The Economic Impacts of Autonomous Vehicles

Just like the computer, and the car before that, autonomous vehicles will send substantial and numerous shock waves through the world economy. You would be hard pressed to find an industry that will not be impacted (for good or for bad) by autonomous vehicles.

Importantly, the economic impacts of the autonomous car will be magnified and accelerated by two parallel innovations: the electric car and mobility-as-a-service (MaaS). Each of these technologies is important and significant on its own. But together these technologies create a virtuous cycle the will expand their respective impact far beyond anything that would achieve on their own.

Below I’ve summarized some of the potential economic impacts of these technologies  and why they are expected. The impacts are categorized by industry. This is by no means a comprehensive list.


  • Automotive supply chains will be flipped upside down. The internal combustion engine (ICE) consists of thousands of parts, most of which are manufactured by companies from around the world. Electric drivetrains, however, are far simpler and have far fewer parts. As the electric drivetrain surpasses the ICE in terms of economics and performance, these manufacturers will lose significant business. Many may go out of business altogether because they are unable to make the leap from producing parts for an ICE to the very different parts of an electric vehicle (EV).
  • Mobility as a Service (MaaS) will replace vehicles sales as the dominant automotive model. This is based on the shift in economics and functionality that autonomous cars will precipitate. Perhaps most importantly, autonomous cars will be too expensive for most people to own but they’ll be economical to hail like a taxi. Carmakers also see a significant revenue and profit benefit in switching from sales to mobility services. Most carmakers are already preparing for that shift by buying mobility service companies or creating their own from scratch.
    • Car dealerships will vanish. If automakers are owning or selling their vehicles as fleets, then there is no reason for car dealerships to exist. That said, car service is a crucial source of revenue for dealerships, but that is also likely to fade as a result of fleet ownership and the anticipated reduction in accidents and maintenance requirement noted below.
    • Tow company business will decline. Tow companies serve an important function. They move vehicles that require maintenance and are inoperable. This business will shrink because fleet operators will do a better job of maintaining their fleets than individuals do with their own cars, but it won’t go away altogether. The less popular side of the towing business, that of towing illegally parked cars, will vanish entirely because autonomous vehicles won’t have any reason to park illegally.
  • Car maintenance will shrink. As is noted above, electric vehicles make superior autonomous vehicles and electric vehicles have far fewer moving parts. As a result, routine maintenance like oil changes, fuel filters, spark plugs and even, to some extent, brakes becomes a thing of the past. That isn’t to say electric vehicles require no maintenance (tires will still need to be replaced, for example), but they do require a lot less. Further, fleet owners will have a powerful incentive to buy (or build) cars that have minimal maintenance requirements in order to maximize revenue and minimize costs. Functional obsolescence in cars will be a thing of the past. On the other hand, an aggregate increase in driving may increase those maintenance expenses that electric vehicles do require.
  • Body shops will vanish. One of the greatest benefits autonomous vehicles offer is that they will be safer than cars driven by humans. This also means that businesses built around repairing cars damaged from an accident will run out of work. In 2013, almost $30B was spent repairing vehicles damaged from collisions in America alone.
  • Software and electronics will become a significantly more valuable part of autonomous cars. Today hardware consists of 90% of the value of the cars we buy. But electric drivetrains will simplify car hardware. MaaS companies will cause vehicle hardware to be commoditized. Even more importantly, the technology required to make vehicles autonomous has created an enormous opportunity. There are now countless companies (both startups and industry titans) endeavoring to develop the cameras, lidar, radar, processors, and software necessary for autonomous driving. This technology may make up as much as 40% of vehicle value moving forward.
  • Car washes will vanish. Car washes produce annual revenue in excess of $15B. But these car washes depend on people owning their cars. As cars are increasingly fleet owned and operated, car washing will be handled by the fleet owner. Stand alone car washes will no longer be necessary.
  • Car wash suppliers of equipment and chemicals will see significant business growth. Fleet owners like rental agencies clean their vehicles far more frequently than the average personally owned vehicles. As cars are increasingly fleet owned, that will cause significant growth in the market for the suppliers of car wash equipment and chemicals.

