Originally published at Tyler Newton’s blog The Dynamist on May 27, 2025

From time to time, the team at Catalyst will evaluate companies that take the current paradigm of owner-operated automobiles for granted, leading us to ask, “how will this business be affected by a transition to autonomous vehicles?” This thought exercise is designed to play out this transition to autonomous vehicles in a logical fashion, envisioning the spill-over effects on the rest of the economy and our lived environment.

These second-order consequences are perhaps most essential, as it’s hard to understate just how much the automobile has changed how our current society is organized. Suburban sprawl, single-use zoning, mass single-family housing, malls and strip malls, fast food, gas stations / convenience stores, car washes, supermarkets, ridesharing, on-demand food delivery, parking lots and garages, the geopolitical criticality of the oil industry…none of these things existed before the rise of the automobile. The owner-operated automobile was one of the key pillars of the mass-market “old economy” that had its heyday in the post-war boom and still lingers with us today.

As the digital “new economy” has permeated our society over the past 30-40 years, digital technologies have been mostly used to enhance the automotive experience, not replace it. Recently, the smartphone created some new business opportunities like ridesharing, on-demand food delivery and route optimization. Advances in battery technology have also enabled the rollout of electric vehicles, which have many advantages over traditional, gas-powered vehicles, with the exception (for now) of long-distance travel.

The core automotive paradigm, however, remains.

Why AVs?

Autonomous vehicles (AVs) are starting to be rolled out, primarily by Tesla, via its Autopilot / Full Self Driving (“FSD”) technology, and by Google’s Waymo, which is currently operating self-driving taxis in four cities. Tesla will be rolling out the first test market for its Robotaxi service (Austin, TX) this summer. The technology is still early-stage and expensive, but given the exponential pace of innovation, especially in AI, which is a fundamental building block of AV technology, we should expect accelerated improvement over the next several years.

The first question we must ask, of course, is whether there will be sufficient demand for AVs at all. Here are key reasons for anticipating strong demand for AVs:

Key reason #1 – Improvement of the automotive experience

• Long work commutes are stressful – if a commuter could relax or work rather than focus on driving, the commute would be more enjoyable / productive.
• Improve the experience of longer drives – when undertaking a long drive, relaxing in a comfortable AV will be dramatically more pleasant than focusing on driving the whole way.

Key reason #2 – Increased productivity of automotive assets

• Driverless cars are more productive for ridesharing services – not having to pay and manage human drivers would improve the business model of rideshare companies or car fleet owners.
• Driverless trucks are more productive for fleet owners – autonomous trucks can operate at night and without rest (except to charge up) and are currently being tested in Texas.
• Allow families to own fewer cars – Automobiles are expensive, depreciating assets that spend most of their time unutilized; more productive ridesharing companies can expand service and families could shift more trips away from owner-operated vehicles.

Key Reason #3 – Social benefits

• Safety – In theory, and increasingly in practice, AV’s are engineered to be safer than human drivers. Motor injuries are one of the top 10 causes of hospitalizations and 90%+ of all accidents are caused by human error. This will also bring down the cost of insurance across the economy.
• Expanded mobility access – AVs enable transportation for people who cannot drive (elderly, disabled, visually impaired, teenagers, etc.), improving their lives and reducing the burden on caregivers / parents.

How will the transition play out?

It appears that the first phase of rollout will be among robotaxi services like the current Waymo or Tesla services. That said, robotaxi cars are not currently being produced at scale. It’s hard to envision Google setting up car manufacturing operations. It’s also hard to envision both Tesla and Google holding those cars on their own balance sheets AND rolling out nationwide robotaxi services. The highest return on capital for both companies would be to license their AV technology to OEMs (like Waymo’s recent announced partnership with Toyota), but given that Tesla already manufactures vehicles, it is likely they remain in the manufacturing business at least.

To be clear, there are other companies pursuing AV tech like Zoox, Aurora, Rivian, VW, etc., but they are further behind. For the purposes of this paper, Waymo and Tesla exemplify two key approaches to the market that allow us to envision how things unfold.

