There are two major technological disruptions that will transform the car-rental industry over the next decade: fully-electric vehicles and self-driving (autonomous) technology.
These two technology advancements will cause prices to drop precipitously, supply will increase and there will be even more convenience for customers.
Electric cars are dramatically less-expensive to operate than cars powered by a gasoline-fed internal combustion engine. It’s estimated that by 2025, the cost to own a fully-electric vehicle will be the same as a gasoline-powered vehicle, and it will continue to drop.
This is important because the cost to operate an all-electric vehicle is significantly less, perhaps even 80% less than the cost of operating a traditional car.
While the cost of electricity for an all-electric vehicle is 30% – 50% less than the cost of gasoline, that’s just the tip of the iceberg.
The true savings for electric vehicles is the overall cost of operations, maintenance and depreciation. Today’s gasoline-powered cars have as many as 10,000 moving parts. Electric vehicles have 20.
When electric vehicles only require 20% of the maintenance costs, and they can last a million miles instead of only a hundred thousand, the economics of running a rental fleet are completely transformed.
Autonomous Driving Technology
Self-driving car technology will have an equally large impact as electric-powered vehicles. Autonomous driving will transform the customer experience and eliminate the traditional retail costs of operating a rental-car fleet.
If you aren’t familiar with autonomous driving, there are five levels of driving automation, with level 5 being completely automated:
- The driving mode-specific execution by a driver assistance system of either steering or acceleration/deceleration using information about the driving environment and with the expectation that the human driver perform all remaining aspects of the dynamic driving task
- The driving mode-specific execution by one or more driver assistance systems of both steering and acceleration/deceleration using information about the driving environment and with the expectation that the human driver perform all remaining aspects of the dynamic driving task
- The driving mode-specific performance by an automated driving system of all aspects of the dynamic driving task with the expectation that the human driver will respond appropriately to a request to intervene
- The driving mode-specific performance by an automated driving system of all aspects of the dynamic driving task, even if a human driver does not respond appropriately to a request to intervene
- The full-time performance by an automated driving system of all aspects of the dynamic driving task under all roadway and environmental conditions that can be managed by a human driver
Industry experts forecast that Level 4 and 5 autonomy will reach mass market in cars around 2026. By 2035, 21 million vehicles will be sold with Level 4+ technology. (88 million vehicles are sold annually today.)
How do self-driving cars change the rental industry?
One of the largest costs of operating a car-rental fleet today is the cost of the real estate. This is the location where your rental fleet is housed and where customers go to pick up their rental cars.
However, the rise of self-driving cars will eliminate the need for rental companies to lease premium real estate. Why is that? Self-driving cars will deliver themselves to the customer’s location. Customers will no longer have to travel to a car-rental shop; they’ll simply be able to request a car meet them at their home, office, car-repair shop, or airport.
That means no more rental offices, sales counters and need for premium real estate. Rental cars will be able to be housed in low-cost areas outside of dense urban centers. These facilities will no longer be customer facing, and they’ll become purely fleet maintenance and management locations.
What happens when the cost of car maintenance decreases 80% and the need for expensive real estate is eliminated? The costs to operate a rental fleet drop dramatically. As a result, the cost for end users to rent a car will also drop. Expect a standard rental car to be priced at $20-$25/day.
Additionally, renters will no longer bear the responsibility for paying for gas fill ups or expensive rental insurance. (When renters don’t drive the car, they won’t bear liability.)
Because the costs and barriers to entry for owning and operating a rental fleet will decrease, we’ll also see an explosion in the number of rental-car companies. This won’t just be Uber and Lyft; nor will it be exclusively manufacturers like BMW or GM; owning a rental-car company will become the easiest way to generate passive income.
Just like owning a rental home or vacation property today is a relatively straight-forward path for creating additional revenue for yourself, rental-car fleets will operate in much of the same manner.
Expect to see rental-car companies catering to short in-town trips, long road trips for families, furniture deliveries, long-haul equipment transportation and much more. (Even for in-town driving, some renters will prefer transportation dedicated to them that is always available over services like Uber that require wait times for pick up.)
What’s Still Needed?
While the future is clear; the in-between details are murky. There are still details that need to be fleshed out to enable a driverless future for the rental-car industry.
- API Access. How will rental-fleet operators track and manage their vehicles when vehicles are not consistently inspected by a person? Every car will need open APIs to let rental-fleet operators integrate vehicle telematics and diagnostics with their fleet management tools.
- Last-yard management. If a renter requests a vehicle at an apartment or shopping center, how will the vehicle find the renter within that area? Will there be designated pick up locations? Beacons that direct the car and the renter? Additionally, will renters be able to take control of vehicles for tasks such as backing up a car to a garage?
The Electric Future
The future for car-rental industry looks incredibly promising for both consumers and entrepreneurs. With the costs of owning and operating decreasing dramatically over the next decade, we’ll see more options and better value for end-customers. The rental-car industry isn’t going to disappear, but it will be very different by 2030.