The economics of self driving cars

Self-driving cars, or autonomous vehicles, have become a reality in the 21st century. In fact, by 2030 the majority of cars on the road will be driverless. [1] So whilst we brace ourselves for the rise of the machines, it’s time to analyse what effect these cars will have on the economy.

The greatest positive social effect of driverless cars will be a reduction in vehicle accidents – 93% of traffic collisions involve human error. [2] As driverless cars make roads safer, they will reduce repair, administration and legal costs. In a major market such as the USA, where traffic accidents cost US$900 billion annually, this could be monumental. [3] On the flipside, insurers and injury lawyers will see their revenues fall as a result. However, mechanics may say their revenues rise, as whilst there will be fewer accidents, cars will need more regular maintenance as their daily use increases due to convenience. [4] The mechanics that can pick up basic technology training and skills could see their businesses boom in the next few decades.

Driverless cars will make our lives more convenient by allowing us to maximise our time spent commuting, but this is just the tip of the iceberg. Imagine your mum or dad start the day taking the driverless car to work. They can then dispatch it back home to take you to and from uni.  In the afternoon they can send it to your younger sibling as their high school day finishes, before recalling it back to the city to take them home. In essence, the vehicle most likely will not have a permanent home during the day. This will massively reduce the number of parking facilities needed, instead allowing for office space and apartments development. Whilst this is beneficial for consumers, it may have an adverse effect on government revenue. Morgan Stanley believes US governments could lose US$1.3 billion from revenue sources such as parking fees. [5] This forecasted revenue loss also takes into account fewer registration fees, as American households are expected to reduce their car ownership from 2.1 non-automated vehicles to 1.2 driverless cars, on average. [6]

Whilst car ownership is predicted to fall, it could even cease to exist by the end of the 21st century. Uber will have a fleet of autonomous vehicles ready by 2030. A Columbia University study suggests that Uber would need just 9000 autonomous cars to completely replace all taxis in New York City, with consumers only having to wait 36 seconds, on average, for a ride. [7] Cars are currently seen as status symbols, giving their owners freedom and a sense of familiarity and luxury that ridesharing cars do not. However, as ridesharing services become safer and cheaper, and wait times continue to fall, the end of car ownership is a real possibility.

Self-driving cars will also have a major effect on the travel industry. Sven Schuwirth, vice president of brand strategy and digital business at Audi, proclaimed “In the future you will not need a business hotel or a domestic flight.” [8] After all, why fork out the money for a flight, and go through the hassle of seat selection, check-in, customs, boarding, disembarking and luggage collection, when your car can take you from Melbourne to Sydney overnight? This spells major trouble for highway motel operators too, as people will opt to sleep in the car and arrive at their destination in the morning, instead of stopping in the middle of their journey. Of course, this change would not occur instantaneously. As autonomous vehicles first become available, there will be plenty of safety concerns, and it’s unlikely that individuals will be comfortable sitting in the back seat of a self-driving car, let alone sleeping in one. But over time, as they become more common, self-driving cars may pose a major threat to the travel industry, especially domestically.

Automation is by no means limited to personal transportation. McKinsey and Company estimate that trucking companies could save up to US$500 billion dollars annually by 2025, as automated trucks deliver parcels, food and all things in between. [9] These savings will also see the cost of some goods lowered, boosting manufacturing. [10]
However, the majority of these savings will come from the extinction of truck drivers, as driverless cars will make them structurally unemployed. [11] The same can be predicted for bus drivers, taxi drivers and even tram drivers here in Melbourne, placing an increasing strain on unemployment benefits, at least in the short term. Conversely, the prospects of IT workers and analysts are solely positive as they enter this automation age. Data analysts will become increasingly important as self-driving cars collect data about every single aspect of our day. In fact, this data could be worth up to US$750 million by 2030. [12] Further, self-driving cars will significantly improve the life of disabled individuals, increasing their personal sense of freedom and their employment prospects due to increased mobility. It’s estimated that British individuals with limited mobility could see their earnings increase by £8,500 annually, on average. [13]

Driverless cars will provide a major shake-up to the global economy – and as with all shake-ups, there will be plenty of winners and losers. However, when the dust settles, they could add as much as US$7 trillion to the global economy! [14] Despite their potential downfalls, driverless cars will make our future lives smarter, safer and more convenient, and I for one can’t wait for the rise of these machines.

Image: Dllu


[1] Parker, R. G. (2015, June 11). How will self-driving cars affect the economy? GAA Accounting. Retrieved from

[2] Ibid

[3] Ibid

[4] Marshall, A. (2017, June 3). Robocars Could Add $7 Trillion to the Global Economy. WIRED. Retrieved from

[5] Shafroth, F. (2017, January). Breaking Down the Financial Impact of Self-Driving Cars. GOVERNING. Retrieved from

[6] Ibid

[7] S. (2016, October 28). Impact of Autonomous vehicles on the economy. Retrieved from

[8] Fairs, M. (2015, 25 November). Driverless cars could spell the end for domestic flights, says Audi strategist. Dezeen. Retrieved from

[9] Barbier, J. (2017, May 3). Self-driving cars will disrupt more than the auto industry. Here are the winners and losers. CNBC. Retrieved from

[10] Muoio, D. (2016, May 17). 6 ways driverless cars will transform the economy. Business Insider. Retrieved from

[11] Barbier, J. (2017, May 3). Self-driving cars will disrupt more than the auto industry. Here are the winners and losers. CNBC. Retrieved from

[12] Marshall, A. (2017, June 3). Robocars Could Add $7 Trillion to the Global Economy. WIRED. Retrieved from

[13] Tovey, A. (2017, March 30). Self-driving cars could lend ‘£8bn boost to UK economy’. The Telegraph. Retrieved from

[14] Marshall, A. (2017, June 3). Robocars Could Add $7 Trillion to the Global Economy. WIRED. Retrieved from