VW Will Sell You Self-Driving For $8.50/hour Someday. Too High Or Too Low?

In a recent interview, VW Marketing boss Klaus Zellmer states they feel they could sell customer a full self-driving ability in their cars profitably at €7 per hour. While that’s just a forecast, not an announced plan, it differs greatly from Tesla’s

TSLA
offering, where they charge customers $10,000 when they buy a car and promise they will some day provide that ability in the future with no extra fee.

It’s not hard to calculate that $10,000 would buy around 1,200 hours of driving at the VW price, good for 82,000 miles if you did them all on the highway at 70mph, less if you did a mix. It is, for now, unknown how many of a car’s driving hours a driver would use a self-drive feature, and it would vary greatly from customer to customer.

Of course, $10K years in advance is worth a lot more than a service delivered by the hour in the more distant future, spread over many years, so with interest, the Tesla $10K might deliver well over 100K miles. Most cars are driven under 200K miles in their lifetime (electric cars may do better) so a driver would need to do over half their miles autonomously to pay more this way. It is also uncertain just when, if ever, Tesla will deliver — as Tesla has reminded in their securities disclosures, it may never pull off “full self driving” and need to refund all those payments, and possibly more.

Tesla has also hinted it will offer “FSD” as a subscription service once it actually works. The price will need to be high, to avoid greatly ticking off those who spent $10,000 to buy it before it existed. Those buyers took a risk, while the subscription buyers would only buy it after seeing it for real. Musk tweeted that FSD would be available by (likely annual) subscription “early (2021)” which has not taken place. If so, they would presumably offer the current set of meager features provided to FSD customers at a lower price, and then increase the price as capability was added, including an expansion of the “city streets autopilot” beta that Tesla has called FSD.

Customers will take different attitudes on using a feature if they paid by the hour. They might well stick to regular driver assist (including ADAS Pilot functions like Tesla’s Autopilot) most of the time or when driving is complex, scary or of course, fun. Self-drive functions might be best reserved for commutes and longer journeys where getting your time back to fiddle with your phone really pays off.

For some drivers, commutes are most of the miles, for others, trips are shorter. Some drivers might like to have their car drive itself all the time. Since the safety record will have to be good to release this, some might decide that for safety reasons. (Note, however, that such cars will also provide highly enhanced driver-assist safety.) They might also require that in a car allocated to their kids — indeed such cars might carry kids (and adults) without licences and have no choice but to operate in self-driving mode.

If they run vacant to pick somebody up, they will of course also need to do that. Any robotaxi service has to do that, but automakers may not plan that ability (or plan a limited amount of it) in their early stages. Indeed, we are probably talking about vehicles which are only rated to self-drive in certain situations and on certain roads, and which demand a human take the wheel for travel outside that “O.D.D.” The earliest cars may only feature highway driving and self-parking, for example. (In fact, the earliest car, the Japanese version of the Honda Legend, only offers it in low-speed traffic jams on the highway.)

For people who value their time with money — which is probably most of the people who buy these early self-driving cars, which will not be entry level cars — $8.50/hour is an easy price to accept. It’s around the federal minimum wage. Almost every person buying upscale cars values their time more than minimum wage. Going into self-driving mode will allow them to work while underway, which is easiest to justify, but also to socialize, or stare out the window at scenery.

People are funny, though, in preferring flat rates to having a meter running, even if the cost with the metered service will be less. We don’t like the psychological cost of having a meter running. We like unlimited internet, TV and phone plans and just about everything else. So companies like VW, even if they offer service for $8.50/hour, will probably also offer flat rate plans, or subscription plans that are daily, monthly or annual. Companies like to offer such plans because they often can make more money from them — because customers are not perfectly rational about the cost.

In addition, when we have something on an unlimited plan, we will use it more and value it more, which keeps us paying the subscription fee.

Is it profitable for VW?

The VW statement was that they feel they can offer it profitably for €7 per hour, which is not a declaration that this is how they will sell it. The cost for the automaker is mostly up front — installing all the sensors and hardware needed to do this, and maintaining the software, maps and other services needed to make any vehicle work.

Something has to pay for that hardware — probably $2,000 worth at least, util we attain Elon Musk’s dream of being able to do this with just standard cameras and computers. The carmaker could put that hardware in, and not increase the price of the car, hoping to make it back with sufficient hourly use. Once they are confident the product is good and popular, this should be a safe bet, even if some people get it and then quickly decide they don’t like using it. It could make sense to require the buyer commit to at least 300 hours of use when buying the car, to cover the cost of the hardware. Or even buy an expensive technology package which, among other things, enables hourly use of self-driving.

Reports say that a surprisingly large number of Tesla buyers are purchasing the $10,000 “FSD” package, even though for now it is just a promise. For people who might consider having a personal chauffeur, such a price is a great bargain, but in the USA, having a chauffeur isn’t common even for many of the very wealthy. It’s much more common in other countries, particularly ones where labor is cheap. If done well, this hourly price might quickly rack up enough income with many owners, enough to compensate for those few who barely use it.