In the early days of the transition, neither company will have nationwide scale, nor would they have citywide scale. For reliable service, passengers, who are simply looking for a ride (and in the near term would be at best indifferent between the two options, if not more comfortable with human drivers), would likely continue to favor apps like Uber or Lyft vs. switching between Waymo and Uber to see which one has the fastest or more ideal option. It would make more sense for Waymo and Tesla to partner with Uber and Lyft (with AVs as an option among many), as Waymo is currently partnering with Uber in Austin and Atlanta. Eventually, the AVs for the service would likely be provided by fleet owners that can finance the vehicle fleets separately and focus on setting up local operations to charge and maintain the cars (vs. the current ridesharing paradigm of individual car owners).

The other, parallel rollout of AVs will be among Tesla owners (or owners of Chinese AVs in other markets). With these vehicles, the FSD will just simply keep getting better and more reliable until regulations allow for the autopilot to be unsupervised. FSD will get the most usage during work commutes, especially since highway driving is already the most automated for all types of vehicles. Once the regulations change, and if Waymo and Tesla figure out licensing deals for their technology to OEMs, then adoption could start ramping up quickly because having the option for FSD will be very appealing.

What about form factor?

AV technology could be used on gas-powered or hybrid cars as well and such technology could be useful if gas cars are still needed for longer road trips. That said, EVs are much simpler mechanically so the potential to drive down the cost curve of EVs is much greater. If the fast-charging problem can be solved, EVs are likely to continue to gain share. Plus, if cars no longer had to be designed for human drivers (and if the likelihood of accidents went way down as human error is eliminated), the form factor and cost can radically change. There would no longer need to be a big area for an engine in the front, nor a steering wheel, nor a “driver’s seat” at all. Seating and storage could be arranged for leisure and/or productivity. Cars used for local robotaxis or microtransit could be one form factor (open and comfortable with peripheral seating), while longer distance or commuting cars could be another (more like flying first class, with varying levels of luxury).

If battery costs come down, the cost of assembling EVs should decline rapidly, with mix-and-match components like personal computers. This should create massive elasticity for robotaxi services, making coverage broad and prices low. If we move to this sort of industry structure, the existing business models of the major mass-market car manufacturers will face a major challenge (if not existential challenge). For a preview of this, look at the Chinese EV market today, where cars can be produced for a fraction of the cost of U.S. and European traditional automobiles.

Will individuals own cars?

While we could extrapolate to a world where no one owns a car any longer, there remains the problem of surges. During commute times or following big events, ride demand goes up. Right now, our automobile capacity is massively underutilized, with car ownership optimized for peak usage, like how a mall parking lot is sized for Christmas shopping. Uber has surge pricing, where higher revenue can entice drivers to come off the sidelines and add capacity during times of peak demand. It’s one thing after a big NBA game, but another for a commuter to rely on taxi service to consistently get to work on time…or for people in rural areas to rely on it…or people with weekend houses they want to get to. That said, the number of owner-occupied vehicles per family is likely to decline. People may first drop the third car for the driver-age kids and eventually the second car for commuting and/or running errands. It will be like the arrival of Spotify…people were used to owning their personal music (records, tapes, CDs, iTunes, etc.), until one day they didn’t need to.

Ironically, reliable robotaxi services may increase the appeal of mass transit. In most U.S. cities, mass transit isn’t appealing because everything is set up for cars. Easy robotaxi or microtransit services at the “last mile” can make someone much more comfortable not having a personal vehicle at the office for lunchtime or getting to and from the train or bus (this would be like how business travelers now comfortably rely on Uber over rental cars when flying into a city). Similarly, parents would massively benefit from putting their older kids in robotaxis to get to and from sports practice or other activities around town. Or to go out to lunch or dinner in a suburb, or from a suburb to downtown, not having to worry about parking and/or drinking and driving.

The number of cars owned per family could consistently decline over the next decade, until it’s somewhere between zero and one. Because the installed base of existing autos is so high, the reduction in the number of cars will play out gradually as the larger changes to cities and towns (and lifestyles) play out. In more rural and exurban areas, the robotaxi services will be slower to roll out, but given the larger distances driven, AVs will be popular as personally-owned vehicles.

In general, AVs should be safer than human-operated cars, so the cost of insurance should come way down. In addition, as more transportation moves from individually-owned vehicles to fleet vehicles, individual auto insurance will dwindle, and more commercial insurance will be needed.

How will towns and cities change?

