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Sep 23

22 tweets

1/ Regulatory Arbitrage- How Uber made its money, and what it means for Tesla Robo-Taxi at launch

2/Uber took the world by storm, outcompeting traditional taxi services by using worker owned vehicles, demand based prices, a smart phone app and perhaps most importantly of all avoiding the regulatory requirements that taxis are required to follow.

3/ Taxi services in all major cities (and often in areas surrounding airports for airport rides) are required to post pricing in line with local ordinances, have set pricing for certain routes , provide subsidized rides for disabled passengers and require taxi medallions.

4/ Taxis pricing is required to stay the same regardless of demand on the system and number of drivers, fuel etc. They are required to keep the pricing the same to transport disabled passengers. Uber was able to introduce dynamic pricing and avoided ADA.

5/ Medallions- In major cities, taxis were required to hold medallions of each operating taxi. These at points were as high as $400K to operate a taxi and were horded and traded. Uber did not comply with these regulation and now they are as low as $30k

6/ Uber flooded the zone with drivers (often with huge subsidies for signing on). These greatly increased demand for ride sharing services, and what was once an occasional “luxury” of an expensive taxi ride became a primary transportation method for many.

7/ Local regulators tried to stop the full court press, but it became very unpopular with constituents that enjoyed the subsidized rides, and for many of their citizens that now had jobs as drivers (typically low income, sympathetic) .

8/ Backlash though started when the traffic from these unexperienced drivers, and people hailing ubers took over the streets. Many localities used this as an opportunity to put in ride hailing taxes, states started license, and some states pushed environmental requirements.

9/ COVID hit, drivers dried up and prices increased. This made uber mildly profitable, but cut down on rides. Taxis are still kind of around but with cheaper medallions, and people will use taxis certain times to avoid demand charges.

10/ Stepping back- Taxis are mostly used for people that cannot drive, do not have much use for a car, or in cases where parking is expensive (airports/city centers). For the ultra wealthy (productive?), car services exist to allow them to save time from driving.

11/ Tesla Revolution- The button is pushed and tesla unleashed a million robotaxis, and plans on building millions more. What happens now?

12/ Taxis and Ubers are in trouble. Likely going to lay off a bunch of workers.

13/ Induced demand- tesla pricing outcompetes and likely induces some demand from people that were cost conscientious but still dont own vehicles (public transportation riders, people with one car but two people.

14/ Now tesla is using it leading cost per mile operating costs (free drivers, electric motor efficiencies, low maintenance) but charging a nice rate. Many models put 90%+ profit margins at current or just below ride sharing rates.

15/ Now back to our regulators. What happens next? The Cities are now overrun with driverless cars (that some have figure out how to harass and exploit), the cars aimlessly drive to avoid parking/idling fees, and there is a traffic disaster.

16/ Local revenues are hit by the loss of ride hailing fees (though they quickly get tesla in the system), and now they have a bunch of out of work constituents that used to drive. Public transportation system languishs and now is losing even more money.

17/ Maybe tesla is doing well enough, that gas demand drops, and local car registration fees crater as people ditch their cars to just ride robo taxis. Local revenues drop again.

18/ Now this is conjecture, but when we have seen this happen before it seems obvious. Local government now have a cash pinata in the shape of a tesla T.

19/ They launch per mile operating fees, ride hailing fees, make them buy medallions limiting the number of operating robotaxis (to cut down on traffic), they launch congestion charges to help remove traffic from peak times.

20/ Thing is maybe they are right. Cars are heavily subsidized by parking mandates, local revenue funded roads, ignoring pollution and externalities. Huge portions of valuable land are sacrificed to auto in streets and driving infrastructure.

21/ All of a sudden, our 90% gross margin ride hailing service doesn’t look so good. Liberal politicians rejoice as they get to stick one to Elon, with basically no losers. New York City Council gets to set how much money they think tesla shareholders deserve.

22/ So buyer beware, when you see something that looks too good, it just might be. Especially if the government can make a buck. I personally expect robotaxis to be as regulated as taxis.



White Sox, Energy, Politics and Economics. Permanently scarred by participation trophies.

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