Rideshare: A Preview of the Future

Want a preview of what the rideshare industry looks like in the next year or so? Look at what’s happening in China and California today. Similar conversations are going down wherever you live.

The first steps toward this new rideshare future scenario are coming online now. Three key elements mold the future of rideshare as an industry and for rideshare drivers. The rideshare future is

  • Fleets versus individual car ownership
  • Electric, because it’s economical
  • Driverless (self-driving autonomy)

China Rideshare

This recent report shows the initial steps being taken by China as it relates to regulating rideshare. In China today, you must drive an electric car if you drive for a rideshare company. No choice.

In the last year, a number of Chinese cities have rolled out rules that ban new registrations for ride-sharing with gasoline cars… The ride-hailing policy strengthens one of China’s most effective ways of controlling the numbers and types of cars on the road—the quota system adopted by the country’s most congested cities. Getting a license plate for fossil-fuel cars in big cities like Beijing and Shanghai can cost as much as buying a new car, while there are also restrictions on when they can be driven. EVs, with their visibly green license plates, aren’t limited to the same extent.

China is promoting electric cars.

They mean business. These policies will put EVs on the road and reduce air pollution.

More than 600,000 drivers on Didi’s platform who use new energy vehicles (NEVs), a category that includes pure electric and plug-in hybrids—is more than double the number this time last year. Didi didn’t provide a breakdown of how many of those are owned by drivers themselves, and by rental companies. The company’s platform includes more than 30 million drivers, including taxis and ride-sharing providers.

Remember, Didi is larger than Uber, by a lot. The Chinese car market also dwarfs that of the US in size. What the Chinese do, the markets do. That will ultimately impact you and me.

Chinese rideshare drivers are paying.

Right now, individual owner/operators (rideshare drivers) must take on the burden of buying and running these new vehicles. Typically, they’re more expensive to buy but much cheaper to run than ICE (internal combustion engine) cars. But because of their purchase price, many drivers must rent their mandated cars to keep driving rideshare and making money. A typical fee for the monthly rental of a car that goes 250 miles per charge would be $680/month. This makes it lucrative to companies to start building fleets and renting them to drivers. It’s disastrous for drivers. One driver said he now works more than 13 hours a day to cover his car payments.

Businesses, reading the tea leaves, have been quick to adapt. Multiple carmakers have established EV ride-sharing subsidiaries, including large carmakers like Zhejiang-based carmaker Geely, FAW and WM Motor, and smaller ones like EV startup Xiaopeng Motor. In a departure from typical ride-hailing, Xiaopeng employs the drivers directly as a sort of mobile showroom for its flagship electric SUV, and told Quartz it presently has about 1,000 drivers in pilot city Guangzhou.

Businesses are investing in charging solutions.

Charging options need to be part of the rideshare driving equation and there’s money to be made from owning them. Many of the same companies are investing in them as well. So, you end up with car manufacturers and ride-share companies owning fleets of EV vehicles and the EV charging stations. They rent their fleet(s) to drivers. With autonomous vehicles coming, soon no drivers will be needed. They’ll own, operate, and control transportation as a service (TaaS).

Germany

What does Germany have to do with this? Well, in an indirect way, a lot. The German economy is defined by cars and car manufacturing. This year, the industry is down 12% in 2019 and it is not getting better. The country’s going into recession and the impact may ripple through Europe.

German carmakers are at the whim of everyone else’s economy, with nearly eight in 10 German cars being destined for export.

Much of the blame for the industry’s sluggishness has been placed on slowing demand in China, though attention is also shifting to other contracting markets. German carmakers Volkswagen AG (OTC: VWAGY), Daimler AG (OTC: DMLRY) and Bayerische Moto (OTC: BMWYY) all derive about a third of their revenue from China sales.

While not as important as China, German automakers have also seen bad news from India, where sales of passenger cars are down 13% year-to-date.

New car registrations plunged 14% last month in France and were off a whopping 31% in Spain. The news out of Spain was particularly bad for German companies: Volkswagen saw sales drop 18% there in June, and Audi AG (OTC: AUDVF) reported deliveries that were off by 35%.

German cars, including many Volkswagens and Mercedes, are noted for their continued use of diesel engines. The move away from diesels — and away from internal combustion engines generally and toward electric cars — hasn’t helped German carmakers.

Germany’s problem is the type of cars they build.

They build diesel and ICE cars. They build a few EVs, but they are not up to the task and their EV cars cost way too much. Furthermore, the markets do not want them. The Chinese, specifically, do not want them. The US is in a situation similar to Germany’s. National economies are affected by global shifts, but here’s what can directly affect you and me.

California Rideshare

California has passed AB 5, a law defining rideshare drivers as employees. The Governor said he’s going to sign it. This means that in California, you cannot be an rideshare owner/operator the way you are now. You must be an employee. You will be hired. You will work when and where Uber or Lyft say you will. You will be driving a company car (one of their fleet vehicles)—there are income tax implications here for you and them—and so you will be working for just one company. Are you still a rideshare driver, or are you really a taxi-driver now?

That’s not good for drivers.

That’s just the beginning of how this change could affect hundreds of thousands of drivers. Literally every state in the Union could soon follow, and then as the market adapts, only fleets will remain. According to Tusk Holdings CEO and early Uber investor Bradley Tusk, two things will happen if the California proposal becomes law.

“Prices are going to have to increase, that will mean less demand, it will mean consumers will have to pay more money,” Tusk said.

Uber and Lyft will have to absorb 30% more cost because that’s the savings independent contractors currently give them. The cost will be passed on to their riders. Ridership goes down. That means fewer fares to go around for drivers, who are now employees, as fare prices go up.

Secondly, in the long run it will speed up the push for autonomous vehicles to replace drivers, he said.

“You might have a short-term benefit for drivers where they’re covered as employees, but ultimately it’s really going to push both Uber and Lyft and everyone else in the industry to try to get rid of the drivers as quickly as possible,” Tusk explained.

Eventually, all this means no jobs for human drivers because they’re replaced by robotaxi fleets. California’s attempt to protect and help rideshare drivers make more money actually works toward killing us off.

Do Something

Government actions do not to protect rideshare driver interests although that’s what they think they’re doing. They do provide an ‘easy’ first step for companies to change their business models to fleet operations. You are simply the mechanism that allows this change to happen, in the short term.

What can you do? The only thing you can do is buy an EV and get ready for the future. No matter what legislation gets passed, that’s a good first step. There’s only one EV capable of being used in rideshare operations profitably: a Tesla. Read this article to see why.

The future is ONLY in owning fleets of cars, even if your fleet is a single car. You will still need a platform that will let you monetize your fleet. Who do you think that will be? The Tesla Network is only one that will be available. You should prepare for that reality.

You need to understand the big players and their intentions. All the big players—Uber, Lyft, Didi, GM, Ford, Toyota, etc.—only want to own, operate, and control every rideshare fleet that exists now or will exist in the future. They do not want you as a driver or an employee, they simply want fleets of cars. Cars makes them money, drivers cost them money.

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