Personal Transportation

  • Car rentals may cease, but fleet management will explode. Car rentals provide a valuable mobility option when traveling for work or leisure. They can be more convenient that transit and cheaper than taxis. But, autonomous cars will make that model obsolete. However, rental companies are well versed in fleet management. They may be able to adapt and continue providing that service for mobility service companies moving forward, which would probably mean a significant increase in overall revenue. MaaS companies are likely to have far larger fleet than rental companies.
  • Regional flights may cease. As driverless cars drop in cost, they may very well replace flying as the preferred option for regional travel. A vehicle that can take you door-to-door relatively cheaply and without the burdens of flying (parking, check-ins, security, delayed departures, etc.) would be an attractive alternative to a short flight. Even mid-range flights may struggle to compete with a vehicle that has a bed and can travel through the night while its passenger sleeps.
  • Taxi services will cease. Uber and Lyft have already taken a large bite out of the business traditional controlled by taxi companies. Autonomous vehicles will end that business model entirely. Outsourced driving accounts for only 2% of personal transportation, but that still  means the hundreds of thousands of taxi drivers in the US alone will be out of a job.
  • Public transportation may lose significant business to MaaS companies if they don’t adapt and adopt AV technology. Public Transportation accounts for over $60B in revenue. These companies and agencies are not as vulnerable to AV technology as taxis because they can move a lot of people efficiently and cheaply, but they are not immune either. AVs are expected to become increasingly cost competitive with conventional transit, which will chip into business. Regional bus and train trips will also be threatened. Transportation agencies will need to adopt the technology and adapt their services accordingly if they want to find a place in the coming transportation landscape.

Public Sector

  • Autonomous vehicles and electric vehicles will cause existing sources of transportation funding to shrink by over 40%. Between 2007 and 2011, federal, state and local governments raised $207B in transportation funding. According to a Pew analysis, the gas tax and the motor vehicle sales tax (MVST) accounted for $85B of that revenue. But electric cars don’t pay the gas tax, which means it will eventually cease to be a source of revenue. Further, if automakers start using their own autonomous vehicles for their mobility service companies (as many are planning), revenue from the MVST will also decline.
    • A VMT fee and congestion pricing may replace the gas tax and MVST as the primary source of transportation funding. Electric vehicles and autonomous vehicles will cripple the existing structure of transportation funding, which will require policy makers to develop a new structure. An option that is being explored across the country (and has been partially implemented in some locations) is using a VMT tax and congestion pricing to replace the revenue lost from the gas tax and MVST.
  • The cost of constructing surface transportation will increase on a per-lane-mile basis. While autonomous vehicles are being built to operate on existing infrastructure, the benefits of coupling those vehicles with smart infrastructure are numerous and significant. As autonomous vehicles proliferate, pressure to upgrade our infrastructure will mount, which will mean the cost of constructing and maintaining that infrastructure on a per-lane-mile basis (the basic unit of roadway infrastructure) will increase. This also represents a significant new market opportunity to the companies that develop and provide this equipment.
  • We may need significantly less roadway. Autonomous vehicles are expected to use existing infrastructure far more efficiently that we do today. As a result, we won’t need as many lanes on our highways and local streets to accommodate the same volume of traffic. This could ultimately reduce the burden that transportation places on our public sector budgets. How this plays out will depend on the policies enacted by the public sector and the economics of the technology.
  • Parking as a source of public revenue will largely evaporate. As I’ve noted here, parking will become largely obsolete as autonomous vehicles proliferate. This will be a big hit for communities where parking is a significant source of revenue. In an analysis conducted by, they found the parking produces roughly $2.8B in revenue through fees and tickets for the 25 largest cities in the US.
  • Revenue and expenses from traffic enforcement will vanish. The 25 largest cities raised $593M from traffic citations in 2016. The expense of providing that enforcement has been estimated to be about half the revenue that is produced. Both the revenue and expenses go away with autonomous vehicles that are programmed to follow the rules.