The more people shift to AVs, the less parking becomes an issue. Cities and towns can allocate less real estate to parking lots and garages and more to higher-value uses. The great scourge of urban planning, mandated parking minimums, will start to be eliminated, allowing for more traditional architecture, with buildings closer to the street / sidewalk and not set back behind a parking lot. Traditional, walkable downtowns will become more appealing because once in town, people will prefer not to constantly summon robotaxis, even if relatively convenient. There will be less need for strip malls and developments at highway interchanges, although destination malls and entertainment complexes could flourish.

Charging and parking infrastructure can be at the periphery of downtown as the cars can drive themselves there after dropping passengers off. These types of facilities can incorporate car washes and other sorts of maintenance services, especially for robotaxi fleets. Gas stations, convenience stores and traditional fast-food restaurants will decline, although a new kind of drive-through restaurant, with pre-ordering and drive-through pickup, could arise.

Counterintuitively, suburban sprawl may increase, but not in the way that one currently understands sprawl (i.e., not strip malls and fast-food outlets). Suburbs will revert to a more traditional form, with a downtown (or multiple town centers) and walkable, mixed-use neighborhoods, but the appeal of suburban living will remain. If people no longer need to sit behind the wheel to get to work and hybrid work remains an option, longer commutes are no longer as much of a negative (as they can be spent reading, watching TV, sleeping, etc.). The appeal of owning a single-family house at a reasonable price in a nice community will become an option further and further from the urban center. Add in VTOLs / flying cars and urban areas will continue to spread out to the periphery. Business can also become more decentralized around the urban / suburban area as automated route optimization can allow workers to comfortably commute to various locations.

The pandemic and its aftermath offered a preview…people (a) want space for a home office and to be outdoors because (b) they can work hybrid or fully remote. They (c) want certain goods and services delivered to their home, but (d) they still enjoy entertainment and dining “experiences” out of home.

There will likely be a tipping point where highways will be designated for AVs only. Without erratic human decision-making and lane changes, an all-AV highway would flow much more efficiently. Autonomous trucks will also allow more truck traffic to occur overnight to more efficiently use the highway capacity.

Highway interchanges will eventually become logistics centers (car charging, warehousing for receiving truck shipments and for local delivery, centralized food preparation, etc.). Retail and restaurants will move to town centers, although destination malls, which function like town centers, may continue to flourish.

What about delivery services?

The same technology that enables AVs for passengers enables AVs and drones for delivery, which will bring the cost of delivering things way down. This will transform commerce in multiple ways.

Consumer goods and services will bifurcate between commodity and experiential.

Commodity goods and services will increasingly be delivered. Commodity goods and services include standard groceries, lunch and dinner prepared food, household items like lightbulbs and cleaning supplies and basic clothing, furniture, toys, sporting goods and electronics. There could be a new form of “fast food” that takes advantage of this new delivery infrastructure landscape, more of a hub-and-spoke model with a centralized kitchen and automated delivery.

Experiential goods and services will be consumed or acquired in town. Experiential goods and services include sit-down restaurants for socializing; “third space” coffee shops; co-working spaces; (highly automated) restaurants for lunch takeout; specialty stores for quality meats, seafood, cheese and baked goods; retail for high-end clothing and household goods; entertainment spaces like golf simulators, exercise studios, bowling alleys, bars and music venues. While destination malls will continue to have a role, their vast parking lots can be repurposed for uses like additional restaurants, retail or residential space.

Certain big box retailers may still have a role as mixed showrooms / logistics hubs. They could either be experiential like Cabela’s or L.L. Bean or more utilitarian like Costco or Home Depot. Either way, more and more of what is purchased in big box stores will be delivered “same-day” to a home, rather than carted away in a big SUV.

Bottom line

The rise of AVs will likely transform daily life as much as the automobile transformed daily life last century. There will be winners and losers.

Losers – Traditional auto manufacturers, gas stations and convenience stores, car dealerships, fast food chains, strip malls, car washes, parking garages, Uber and Lyft drivers, auto insurance, suburbs designed around driving everywhere.

Winners – Tesla, Google/Waymo, battery manufacturers, electrical and charging components, electric utilities, new form factor EV assemblers, traditional town centers, some shopping mall properties, Uber and Lyft, AV fleet operators, grocery delivery, sit-down restaurants, (non-media) entertainment venues, specialty food stores, hub and spoke food models, warehouse and truck automation.