What is the market for driverless cars in 2020?

Claryfing questions

When you say driverless cars Im assuming :

• You're referring to personal vehicles sales only (not repair or maintenance market) 
• Does it include semi autonomous vehicles or full SD vehicles, while the full SD classification given its a qualtitative definition tesla is the only manufacturer who claims to sell full SD vehicles (auto  pilot)
• Auto pilot is not availble some vehicles sold by tesla (its an optional package)
• by market do you mean $ value or number of cars sold or both 
• Does this refer to US market or worldwide - Im assuming US 
• this only refers to new cars sold and not resale of used cars 
• new car sellers like rivian have next to 0 sales  so I can rule them out 
• Ford has  a small share of sales recently however their share is minimal right now - get the interviewer to acknowledge 

Here is very simplified way of estimating drive-less car market in 2020. Market can be defined as total number of car sold in volume or it can be $$ value. I choose to estimate the volume. The value can also be estimated by multiplying the total number of cars sold in 2020 by average cost of vehicle

Ask clarifying question:

1. Are we estimating driver-less car purchases in US or worldwide - say the answer is US only

Make Equation:

Market for driver-less card = number of new car purchased in 2020 * market share of driver-less car

Number of new car purchased in 2020 = total number of cars in US/ car replacement cycle 

Total number of car in US  = total number of households in US * average car per household

Total number of households in US = total US population / number of person per household

Assumptions & Facts:

1. Replacement cycle for car is say 10 years, meaning after 10 years of usage the car needs to be replaced by new one

2. Number of person per household = 3

3. Average car per household = 2

4. It is expected that in 2018 Tesla will sell 200,000 cars which is less .5 % of overall market. Assuming the number of driver-less car sold doubles every year, than the market of driver-less car in 2019 be 1% and 2020 be 2%

5. US population = 300 million

Do the Math:

Total number of households in US = total US population / number of person per household

                                                        = 300 million/ 3 person per household

                                                        = 100 million household

Total number of car  = total number of households in US * average car per household

                                = 100 million * 2 cars per household

                                = 200 million cars

Number of new car purchased in 2020 = total number of cars in US/ car replacement cycle 

                                                               = 200 million cars/ 10 years

                                                               = 20 million new cars are purchased 

Market for driver-less card = number of new car purchased in 2020 * market share of driver-less car

                                           = 15 million new cars * 2%

                                           = 300,000

I would taken a slightly different approach.

Let’s assume the market for driveless cars consists of 2 car groups in year 2020:

– Group 1 – low price driveless cars for carsharing companies .
These cars will have minimum functionalities and their only job is to move people around. Tesla Model 3 costs $35,000 in 2017. This is a car that has self-driving capabilities and some extra features that is not needed for an Uber / Lyft car. E.g. LCD monitor. Let’s assume an Uber / Lyft driver-less car costs $30,000.

Number of Uber / Lyft cars to be needed is estimated as followed:
Let’s say that in the U.S. 10% of Americans have signed up to Uber / Lyft. And they take 5 rides per week with it. Each ride takes 10 minutes. And currently, an average Uber / Lyft car works for 40 hours per week with 75% utilization. This means there are a total of

10% of 330million = 33million car sharing users
33 million users x 5 rides per week x 10 minutes per ride = 1650 million minutes of rides per week

Let’s assume Uber / Lyft will complete 10% of the rides with self-driving cars in year 2020. So, 10% of 1,650 million minutes = 165K million minutes per week of ride sharing will be completed by driver-less cars.

Let’s say that an average self-driving car works for 22 hours per day at 70% utilization. In other words, one self-driving car can complete 22 hours x 70% x 7 days x 60 minutes = 6,600 minutes of ride per week.

Number of cars needed to serve: 165K million minutes / 6,600 minutes = around 250K cars

That means Uber / Lyft will buy a total of 250,000 driverless cars. Total market size for ride-sharing driverless cars will be
250K x $30,000 = $7.5 billion

– Group 2- Personally owned cars.
Let’s say Tesla and Google will launch their self-driving cars by 2020. Tesla currently sells about 50,000 cars per year and is expecting to significantly ramp up production over the next two years. Let’s say Tesla will sell 500,000 of cars in year 2020.
Tesla cars are currently priced at $35K, $70K, $100K, and $120K. Given most of the volume is expected to come from the Model 3, I will assume the average price of a Tesla car to be $40,000 by year 2020. In other words, I expect the total market of Tesla cars to be
500K x $40K = $20 billion

Google has not started making any cars yet so chances are that the number of cars produced by Google will be small by year 2020. Let’s assume it will be 10% of Tesla, meaning the total sales by Google will be $20B x 10% = $2B

Now, let’s calculate total market size of self-driving cars in the U.S. : $7.5B + $20B + $2B = around $30B

Key assumption made: carsharing companies are making their own cars and are not buying from Google and Tesla. If they were buying from Google and Tesla, then we just needed to estimate the volume of cars sold by Google and Tesla. I have also not included the market size of used Tesla cars that will be upgraded to support self-driving.