Real Estate

The implications of autonomous vehicles on real estate are more fundamental and more complicated than those on other industries. Transportation and land use are closely linked. An earthquake in the transportation sector will be felt just as acutely in the land use sector. Just look at impact that cars and highways had on our cities. This section highlights just a few of the more significant impacts that this technology might have.

  • The cost of development will decline. Parking represents a huge cost in almost every development. Per space it can cost anywhere from $800-3,000 to cover the land, construction and operations costs. We are often oblivious to these costs because parking is so often provided for ‘free.’ Autonomous car have the potential to dramatically reduce the need for parking. Doing so would mean that developers can construct the same amount of housing, office, or retail space at a significantly lower price tag.
    • The cost of housing will decline. A significant cost of housing, whether single family or high-rise multifamily, is the construction of parking. By removing the need for parking, we will also reduce the cost of housing without hurting a developer’s bottom line. This would provide a significant boon to the housing affordability problems we face across the country.
    • The cost of retail goods will decline. Suburban parking centers are surrounded by seas of parking. That parking is often provided for ‘free’ so we don’t understand how much it costs. But we do pay for that parking. We just pay for it through the cost of the goods we buy when we shop, which is how retailers recoup the costs of owning and maintaining that parking. Removing the need for parking would allow retailers to reduce the costs of their goods.
  • Urban land values may increase. Land values are influenced by a lot of factors. In urban areas, they are heavily influenced by the costs and limitations imposed by parking requirements. Because parking needs increase the cost and decrease development potential, they also have a negative effect on the value of the land. Case studies have found that reducing parking requirements has caused an increase land value. The fact that autonomous cars will dramatically decrease the overall need for parking would therefore precipitate an increase in urban land values.
  • Suburban land value may decrease. While we can expect a decrease in parking needs to cause an increase in the value of suburban land (as we expect with more urban land), MaaS companies will likely have an even larger negative effect on suburban property values. Today the marginal costs of driving are low. It take just a little gas and time to reach suburban locations. Today a 10 mile trip to the mall has a marginal cost of about $1 dollar. That same trip with a MaaS company may cost several times that amount. As a result, our willingness to travel to these destinations will decline, which will cause suburban land values to decline.


  • Demand for crude oil will plummet. 71% of every barrel of oil that is refined is consumed by the transportation industry in the form of gasoline, diesel and jet fuel. The bulk of that fuel goes to cars and trucks. As electric vehicles proliferate (partially as a result of mandates and partially as a result of autonomous vehicles), demand for gasoline and diesel will crater. This will cause prices for crude to drop significantly.
    • Expensive methods of oil-production like fracking will cease to be economical. The cost of producing a barrel of oil varies enormously depending on the method required to extract the oil. It can cost as little as $10 dollar a barrel to extract oil in the middle east. It costs over twice as much to produce a barrel of oil in U.S.. It costs an incredible $45 per barrel to produce oil in the UK. As crude oil prices drop, it will cease to be profitable to produce oil in some locations. But even in those locations that can produce oil cheaply, profits from oil production will plummet.
    • Gas stations will largely vanish. Today, gas stations are spread densely throughout our landscape. We can conveniently fuel our vehicles from practically anywhere on an as needed basis. But electric vehicles are generally charged at home or at our place of employment. Tesla is adding charging infrastructure to destinations like grocery stores. Highway gas stations may be able to convert to charging stations to facilitate long trips, but countless other gas stations will become obsolete. Further, the convenience stores tied to these gas stations that depend on the traffic a gas station generates will fade as well.
      • Cigarette purchases may shrink. This is a fascinating notion posited by Bill Evans on his blog. Basically, cigarettes are often impulse purchases. If you see them in front of you, you are more likely to buy them. Well over half of cigarette purchases occur in gas stations. If gas stations vanish, cigarette consumption, which accounts for 500k deaths annually, should shrink as well.
  • The share of the total energy provided by the power grid will grow. Today the bulk of energy of transportation comes from crude oil. As electric vehicles replace the internal combustion engine, more and more power will be supplied through the power grid. Most of that power is supplied by natural gas and coal-fired power plants. However, renewable energy sources are becoming an increasingly large part of America’s energy portfolio.


