As the thesis for taxi medallion financial industry short-sellers implodes, those seeking to profit off of distortion about the industry have a lot to answer for.
James Hickman and Gordon Gossage have been pushing their short thesis on a particular company in the taxi medallion financial industry for six months. Their thesis has always boiled down to the same claim: that Uber is taking over the world, and will provide so much competition for taxis in NYC that taxi medallion owners will default on their loan payments.
As the data has rolled in, we find that simply isn’t the case.
Fact #1: UberX Driving Is A Terrible Deal
In Hickman’s initial report, his entire short thesis came down to a single sentence:
“If the medallion market entry barriers are effectively eliminated, the marginal cost of supply equals the cost of a vehicle, driver’s license, smartphone and a clean background check and drug test, medallions will cease to have any meaningful value”
The data is in, and ride-sharing vehicles cost a whole lot more than that.
In my just-released White Paper, “Towards a Cost Estimate for A NYC UberX Driver“, research indicates that a NYC UberX driver incurs costs of 37 to 42 cents per mile. When adding in Uber’s commission, NY sales tax, and The Black Car Fund Fee, a driver loses 68% of his first $1-per-mile in revenue, and 55% of his first $1.50-per-mile in revenue.
On an hourly basis, most data sources put the average speed of a NYC cab driver at 12mph, meaning the UberX costs run from $4.44 to $5.04 per hour PLUS 31% in other fees.
There are almost no sources for actual UberX driver income, although Uber claimed $36.16 in a report from last September. At $3.01 per mile in revenue, drivers lose 43% of revenue, netting out $20.61 per hour. That’s roughly equivalent to what a leasing taxi driver makes. That explains why veteran cab drivers who sample UberX have returned to leasing. They don’t need the headache of maintaining a vehicle when they can just rent one out.
Fact #2: Taxi Revenues Have Been Minimally Impacted
Hickman has tried to spin TLC data in several ways, but no matter how it is parsed, the numbers are very much in favor of the taxi medallion financial industry. The following was obtained from two separate FOIL requests.
From 2012 to the end of 2014, total taxi stock revenues adjusted for the 2012 increase fell only 4.8%. This came despite 50,000 Green Boro Taxi trips being added per day, grabbing 8% of total market share, and a 2.6% increase in subway ridership (132,000 more riders per day), and most importantly, a fourfold increase of UberX drivers from 4,000 to 16,000 in 2014. Hickman claims that most of these drivers came on-line at the end of the year.
Well, they certainly must have been absorbed into the system by the end of April, right? Let’s check that data.
A 6.3% total decline over two years, and a mere 4.26% decline this year so far. How is it that Uber can throw its entire arsenal at NYC cab drivers yet, in conjunction with other competition, only manage a 4.26% impact? This, by the way, also includes another 4,000 drivers that Uber said it would add this year by this point.
The simple truth is this, and it’s what Hickman totally underestimated about Uber. First, remember that everything other than UberX is not a direct competitor to taxis. All of Uber’s other products are more expensive and regular taxi passengers will not pay more for a black car in their everyday experience.
Next, UberX drivers have discovered that driving is a bad deal. Were it truly some holy income grail, then the streets would be choked with UberX and taxi revenues would have declined far more than they have. User’s own internal study showed a 50% attrition rate after one year. Who knows how much worse it gets over a longer period of time?
Nor are there 20,000 actual UberX drivers on the streets at any one time. Besides those lost to attrition, others just do it as a part-time gig. I suspect UberX drivers will be maxed out by the end of this year, in terms of how many work at any one time.
Fact #3: Taxi Medallion Loans Are Being Paid
Hickman’s extrapolation was that Uber would mean unlimited supply of new drivers (it hasn’t), which would crater taxi revenues (it hasn’t), leading borrowers to default on their loans (they haven’t). There are zero losses across the taxi medallion financial lending industry and only 6 foreclosures in all of NYC, under unknown circumstances.
Drivers won’t default. Do you know why? Because their debt coverage is enormous, and Hickman had to misrepresent driver costs and debt service to even get close to showing a worst-case scenario. Below is a chart he worked up, and my notes that correct him.
Unbelievable. All you have to do is look to the five largest taxi medallion financial industry lenders to find the average medallion loan size, and Hickman deliberately mis-reports it.
Fact #4: NYC Medallion Values Are Not Falling
In an interview I conducted with former TLC Chairman Matthew Daus, he confirms that, “a significant number of transfers were between family members and friends, other converted independent unrestricted medallions into corporate medallions. There are too few true arm’s-length transactions to conclude that rideshare, or any other factor, has materially impacted medallion values.”
Cash flows remain monumentally in excess of medallion loan debt service, yet instead, the media has seized on the non-market value transfers, “leading to market fears, and a freeze in liquidity. Thus, no transfers take place, leading to the self-fulfilling prophecy of a decline in value.”
The result is public confusion between price and value, and Daus suggests that it is not a coincidence that these stories, “intend to pierce investors’ confidence in the medallion system,” just as rideshare companies are raising new capital.
When you put all of this information together, it is obvious that Uber has lost the transportation battle in NYC, and that short-sellers of taxi medallion financial industry stocks are spreading misinformation.