Tesla’s leasing program will help it to disrupt the ride-sharing market

Tesla has been leading its customers through a merry little dance lately, shuffling its vehicle lineup around and raising and lowering prices. Buried among all the recent repricings is an announcement that has attracted little attention, but that offers a clue to Tesla’s future plans to deploy an automated ride-sharing network.

Above: A fleet of Tesla Model 3s (Image: Teslarati via Jason Zhang/Facebook)

Tesla launched a lease program for Model 3, with the very unusual provision that customers won’t have the option of buying the vehicle at the end of the lease term.

“Please note, customers who choose leasing over owning will not have the option to purchase their car at the end of the lease, because with full autonomy coming in the future via an over-the-air software update, we plan to use those vehicles in the Tesla ride-hailing network,” says the company.

Tesla has of course been talking about the Tesla Network, which would allow company- or customer-owned vehicles to be deployed as robotaxis, for some time. It’s widely believed that Model 3 incorporates features designed to enable automated ride-sharing.

Tesla has been dropping hints that it’s very close to rolling out full self-driving capability, or something close to it, but some observers are skeptical. Brad Templeton, who has worked with Google/Waymo and other robocar pioneers, recently posted a review of Autopilot in Forbes, in which he argues that the system “is not even remotely close to the capability level needed to run a ride-hailing network on it.”

Of course, three years from now, when those leases begin to run out, the Tesla Network may well be up and running. In a more recent article, Templeton writes that the company’s plan to use off-lease cars for the network is a clever one, and could give the California carmaker several advantages over its rivals in the robocar race.

Above: Inside the Tesla Model 3 (Image: Tesla)

Whenever Tesla is ready to launch its ride-hailing service, it will surely find that using lightly used off-lease cars is much more efficient than using new ones. “The lessees pay for the heavy depreciation a car goes through in the first three years,” Templeton explains, and “customers of a ride-hail service don’t demand that the car be new. A nice post-lease detailing is all that’s needed.”

Given the fast pace of innovation, it seems likely that some hardware upgrades may be needed to turn the off-lease cars into robotaxis, but that would be easy for Tesla to do, as it designed and built the cars. “While a competitor could buy used cars and retrofit them, that’s hard to do if you didn’t design the car,” writes Templeton.

Non-automakers who are hoping to break into the robotaxi racket, such as Waymo, Cruise, Zoox and others, will start at a disadvantage. “They will be putting new, custom manufactured cars into service,” says Templeton. “They need to recover the cost of that in their fares - and depreciation is the largest part of the cost of operating a car, especially an electric one. Tesla only has to recover the cost of the much lower depreciation of used cars.”

Other auto OEMs could of course copy Tesla’s off-lease-to-robotaxi model, but they would have to start planning such a strategy right about now.

Tesla has fallen behind some other players in the ride-hailing race - Waymo already has robotaxis in limited service - but when it is ready to start carrying passengers, Tesla’s pool of off-lease Model 3s could give it a huge cost advantage.

Above: Tesla Model 3 fleet (Image: X Auto via Model 3 Owners Club)

However, Templeton believes it’s an advantage that won’t last long. Model 3 may have some robotaxi-friendly features, but it’s still a sedan that was designed for drivers. Future purpose-built robotaxis will be more comfortable for passengers, and much cheaper, as they will be able to dispense with many expensive and bulky features (steering wheels, power seats) that exist only for the benefit of drivers.

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Written by: Charles Morris Source: Forbes