Uber is not killing car ownership (yet)

As a millennial living in London, Uber features in my day-to-day life with embarrassing regularity. As such, the tendency is to extrapolate my experience to other demographics and markets. That is to say, I often overestimate the pace and scale of disruption being wrought by Uber and other car-sharing/ride-hailing platforms. This may explain why, wearing my “professional hat”, as an investor, I have been consistently surprised by the strength of developed world auto sales and the seeming lack of impact of new mobility models. So how big a threat are these services to car ownership?

The journey so far

Since 2013, Uber and Lyft combined have grown revenues almost 80x. Uber is now present in over 600 cities, has 75 million passengers, and completed over 4 billion trips in 2017. For Lyft the figures are 65 cities, 23 million riders and 375 million trips¹. Various surveys have found that around one-fifth of US consumers used ride-hailing services in 2016, and it seems obvious that this figure has only risen since.

Source: Various sources, Evercore ISI Research

Unsurprisingly, usage is relatively concentrated in urban areas. New York City and San Francisco alone account for ~15% of Uber’s drivers in the US, while these cities represent less than 3% of the US population. Survey data shows that ride-hailing usage, even within urban areas, skews heavily towards younger, more educated and affluent consumers².

Source: Pew Research Centre - "Shared, Collaborative and On Demand:The New Digital Economy"

The impact on car ownership

Even with these caveats, readers may be surprised to learn that ride-sharing, in total, still accounts for less than 1% of miles travelled in the US. And, so far, it appears to have had a negligible impact on car ownership or purchases – contrary to what one would expect to see based on the massive derating of auto stocks.

Consumers haven’t stopped buying cars. US car sales have been stagnant for the last couple of years, but remain at a very high level of over 17 million per year; at or above pre-crisis highs. After peaking in 2011-12 – around the time that ride-hailing services really took off – the number of households with no car or only one car per family has declined, while the numbers of households with two or more cars has accelerated³.  The only household type more likely to be car-free is “over 65s non-homeowners”, which the survey data above suggests are very unlikely to be users of ride-hailing. Among ride-hailing’s core user base (age 15-34), the number of car-free households fell in 2016. Contrary to concerns that Millennials had rejected car ownership, this would suggest they were just “late starters”, plausibly due to their economic condition. These findings hold even in urban areas and home of “early adopters”; California.

Surveys that attempt to determine the impact of ride-sharing adoption on car ownership yield mixed results, but in general suggest that it is, at worst, modest. A recent study from the Transport Research Board found that per capita vehicle sales on average fell 3-4% in the years after Uber/Lyft entered a state⁴. The UC Davis’s survey focuses just on metropolitan areas, but still found that less than 10% of people reduced their car ownership after starting to use ride-hailing services. Users were still likely to have more cars than non-users, given their higher income levels. Interestingly, ride-hailing seemed to be more of a substitute for ride-sharing services – which were also seen as a big risk for car ownership a few years ago but haven’t gathered significant momentum. More than 50% of car-sharing users dropped their membership after starting to use ride-hailing services.

Who is feeling the pain?

The evidence so far suggests that ride-sharing has mostly substituted for regular taxis, rental cars, public transport and walking, rather than private vehicle use.

In New York, taxi rides have fallen 30% in the last 3 years and the price of prized yellow taxi medallions has plummeted from a peak of $1 million in 2013 to less than $200,000 in recent auctions. In fact, the tightness of the licensed taxi market is a key reason for Uber’s success in cities such as New York, San Francisco and London. It is no surprise that taxi drivers in these markets have lobbied aggressively against ride-hailing operators.

Source: Toddwschneider.com

Less visible, given the absence of a noisy lobby group, is the impact on public transport usage and walking. The UC Davis survey found that around 40% of the journeys made by ride-hailing services would have otherwise been made by foot, bike, or public transport, with only 20% substituting for private car use. The economics of ride-hailing often work out better than public transport if there several of you sharing (either as friends or via UberPool) and, as I can personally attest, access to cheap and easy ride-hailing services makes people lazy! Subway ridership in New York fell (modestly) in 2016 and 2017 after strong growth since 2009, and bus ridership has been falling since 2013⁵.[1] Similarly, journeys on London buses have been falling since 2014 despite robust growth in the city’s population and expansion of the bus network⁶.[2]

Miles travelled

Interestingly, respondents reported that over 20% of the journeys made using Uber or Lyft would otherwise not have been made at all. This has interesting implications for total vehicle miles travelled (VMT) as ride-hailing usage increases. If users take extra journeys and shift their existing travel away from public transport, bike or foot towards private or at best pooled vehicles, overall vehicle miles should rise. Adding in ‘deadheading’ miles (miles without a passenger), and the increase could be significant. Indeed, we have seen VMT continue to grow strongly, outpacing growth in the number of vehicles on the road.  

This has mixed implications for auto companies and suppliers. Even if private car ownership were to ultimately fall as ride-hailing expands, higher utilisation and faster replacement cycles could result in a much smaller hit to annual auto sales. On the other hand, if a significant proportion of those sales were essentially to ‘fleet’ buyers, these could be lower-value sales due to lower uptake of expensive options, potential bulk discounts etc. Similarly rising vehicle miles travelled results in more frequent replacement of tyres, though again this could somewhat pressure mix as Uber drivers will be more regular and more informed buyers of tyres and may not be as inclined to upgrade to premium tyres as private car owners.

^{1. https://www.uber.com/en-GB/newsroom/company-info/↩}

^{2. Pew (May 2016), Shared, Collaborative and On-Demand: The New Digital Economy; UC Davis (Oct 2017), Disruptive Transportation: The Adoption, Utilization, and Impacts of Ride-Hailing in the United States↩}

^{3. Peterson (Oct 2017), Living Car-Free and Car-Lite in the United States: An Update with 2016 Data↩}

^{4. TRB, Jan 2018, “On-Demand Ride sourcing Has Reduced Per-Capita Vehicle Registrations and Gasoline Use in U.S. States”↩}

^{5. http://web.mta.info/nyct/facts/ridership/↩}

^{6. TFL Annual Report 2016/17. Other modes of public transport have continued to grow in London, but generally at a slowing pace.↩}