Weekly Brief: Uber’s Toyota Backing Can Only Work When Robots Replace Drivers

Uber’s self-driving car division just got a billion-dollar vote of confidence from Toyota and friends.

Uber revealed last week that Toyota and automotive supplier Denso will invest $667M in Uber’s Advanced Technologies Group (ATG). Japanese conglomerate SoftBank will chip in another $333M and Toyota says that it’s ready to pony up an additional $300M in the coming three years to help make self-driving cars a commercial reality. All told, the new funding values Uber’s ATG at $7.3Bn. As part of the agreement, Uber’s self-driving car division will create a new board with one director from Toyota, one director from SoftBank and six directors from Uber.

If you’re wondering about the timing of this, look no further than Uber’s initial public offering. The ride-sharing giant filed its S-1 papers last week and is expected to go public in early May at a valuation somewhere between $90Bn and $100Bn. That will make it one of the largest IPOs in US history and for good reason. Uber has transformed the modern mobility landscape and has cornered much of the market in the process. It owns 67.3% of the ride-sharing market in the US, as of February 2019, and has branched out into additional revenue streams like food delivery, with its Uber Eats business, as well as bike-sharing and scooter-sharing. It doesn’t dominate to the same extent internationally. Famously it ceded the Chinese market to Didi Chuxing (Uber got a 20% stake in Didi in return) and has turbulent relationships with major European cities like Paris and London. Still, Uber has a presence in 400 cities worldwide, spread across more than 60 countries, and is the largest ride-sharing company in the world.

That makes buying Uber stock a no-brainer right? Not so fast. Despite its impressive growth rates and revenue, Uber still bears a reputation for being unethical to its drivers, sexist to its corporate employees and reckless when it comes to some of its investments and growth strategies. Granted, much of that was linked to its co-founder and former CEO, Travis Kalanick, who was forced out by investors in 2017. Even under new CEO Dara Khosrowshahi, however, some of that reputation remains. In terms of its self-driving car division, for example, the S-1 papers revealed that Uber has dumped about $1Bn into ATG since 2016, without a dime of revenue in return. It doesn’t have a clear plan for how or when it’s going to commercialize the technology and the only concrete accomplishments to come of the program to date are the two biggest stains in self-driving car history: first, a $245M settlement with Waymo for corporate theft and, second, a pedestrian death in Tempe, Arizona, in 2018 that caused Uber to nearly abandon its self-driving car aspirations altogether.

That’s where the Toyota investment comes in. On the eve of its IPO, Uber can now make the argument that it’s sharing some of the financial burden of the R&D that will go into making self-driving cars a commercial reality. It also can now boast powerful partners in Toyota and Denso when it comes to actually manufacturing robo-taxis.

Uber lost $2.2Bn in 2017 and $1.85Bn in 2018 but, if it can cut out the expense of its drivers with a worldwide fleet of robo-taxis, it has a clear path to profitability. That’s one of the arguments it will be making when it takes its IPO out for a roadshow in the coming weeks.

 

Toyota also wins here. Let’s not forget that in 2018 the carmaker invested $2.8 billion to launch its own software startup focused on self-driving cars, called Toyota Research Institute-Advanced Development. The company has ambitious plans to use that tech by 2020, in the beginning to integrate self-driving cruise control on highways and thereafter to manufacture Level 5 self-driving cars. Now, with the Uber investment, Toyota gains access to Uber ATG’s software advancements. It also has an inside track to a huge manufacturing opportunity — when robotaxi time finally arrives.


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