There is so much hype going on about how great Uber is. There’s even more hype about how Uber drivers make more than taxi drivers in NYC, and why NYC taxi medallion and taxi medallion lenders will go out of business.
Nonsense.
The data is clear: UberX drivers do not make as much as NYC cabbies do. I also want to point out the big fallacy — UberBlack platforms do not compete with NYC taxis for fares. They compete with livery. Only UberX competes with NYC taxis, and that’s exactly how they were designed.
With that said, let’s dig into the numbers.
Let’s take the revenue side of the equation first. Uber has not released information about UberX revenue in NYC. We can only impute UberX revenue vs. taxi revenue. The easiest way to compute an individual fare at any given time is to use uberestimate.com and taxifarefinder.com.
Let’s first assume the same fare taken by an UberX driver and by a taxi driver. Let’s assume the gross total fare is the same. In most instances, UberX will be cheaper during non-surge periods, and that is intentional — UberX aims to undercut NYC taxis, after all.
However, Taxi passengers pay an additional 15-20% for tip which increases total driver revenue. UberX drivers pay a 20% to 25% commission to Uber, thus their total revenue decreases. Thus, for the same travel, a taxi will earn more.
There are only three ways an UberX driver could earn more.
More Passengers Per Shift
The TLC reports that NYC taxis provide about 440,000 rides per day. Dividing that number by the 13,537 NYC taxis means each cab gets about 32 rides per day. That number reaches closer to 35 when accounting for the 10% of cabs not on the road due to maintenance. That means about 18 rides per 9.5 hour shift, or 1.9 rides per hour.
Meanwhile, Uber released data for June and July in NYC showing each Uber driver had 1.5 fares per hour. So they have fewer rides per hour than a taxi, on average. Therefore, for the driver to earn more, those rides must generate more revenue than a taxi, either by trip length or charging surge pricing — and earn enough to make up for both the Uber commission they lose and the tip earned by a taxi driver.
Longer Average Trips
There just isn’t any data to support this claim, nor did I expect there to be. UberX is meant as a direct taxi replacement, not a taxi replacement for longer rides only.
Surge Pricing
There is no way to predict when surges will occur, nor that a driver will get a surged fare. And the prevalence of apps that help passengers avoid surges aren’t helping.
Nor can UberX drivers just wait around for surge fares, even in a zone that offers high expectation of one. As soon as the area is flooded with drivers seeking surge fares, by definition supply will increase and the surge pricing should vanish.
Logically, UberX drivers will not make more money.
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Uber Cost Myths
Now let’s look at costs. The myth is that UberX drivers are just putting their car into service at no additional cost. They couldn’t be more wrong. To use a stark example, let’s say you drive full time for UberX. Instead of your car lasting for eight years, it will last for four years. All the costs of car ownership get accelerated into those four years. If you drive part-time, you are still using up the life of your vehicle in a shorter period of time.
Those costs include gas, repairs, maintenance, insurance, tolls and depreciation.
If you want to geek out over specifics, have a look at my white paper, “Towards a Cost Estimate of A NYC UberX Driver.” I conclude that the cost is 38 cents per mile plus 35.59% in commissions. (I falsely concluded 30.59% because I didn’t realize NY UberX commission had been boosted to 25%.)
That means UberX drivers lose 74% of the first dollar per mile in revenue and 60% of the first two dollars … and that’s all before taxes.
A NYC taxi driver pays a $120 lease fee for his 12-hour shift and earns about $300. He pays gas, and that’s it. That’s still about 47% of gross pay, but nothing compared to 74%!
UberX driver revenue is less, and costs are higher. The conclusion is simple.
Why does this matter? Because someday Uber is going to go public. You need to know that its fleet of drivers is going to dwindle as they all realize what a terrible deal it is to drive for UberX. It’s why the study released by Uber earlier this year showed a 55% attrition rate for drivers after 12 months.
NYC taxis will regain some lost market share. Oh, and if you are shorting any of the big taxi medallion lenders like Citigroup (C), Capital One (COF), Signature Bank of New York (SBNY), or New York Community Bank (NYCB), you may want to cover.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he did not hold a position in any of the aforementioned securities. However, he is long Medallion Financial Corporation (TAXI). He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
