastructure (10 times cheaper than petrol).
2. Self-driving or autonomous cars (robocars) (2 times cheaper because there is no need for a driver).
As a complete picture, we should see self-driving robocars in the streets in 2020. Thus, the business model is changing today, and for all players. Car rentals, OEM‘s, fuel companies, individual owners, taxis, professional drivers etc.
So if you agree with me that this is not my imagination for 2090, and if you already notice some kind of signs around yourself, it is time to take a calculator and count.
I used the euro currency since it is the midway between the dollar and the pound, and it helps to easily understand the essence without burdening you with too much mathematics.
Car sharing: at first, let’s have some statistics from our experience and customers.
1. In a city with a population of 500 thousand, 100 sharing cars generate about 1,000 orders per day (it is on the second year of operation, but with changing use, the number is reached more quickly every year), i.e., each car is used on average 10 times by different people every day. When making a business plan, do not forget that these are 18-40-year-old smartphone holders.
2. On average, one trip takes 20 minutes and its length is an average of 18 km. It is when we determine the price not for a minute but per kilometre, people tend to drive faster ;). It means that one car is used for about 3 hours per day. With growing popularity of the service, this number will only grow.
3. The average selling price of one-minute is about 0.30 cents (plus the cost of extra minutes without additional service) making it difficult to calculate the number of kilometres per minute, in addition, different distances, and different time affects income. It is safer to set the price per 1 km but then you lose the potential synergies. But I will tell you statistically that the average selling price of 1 km is 0.45 ct (all-inclusive: fuel, insurance, consumables etc., without driver – because you drive yourself).
4. Thus, the average daily income is 10 trips, 18 km each, per 0.45 ct and we have 81 euro/day. When the car is used only for 3 hours or 20% of the potential time (15 h out of 24 h) still 80% space is left to grow.
So we have income – about 80 euro per day.
Costs are calculated roughly because sometimes they increase regardless of our intentions, and sometimes the “invisible hand” helps us. We assume that the car will serve for 60 months (5 years) and will drive 4,500 km per month (180 km per day for 25 days) or 270,000 during its entire lifetime. Of course, car rental cars are on average used only for 1.5 years but their residual value is higher.
1. Car depreciation – 12,000 euro minus the residual value of 3,000, and we have 9,000/60 months = 150 euro per month, or 0.03 cents/km or 6 euro per day.
2. Fuel 1 euro excl. VAT in litres (these are the basic costs, so be careful), the prices range from 0.5 cents/litres USD or 1 euro in Europe excl. taxes, but are different in each country. Divide the electric car energy costs by 10. We assume that the compact car fuel rate in the city is 7 l/100 km. Thus, 180 km/day uses 13 litres or 13 euro per day
3. Consumables, accidents, insurance, repair etc. is max 2,400 euro per year, or 11 euro per day.
Thus, the cost is 27 euro per day.
Gross daily income is 53 euro per day/car or 1,325 euro per month (25 days) or 79,500 euro in 60 months. If you buy a 15,000 euro car, net profit you can calculate easily.
Now look at your car rental average income or look to you idle parked car and think twice.
The essential thing here is the income per day, for all 25 days, excluding seasons, because unlike in the case of car rental the customers are not tourists but locals and, therefore, not subject to seasonality.
Gross daily income is 53 euro per day/car or 1,325 euro per month (25 days) or 79,500 euro in 60 months.
If the car is used only for 20 months and drives 90,000 km, the “consumed value” will be lower but 1 km property depreciation cost will change insignificantly. Of course, that “insignificantly” can quickly become very “significant” when you have a fleet of 100 thousand. But these calculations are for beginners to understand the car sharing business economy.
Therefore, business trends are quite clear, electro cars, free floating models in the cities reaching the maximum number of hours per day.
By the way, the same calculation applies for P2P car sharing or collaborative consumption supporters, only the car depreciation price will be lower because of less expensive cars but more expensive operation. Although people usually do not engage in such bookkeeping, which leads to Uber’s business model, when you simply enjoy the daily income because you just need to cover your daily expenses.