Analysis: Why Silicon Valley doesn’t mind rising gas prices
Gas prices have been steadily climbing since February 2016. In June, the average U.S. retail price of a gallon of gasoline was $2.97, up more than 20% from the same time last year. The nation is a few cents away from a psychological milestone, $3 a gallon. Meanwhile, the price of a barrel of crude oil recently hit $72.94, up 62% in just one year.
The Drudge Report, with a finger on the pulse of America’s anxieties, blared a warning about the soaring gas prices in its lead headline Tuesday. President Trump demanded that OPEC “REDUCE PRICING NOW” in a tweet the same day.
Companies such as Facebook Inc. and Alphabet Inc. don’t spend much time worrying about the cost of gasoline, even though with new investments all over the transportation industry, Silicon Valley is more connected to the Permian Basin than ever.
What’s bad for the owner of vehicles propelled by internal combustion engines could actually be good for tech, which has bet big on electrification. For Tesla Inc., rising gas prices will be a welcome nugget of good news. The company has positioned itself as a full-service electric company with solar panels, batteries and, of course, all-electric cars. High prices at the pump should drive sales. However, the slowly rising price of oil hasn’t been enough to insulate Tesla from questions this week over its Model 3 production and management turnover.
Increasing gas prices could also be good for electric-scooter-sharing companies such as Lime and Bird. Scooter companies are trying to convince local regulators that scooters can replace car travel. That story gets more powerful as the price of gasoline climbs.
Gasoline prices will have perhaps the biggest effect on Uber and Lyft, though how they’re affected isn’t obvious. Car-owning customers might turn to the ride-hailing services instead of shelling out for gas. And by dint of their business models, those companies are relatively insulated because drivers pay their own way, fuel and all.
Drivers are certainly feeling the pain, though. “It’s been a pretty hot topic for drivers lately,” said Harry Campbell, author of “The Rideshare Guide.” “Generally it hurts Uber’s reputation with drivers because drivers are the ones who have to shoulder 100% of those increased gas costs.”
Uber says it has increased prices in dozens of cities so far, partly in response to gas prices. And Lyft rolled out a program with Shell to offer Lyft drivers a discount on fuel. It’s a small gesture toward ameliorating their rising expense.
The companies aren’t totally protected from rising prices. Theoretically, their marketplaces should adjust as they’re constantly balancing supply and demand. If gas prices make driving less appealing, then drivers should quit, pushing up income for those who remain. But even a self-correcting marketplace can shrink.
If fuel prices keep rising, car travel as a whole is at a disadvantage to more energy-efficient forms of transit such as scooters, public transportation and electric cars. Clearly, Uber and Lyft are aware of that. Uber bought the electric bike company Jump Bikes, and Lyft just bought the bike-rental company Motivate. Both are exploring ways to encourage their drivers to buy electric cars while promising to integrate public transportation into their apps.
While much of the country stands to suffer from rising oil prices, Silicon Valley has positioned itself to cash in as it builds the city of tomorrow.
Newcomer writes for Bloomberg.
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