Uber and the Autonomy Market Gap
Just as I had no plans to write about Tesla a few weeks back I had zero to write on Uber. But the takes on its IPO have been obscured by tomorrow’s fuzzy reality around autonomous vehicles.
Full autonomy and ‘Robo-Taxies’ in the medium term are a total myth. I covered technically in depth what Tesla et al are facing in The Future of Tesla and Full Self Driving Cars.
Key point related to Uber in my post (emphasis mine):
So how does all this affect when Tesla will get to L5 self-driving? It depends. Full autonomy is a slippery slope. People don’t need it at any specific date. It will be slowed by regulation. It will depend on when and where. Elon’s hyperbolic comments are well suited to that. It’s much more likely that isolated deployments in local jurisdictions will allow for small autonomy roll-outs, while a Tesla seems to get you very close as you ride around town. Human over-ride will be required during this transition phase.
It’s been well-documented that Uber’s S-1 had basically no meaningful data and was hiding all relevant metrics. Ben Thompson covered this in Uber Questions and included a section the ‘Self Driving Question’ where Uber explained they see a hybrid autonomy future. No shit, really?
Did it take a banker-edited S1 to understand that autonomous vehicles are not going to turn on overnight, and more importantly some people interpreted that as the bullish portion of the S1?
From Uber’s S1 (again emphasis mine):
Along the way to a potential future autonomous vehicle world, we believe that there will be a long period of hybrid autonomy, in which autonomous vehicles will be deployed gradually against specific use cases while Drivers continue to serve most consumer demand. As we solve specific autonomous use cases, we will deploy autonomous vehicles against them. Such situations may include trips along a standard, well-mapped route in a predictable environment in good weather. In other situations, such as those that involve substantial traffic, complex routes, or unusual weather conditions, we will continue to rely on Drivers. Moreover, high-demand events, such as concerts or sporting events, will likely exceed the capacity of a highly utilized, fully autonomous vehicle fleet and require the dynamic addition of Drivers to the network in real time. Our regional on-the-ground operations teams will be critical to maintaining reliable supply for such high-demand events.
Deciding which trip receives a vehicle driven by a Driver and which receives an autonomous vehicle, and deploying both in real time while maintaining liquidity in all situations, is a dynamic that we believe is imperative for the success of an autonomous vehicle future. Accordingly, we believe that we will be uniquely suited for this dynamic during the expected long hybrid period of co-existence of Drivers and autonomous vehicles. Drivers are therefore a critical and differentiating advantage for us and will continue to be our valued partners for the long-term. We will continue to partner with original equipment manufacturers (“OEMs”) and other technology companies to determine how to most effectively leverage our network during the transition to autonomous vehicle technologies..
To understand some of where I am going on ride hailing vs autonomy and how it relates to investor valuations you need to look at Google’s Waymo. Waymo has been slaving over self-driving for years and has little to show for it. The best way to think about how investors react to unknown unknowns in new markets is to look at comps. Morgan Stanley valued Waymo at $175B in the IPO run up. I don’t even know where to start…
To say something is worth $175B due to a large market potential in the absence of cash flows is the most non-Warren Buffet thing ever. Ethics at banks is generally low, but while capital markets bankers (at Morgan Stanley) were pricing Uber’s IPO, “research” teams there were writing notes pegging Waymo to $175B. Wtf?
Suffice it to say if you really want to know how I feel about how inside information travels instantly in the Valley read #4 of this post VC Myths. Everything is shared in the Valley, and the concept of a firewall between Morgan Stanley groups is absolutely absurd.
But to move to the point of how valuation comps relate, witness the tension between public and private markets right now:
- Waymo fake Morgan Stanley valuation of $175B (adjusted from Google)
- Uber + Tesla + Lyft (public) + Cruise (hybrid public / private) ~$150B COMBINED
The thing to unwrap in all this is how these companies must grow into a valuation that’s universally accepted: cash flow valuations. They are all radically different — from Waymo having zero revenue to Uber having a lot.
And following the IPO…. now we know what people will pay for Uber’s revenue.
Uber is now fully valued. The smart investment was Benchmark vintage, and I know this has been well documented. The only way for Uber to grow in valuation is i) to grow internationally where they are facing massive competition (ironically from SoftBank funded companies), ii) to cut costs, or iii) raise prices.
That Uber is worth about half of IPO targets a few months ago is telling. So the question is, how much of Uber is ride-hailing, and how much something else?
We don’t yet know the future value of autonomous vehicles as a market, but honestly it doesn’t matter. Because the market is very far out. And autonomy is the only way to cut costs!
To be clear, Uber is valued by smart money today (public markets) as a ride hail company, not a technology company that is producing autonomous vehicles.
Where autonomy goes next is a long bumpy road. Certainly Uber is not well positioned here. Not only do they have an uphill battle against more focused competitors, but they also can’t spend $1B per year on their self-driving car project. That is very clear. The stock simply doesn’t support it. And they know this.
Meanwhile, Waymo’s LiDAR based approach to autonomy is absolutely a slippery slope and there is zero chance it’s worth $175B – about twenty percent of Google’s $800B market cap. That’s absolutely insane and demonstrates how far gone people are around this autonomy stuff.
The silliest thing for me around Elon’s hyperbolic comments and the ridiculous TAM statements from Uber in its S1 is that people somehow insinuate that consumers need autonomous vehicles. NO. Cars are plentiful today, and so are drivers. If drivers truly make sub $15 per hour, your 20 minute Uber ride cost you an extra $5. That is meaningless.
So wait a minute. Full autonomy is a long way out, and partial autonomy is going to happen occasionally, under perfect weather conditions, with no safety hazards, etc and you are going to fix your unit economics and all of a sudden not be a ride hail company? NO.
Companies will need to buy more expensive vehicles, have things like LiDAR (to be clear, vision processing will win) and only then will those crazy expensive cars save $5 bucks a ride? Sure! AT SCALE.
But NOT any time soon, and not to fix the cost side of the economics. Give it a decade to happen at scale…
There is only one solution for Uber to stabilize its money-losing business: Uber will continue to raise prices and that may further stall growth. Not only internationally, but domestically against primary transport competitors Lyft and DoorDash.
Look, I am a technologist and am as bullish (long term) on autonomous vehicles as much as the casual reader of this blog and the movies. But that does not matter.
What matters is economic need and when the technology will be ready. And the tech will take a long time.
But guess what? Now we know the real valuation of ride hailing. And it’s abysmal compared to what many projected. Uber and Lyft have been destroyed in the public markets.
And many private investors are terrified by this lower ceiling valuation from Uber.
And when the next set of private companies try to raise capital they’ll be doing it from the same investors that just got washed in Uber’s IPO. Expect a wide variance in the stories, the outcomes, and the winners. The future of transportation is clearly full autonomy, but it’s going to take a long time for it all to play out.