  • Trips to an a emergency room as a result of a motor vehicle accidents will shrink dramatically. In 2006, there were 3.5M visits to an emergency room as a result of a motor vehicle related accidents and most of these accidents were caused by human error. As human error is removed as a cause of traffic accidents, hospital visits will decline dramatically. The National Highway Traffic Safety Administration estimates that medical expenses from motor vehicles accidents account for $23B in medical expenditures annually. That is a drop in the bucket for the healthcare industry (which pulls in $1T in annual revenue), but it is a significant savings for Americans.


  • The costs of moving freight by truck will drop significantly. The greatest cost and most significant constraint to moving freight by truck is the driver. Removing the driver presents a huge savings to the trucking industry just in terms of salaries. But removing the driver also means that trucks can travel without rest breaks, they will be in fewer accidents and they can travel in platoons which will save on fuel. All of this translates to massive savings (between $100-500 Billion) for the trucking industry, but it also means millions of truck drivers will be out of a job.
    • Truck freight will capture some or all of rail freight business. Truck and rail freight have always been directly competitive industries, but for decades there has been a tenuous balance between the two. Rail captures the bulk of the long-haul market and truck capture the bulk of the short haul market. Autonomous and electric vehicle technology will allow trucking companies to compete for freight business that has historically been monopolized by rail companies since trucks will be able to travel farther and more economically that is currently feasible.


  • Revenue from auto insurance will shrink dramatically. In 2016, the auto insurance industry brought in over $200B in premiums. Autonomous vehicles may reduce the frequency of auto accidents by as much as 90%. On the other hand, the average cost of a claim may increase because of the additional technology included on autonomous vehicles. There may also be an increase in vehicle miles traveled, which would increase the quantity of claims. Despite that, the net impact is likely to be a sharp decline in the size auto insurance industry.
  • Auto insurance will increasingly be purchased corporately versus individually. There is a lot that is still unknown about how the liability of autonomous vehicles will be handled. However, many expect that insurance will be purchased by mobility service companies (like Waymo & GM) instead of the passengers. If that happens, the auto insurance landscape will change dramatically. There are nearly 400,000 insurance agents across the country. Those agents will largely become unnecessary. Insurance companies will consolidate and target their resources to capturing fewer but much larger clients.


  • Autonomous vehicles will create an enormous new market for the telecom industry. Most vehicles today are effectively mute and deaf. The don’t hear much and they say even less. But there is a wave of new technology (some of which we are already beginning to see) that will turn our cars into the equivalent of a highly attentive chatterbox. This technology will come in the form of vehicle-to-infrastructure, vehicle-to-vehicle, and vehicle-to-network communications. Given the scale of the transportation industry, this presents a huge opportunity for the telecom industry. 5G wireless communications will also prove a huge boon to the AV industry.

Additional Resources:

RE Journals: Driverless vehicles will disrupt every real estate sector

EconTalk: Benedict Evans on the Future of Cars

Benedict Evans: Cars and Second Order Consequences

University of Texas at Austin: Economic Effects of Automated Vehicles

Morgan Stanley: The Economic Benefits of Driverless Cars

McKinsey Global Institute: Disruptive Technologies: Advances that will transform life, business, and the global economy

NHTSA: The Economic and Societal Impact of Motor Vehicle Crashes


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