Uber Technologies Inc. (NYSE:UBER) faces a serious problem: Its core business model, ride sharing, keeps losing money. Indeed, as we have discussed previously, the ride-hailing business model as it now functions may actually be structurally unprofitable. If the market is ever convinced of that point, the dominance that Uber currently enjoys would swiftly evaporate.
However, the ride-sharing company believes it has an answer to the problem: autonomy. The idea is that self-driving cars will make the ride-hailing business profitable by removing overhead costs, such as paying drivers.
Unfortunately for this rosy picture, self-driving cars are not coming anytime soon. Investors hoping that automated taxis will spirit Uber to profitability in the next few years — or even the next decade — should think again.
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For years Uber has been talking about the importance of autonomy to its future. In 2016, Uber’s founder, Travis Kalanick, made this point forcefully:
“What would happen if … we weren't part of the autonomy thing? Then the future passes us by, basically, in a very expeditious and efficient way.”
This sentiment has continued even after Kalanick departed the company. Between 2016 and 2018, Uber poured $1.1 billion into its Advanced Technologies Group, the division focused on developing autonomous driving technology, and the company made sure to highlight the program’s importance in its S-1 filing ahead of going public earlier this year:
“We believe that autonomous vehicle technologies will enable a product that competes with the cost of personal vehicle ownership and usage, and represents the future of transportation.”
Uber’s efforts have won several major outside backers, including Toyota Motor Corp. (NYSE:TM) and Softbank Corp. (TSE:9434). The Japanese firms invested a combined $1 billion in Uber’s autonomous vehicle program.
Collision with Reality
For all the investment and hype around Uber’s autonomous driving program, self-driving cars are a long way off. Even the undisputed leader in the field, Alphabet Inc. (NASDAQ:GOOGL) subsidiary Waymo, believes it will be decades before true self-driving cars are viable except in geo-fenced areas, a view shared by top experts and executives at other companies developing the technology, such as Ford (NYSE:F).
Chris Urmson, who helped pioneer the autonomous driving program that evolved into Waymo, believes it could be 30 to 50 years before self-driving cars are ubiquitous. Andrew Chatham, the software engineer at the helm of Waymo’s current mapping program, explained the limitations still facing even its leading-edge technology:
“A critical part of working as well as we do is being selective in what we attempt to drive. We are not driving in the dense traffic of Mumbai, where you have really hairy traffic conditions. We are not yet driving in the worst blizzard that you can imagine.”
These capabilities are still many years away from being viable. That is a big problem for Uber, since the vast majority of its customers are in cities — exactly the sort of densely populated and difficult-to-navigate terrain that will take the longest time to crack. This collision with reality has forced Uber to revise its expectations about autonomy. CEO Dara Khosrowshahi admitted during a talk at the Economic Club last week that it will take more than 50 years for all Uber cars to be autonomous.
Hopes that autonomous vehicle technology will usher in a new era of wild profitability for Uber appears rather fanciful. With even the company’s own CEO saying that it will be several decades before the vision can become reality, it seems odd that anyone would choose to invest based on the autonomy thesis. Uber investors banking on autonomy should think again.
Disclosure: Author is short Uber.