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After a busy second quarter, Tesla will be releasing and discussing its quarterly results on Wednesday. And — understatement of the year — there is a lot to cover: From missing its vehicle delivery guidance (again) to the second part of Elon Musk’s "master plan" to the company’s agreement to acquire Musk’s (literal) cousin-company SolarCity.
Musk is expected to talk a little bit more about how the company plans to finance several of the projects he outlined in his master plan, which includes solar-powered roofs, self-driving trucks and minibuses and a shared network of self-driving cars.
But while financing the development of these projects is one concern, the company also has to figure out how to make them viable.
Specifically, in an already crowded marketplace of ride-hail companies, how do you make a shared network of self-driving Teslas profitable or at least worth pursuing? To have enough demand while not worrying about supply, Tesla’s best bet may be to partner with a company like Uber or Lyft.
A partnership with a company with an established user base — Uber, for example, hit 100 million rides yesterday just in New York — and its own supply of cars (read: Manufactured in partnership with another company) would ensure that Tesla will be able to help owners reduce the cost of ownership or, in cases where Tesla provides the cars, make enough to offset the cost and eventually make money off of each car.
The premise of Tesla’s network is that car owners can offset the costs of their car — which people typically only use 5 to 10 percent of the time on average — by opting in to sharing their vehicle in an on-demand network when they’re not using it.
The first obstacle is finding owners willing not just to allow strangers in their car but to let them add miles and wear and tear. In a completely unscientific poll conducted on Teslamotorsclub.com, only 20 percent of the 66 people who participated said they would be willing to share their car. In another poll on the forum, only 19 out of 128 respondents, or 15 percent, said they would share their car.
"No, I see no reason to trust complete strangers not to trash my car," one Tesla owner wrote. "Absolutely not. The thought alone makes me shudder. [Never] would I ever dream of using such a service," another wrote. Other commenters wrote that they would only consider it if their cars were old, in order to be able to start saving up for a new Tesla.
But even if few owners are willing to let strangers into their car for a few bucks, Musk has a solution: Tesla will provide its own cars.
"In cities where demand exceeds the supply of customer-owned cars, Tesla will operate its own fleet, ensuring you can always hail a ride from us no matter where you are," he wrote.
But is that cost effective?
Consider this: It’s unlikely that Tesla will develop a more affordable car than the Model 3, according to Musk. At its lowest price point, a Model 3 with no frills is $35,000. In May 2015, the average cost of more than one million Lyft and Uber trips across the U.S. was $12.95, according to Sherpashare. Based on those figures, each self-driving car would have to perform at least 2,700 trips to offset the cost of the vehicle before Tesla starts turning a profit.
That’s not considering the fact that with self-driving technology, cars will likely start off on the high end of the market or that the cost of each trip will likely drop. That’s because, among other things, the pricing model doesn’t have to account for things like a driver, and drivers are earning a livable wage.
That brings us to our second obstacle: Finding consumers. A network of old, privately owned Teslas doesn’t sound exactly appealing when there are other options like a Lyft-powered network of General Motors vehicles or Uber’s network of Toyotas. In fact, that’s exactly why Lyft co-founder and president John Zimmer doesn’t think this model will work.
"I think that’s like a belief of a car company that needs to sell cars, but you can see over time they’ve shifted how they thought about the importance of a network," Zimmer told Recode in a previous interview. "Imagine the experience of owning an individual car and having that in a network versus a network designed to provide you the cleaned, maintained experiences you want. There will be cars available during peak times, multiple experiences you can choose from: It’s the clear way to us that this will play out."
If it’s a brand new Tesla, there’s a chance the company would have to price it higher to make it viable, particularly if there aren’t many Tesla owners willing to share their cars.
Typically ride-hail users consider just a few things when deciding between services: Price, ETA, reliability and experience. Without striking a balance between supply and demand, the price and ETAs remain high while the reliability and experience suffers.
This is not to say Tesla won’t be able to create a viable on-demand network on its own. There are several possibilities, among them: Tesla can create a low volume, luxury service for a niche market; enough people will buy a first, or even second, Tesla in the hope they can make money off of the shared network; or enough people will buy into the novelty of riding in a Tesla they’ll try it at least one time.
This article originally appeared on Recode.net.
