Uber needs to pump the brakes on self-driving cars

You may have heard the news that popular ride-sharing app, Uber, went public last week. The company has had a rocky first few days of trading, with the stock currently sitting at almost $40 or $5 below the IPO price. Lots of people have already examined the financials of the company and have expressed concern, and while I’m concerned about Uber, it’s for a different reason than most. I think the company is lost.

The reason Uber raised $24 billion over 23 rounds of funding while a private company is because they were selling a dream. And I’m worried that the current business model is simply that, a dream. One that cannot be attained. The problem with Uber is quite simply the company’s insistence on building its own autonomous vehicles (or at least the software for them). In fact, a recent report at Crunchbase indicates that Uber is looking to raise an additional $1 billion to help fund its self-driving car effort (their self-driving car unit burns $20 million per month by the way). Despite the Axios headline stating that being normal, let me assure you it isn’t. In fact, this is nuts and I’ll explain why.

Stay in your lane

Look, I love tech. I love tech companies, however, I’m tired of the idea that because you’re building a tech company you literally can do anything you want. I think the following analogy sums it up well: everyone knows Nike, we all love Nike, but we would all question if one day Nike decided that in addition to making amazing footwear that they would also start building rockets. And that’s essentially what Uber has done with its self-driving car unit.

The way I view Uber is as follows: it’s a company that has built a business which allows it to facilitate the transport of people, food, things, etc from point A to point B easily and seamlessly. It’s more crucial feature is its ability to match people with some kind of transportation, effectively its job is to meet supply and demand quickly and efficiently. And in order to fulfill that need, Uber developed an app (which has now been split out into other apps as well, such as, Uber Eats). So explain to me why an app company, decided to jump all-in on self-driving cars years after competitors such as Google.

By the time Uber got into the self-driving car race Google’s self-driving car technology had already racked up over a million miles on the road. That quite literally gives Google a million mile head start.

Why not let other companies figure it out and simply license the technology for it from them? At this point it certainly seems like a less costly model. Let Google spend its hard-earned billions to solve self-driving meanwhile you sit back and profit. I guess it’s not as sexy as controlling the entire market yourself.

Additionally, having thought about this a bit, though I should stress I don’t have any hard sources aside from a wink and nod, I believe when Uber was in the process of hiring its next CEO, they passed on Meg Whitman because she wanted to rein in the company and get it profitable. She didn’t want to sell the dream so to speak.

R&D is spinning out of control

This whole self-driving car unit at Uber is a massive money suck. Compared to its biggest rival, Lyft, Uber spent five times more on R&D in 2018. And as outlined above, it’s costing Uber $20 million per month just to operate. I think the argument could be made that if Uber cut back its R&D and laid off a percentage of its extremely bloated workforce of 22,000 employees (versus Lyft’s 4,000 employees), it might even be able to be profitable at this point.

Take a look at the R&D budgets at both companies, in 2018, Lyft spent $300 million on R&D while Uber spent $1.5 billion. It just seems so unnecessary to the core business. And for what? What has Uber shown us to date that has been remotely near impressive with regard to its self-driving technology? They have had issues in a few of their test markets, including one case where someone was killed.

Additionally, let’s not forget that even if Uber was able to build perfect self-driving car technology, it would also need to invest in building actual cars or working with a car manufacturer on a very stripped down model specifically built for Uber. And what does that mean for Uber on the business end of things? It means they will need to hire more people to service this fleet of cars across the country. They might even need a self-driving tow truck for when one of their cars breaks down in the middle of the road with passengers in it. Sounds like a fun scenario if you ask me. The last thing I’ll mention with regard to a fleet of self-driving cars is that how long will this depreciating asset last? And when it’s served its time, will the car have any resale value at all? I’m not sure.

So again I ask, at what cost does this self-driving technology come at for Uber?

Legislation hasn’t even been passed

We cannot forget that legislation around self-driving cars isn’t anywhere remotely close to happening across the U.S yet either. We’re still a ways off–if anyone thinks we’ll see self-driving cars in the next two to five years, you’re sorely mistaken. So this massive investment by Uber on self-driving cars (if they’re able to even get it working properly) won’t be realized for at least another 10 years. At least. Think about how many other things they could be working on improving with that money instead? But no.

Let other’s pave that path, spend the lobbying money, etc to get self-driving cars legally on the road.

Final thoughts

Uber’s main job right now aside from its core business should be to figure out a way to stick around long enough to see all of these things come to fruition because at it’s current pace I’m not sure it’s sustainable. That, or they can just keep trying to sell the dream.