Autonomous Vehicles: The Future is Now

Overview:

• Autonomous Vehicle (AV) rideshare is rolling out faster than expected with at least one leader in the space planning to double fleet size by 2026 year-end (YE26).
• We think AVs will expand the total addressable market (TAM) for rideshare incumbents.
• Our 10-year, bottom-up U.S. rideshare model for one company implies U.S. gross bookings (GBs) rise from US$230 million in 2025 to US$6.1 billion in 2034, a 44% compound annual growth rate (CAGR).
• We estimate breakeven vehicle cost for U.S. rideshare AVs to generate gross profit per trip of approximately US$98 thousand.
• An AV-backed taxi ecosystem still in testing could form in less dense metropolitan statistical areas (MSAs) where the company could unlock rideshare trip frequency and boost vehicle sales.

The TD Cowen Insight

Now that autonomous vehicle (AV) rideshare tech is scaling (arguably faster than expected), we address four key debates:

• Winners / losers and time to scale AV tech;
• Unit economics;
• Impact to the U.S. rideshare market and
• Consumer ownership of AVs.

Our Thesis

The emerging AV sector is not likely a winner-take-all scenario for AV tech providers in our view.

In terms of AV impact on U.S. rideshare over the next decade, we expect AV providers will drive incremental riders and frequency, and continue to partner with U.S. rideshare leaders in some markets, while siphoning share in markets where they don't partner.

What Is Proprietary?

Our proprietary analyses include:

• Our new 10-year, bottom-up rideshare model spotlighting a leading company in AV;
• AV Gross Profit per trip comparison at different AV all-in costs;
• Optimal mix of AVs alongside human rideshare drivers;
• An AV company's cybercab model and
• U.S. rideshare industry model.

Financial and Industry Model Implications

U.S. Rideshare Forecast

We estimate total U.S. rideshare market GB's of approximately US$59 billion in 2025 rising to US$121 billion in 2034, an approximate 8% compound annual growth rate (CAGR).

Assessing Optimal AV Deployment Versus Human Rideshare Mix

Near to medium term, we believe that the optimal mix of rideshare vehicles in a given market implies human drivers should comprise the majority share (vs AVs), largely reflecting the highly variable nature of rideshare demand. This near-term dynamic favors rideshare platforms that can offer riders both AV and human-led ride options versus a pure-play AV rideshare network. Assuming an operating environment where AVs are near fully utilized during demand troughs, we assume an optimal mix of 10-20% trips fulfilled by AVs during average daily demand periods. Our optimal mix analysis implies there is a natural ceiling for AV penetration (at current costs) dependent on the peak to trough demand swings in given markets.

AV Gross Profit Per Trip Analysis

AV Operating on a 3P Rideshare Network

At an average gross bookings value of $16 per trip, gross profit breakeven occurs when a vehicle costs ~US$98 thousand in total (this includes all AV-related hardware attached to the car). As vehicle cost decreases, incremental gross profit per trip ramps significantly. For example, we estimate that a US$40 thousand vehicle would generate $3.39 of incremental gross profit per trip.

AV Operating on a Standalone Basis

If we use the gross profit breakeven AV cost of ~US$97,500 per vehicle from the 3P analysis above, we estimate an AV on its own ridesharing network would generate US$0.35 of gross profit per trip. However, while the gross profit per trip of rides on a standalone ridesharing platform could potentially be higher at maturity, building out such a network would require significant investments t obuild out rider demand, a larger and potentially less efficient vehicle fleet in each market and ongoing marketing investments to drive continued demand.

AV-Backed Taxi Forecast

Use of a low-cost model by a leading AV company could reach the ~US$1/mile trip cost that's likely required to expand trip frequency in less dense MSAs. Execution risks are high and setbacks are inevitable along the way, but a successful outcome could see revenue from the AV taxi service in addition to vehicle sales growth.

What To Watch

• How much can AV companies reduce the all-in costs of their AV fleet over the next decade?
• What is the actual timing of a scaled AV offering for a clean energy company?
• There are a large number of AV players across the ecosystem, but there is only one platform that is operating at level 4 autonomous driving in the US today. What players will emerge in the coming years?
• When is AV technology integrated with original equipment manufacturers (OEM) and priced for scaled consumer adoption?
• Is AV tech largely binary, split between US AV tech and China AV tech?