Weekly Brief: Uber Slams Door on its Driverless Carol Singers

Commentary by Andrew Tolve

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14th December 2020

Uber’s self-driving car division is dead as a door-nail, in the timeless words of Charles Dickens’s great work, A Christmas Carol.

“There is no doubt whatever, about that,” after Uber sold its Advanced Technologies Group to rival self-driving car start-up Aurora last week. The complex deal required Uber to invest $400M into Aurora. In return, it will get 26% of the start-up, plus two seats on its board. The deal valued Aurora at $10Bn and Uber ATG at $4Bn.

You might be inclined to argue that a valuation of $4Bn and a 26% stake in a promising start-up is not a funeral and certainly not deserving of likeness to the deadness of a door-nail. To which I respond, remember what Uber ATG once was. The entire future profitability of Uber rested upon its promising shoulders. It, not General Motors’ Cruise, was the most prominent challenger to Waymo. Even as of last year, after a fatal crash with a pedestrian in Arizona and a costly court battle with Waymo, Uber ATG was still valued at $7.25Bn. Now it’s gone, subsumed into a start-up whose focus is driverless trucking, not the robo-taxis that Uber so desperately wants and it had to pay almost half a billion dollars to sell it off. If that’s not an ignominious death, I don’t know what is.

The troubled company also sold its air taxi enterprise Elevate last week. It used the same approach, in this case investing $75M into rival start-up Joby Aviation. Like Uber ATG, Elevate once was a core part of Uber’s vision for the future of transportation: autonomous and airborne when it needed to be and, thus, hyper fast, efficient and free of manual labor. That vision has now been nixed in favor of Uber CEO Dara Khosrowshahi’s desire to drop expensive moon-shots and make the company profitable as quickly as possible.

It could pay off. Uber is projected to have its first profitable quarter ever in 2021. If the pandemic wanes and social distancing restrictions lift, the company could witness ridership snap back to pre-COVID and bring with it a wave of impressive returns. Industry analyst Frost and Sullivan published a study last week suggesting that ride-hailing, along with car-sharing and bike-sharing, is primed to bounce back post-COVID, as people return to work and city life goes back to normal. The shared mobility market could reach $1.55Trn by 2030.

Uber stock is already up 81% year-to-date. Shedding the immense expense of investing in self-driving cars could be just the boost it needs to make it a darling of the stock market in 2021, much like Tesla has been in 2020. The electric carmaker’s shares are up 616% year-to-date.

However, dropping ATG comes at a cost, too. Khosrowshani may achieve short-term profitability faster but he also jeopardizes the ability to eliminate his company’s single largest expense. Drivers account for 80% of Uber’s total operating cost per mile. Surrendering Uber ATG means the company is stuck with drivers for the foreseeable future. Don’t expect to see it initiating any Waymo type pilots or commercialized services anytime soon. It no longer has the in-house capacity.

Moreover, whenever the technology arrives in the future, Uber will have to pay Aurora for it, even though it’s a part owner. That’s trading one expense (the driver) for another (the technology). Worse yet, Aurora’s autonomous vehicle technology may not be the best AV solution on the market when Uber goes driverless. In that case, Uber’s investment into Aurora would be doubly costly. These are the types of big decisions and course corrections that CEOs must make. Either Khosrowshahi is right, or the ghosts of Uber ATG will soon come back to haunt him.