Introduction

For many people, Uber is synonymous with ridesharing. It has become a staple of many peoples’ lives to pull up the Uber app on their smartphone when they need a ride. After a brief time, a driver will appear ready to take the passengers on their ride. However, in time, this experience will change. When needing a ride, people will still get on their smartphone and have a car come to pick them up, but instead of a driver in the front seat, there will sooner or later not be anyone at all in the car. The car will be driven autonomously. When this happens, how will Uber’s business be impacted? Will autonomous vehicles completely negate the need for Uber, putting the company out of business? Or will Uber be able to adapt and thrive in a world of autonomous vehicles?

Background

Autonomous vehicles aren’t a new concept with Uber. Uber’s original plan was to develop their own autonomous driving system. However, plans changed in 2020, a time when Uber’s business was being disrupted by the pandemic. Uber sold its autonomous driving unit to a competing developer of autonomous vehicle systems, Aurora Innovations, and became an investor in the company.

Since then, Uber’s autonomous vehicle strategy has changed. Instead of going it alone and developing their own autonomous vehicle system, Uber has instead decided to partner with other autonomous vehicle companies, such as Aurora and Motional.

Aurora is working on both autonomous passenger vehicle technology as well as autonomous technology for semi-trucks. Uber Freight and Aurora already have a pilot program for transporting goods in Texas. Uber has also signed an agreement in 2022 for a 10-year agreement with Motional, an autonomous vehicle company created by Aptiv and Hyundai. Motional is working with Uber for both passenger rides and food delivery. Uber is currently offering rides in Motional autonomous Hyundai Ioniq 5 vehicles in Las Vegas, NV and is offering Uber Eats deliveries in Santa Monica, Ca.

Possibilities

Scenario 1: They go solo

The worst case scenario for Uber is that all or most autonomous vehicle technology companies decide to try to build out their own robotaxi networks themselves. Waymo, Tesla, Cruise, MobilEye and others could all decide to forgo any type of partnership and instead launch robotaxi networks themselves.

In such a scenario, there would be no need for Uber. Consumers could connect directly with Waymo, for example, to get a robotaxi and bypass Uber all together. In this scenario, Uber’s business faces an existential threat. Robotaxis should, in the long run, be cheaper to operate, and hence, they would be able to undercut Uber’s pricing. Uber would struggle to compete and eventually would go by the wayside.

This is a real possibility. Tesla, for example, seems likely to try to run their own robotaxi network. On the other hand, Motional and MobilEye seem to be more interested in partnering with companies to run robotaxi networks rather than trying to run them themselves. However, as time goes on, even those companies may discover that they are better off going solo. While I do not think that most or all autonomous vehicle companies will decide to operate their own robotaxi networks, I do believe this possibility is the most concerning risk for Uber.

Scenario 2: A mixed bag

The second possibility is that some autonomous vehicle companies run their own robotaxi networks while others decide to partner with Uber. In this scenario, Uber will face competition not only from other current ridesharing companies such as Lyft, but from newer robotaxi networks, such as Waymo and Tesla. Uber will have to compete on price and quality of service.

Scenario 3: Teamwork

The last scenario is that autonomous vehicle companies decide to partner with established ridesharing companies such as Uber. In this scenario, the market dynamics would stay similar to what they are currently. Not having to pay drivers would help Uber’s margins, but some of the gain in margins would be offset by having to pay the autonomous vehicle companies. This would be the best scenario for Uber as they would face much less competition than if many autonomous vehicle companies decide to run their own networks.

Advantages of Uber

When it comes to building out a robotaxi network, Uber has some major advantages that I believe will allow it to succeed and thrive in the future. The advantages Uber possess will, in my opinion, convince many autonomous vehicle companies to partner with them rather than try to compete against them.

To begin with, Uber already has a massive customer base. Any autonomous vehicle company trying to build out their own robotaxi network would have to start from scratch, meaning that they would have to spend aggressively on marketing and promotional activity. By partnering with Uber, companies can avoid the massive financial outlay on marketing.

Secondly, Uber already has the technology necessary to successfully run a ridesharing network. Uber has years of experience building the technology and algorithms to most efficiently connect drivers with riders. It will be easy for Uber to incorporate robotaxis into their network since the principal concern of trying to make vehicles have to travel the least amount of time and distance to pick up a rider will not change regardless if that vehicle is driven by a human or autonomously. Autonomous vehicle companies would have to develop this technology if they were to compete with Uber. Inefficiently routing vehicles to drivers would not only cost companies money (via wear and tear on the vehicle plus electricity costs, assuming the vehicle is electric) but also force customers to wait longer to get a ride.

Additionally, and perhaps most critically, Uber will be able to transition from having human drivers to autonomous vehicles with the least disruption to costumers. By incorporating autonomous vehicles into their already established ridesharing network, Uber will be able to ensure that customers have consistent and timely service. By not having to rely solely on autonomous vehicles at the beginning, Uber can ensure that there will still be wide availability of timely rides.

An example will best illustrate this last point. As a hypothetical example, we will assume that Uber partners with an autonomous vehicle company and they start to deploy vehicles in Chicago. We will also assume they start by deploying 15 autonomous vehicles. If a customer wants a ride, they will go on the Uber app like usual. If an autonomous vehicle is the closest available vehicle to the customer, Uber will direct that vehicle to pick up the rider. However, considering that Chicago is a large city, the chances are relatively low that a customer will get a ride with the autonomous vehicle since they only have 15 available in total, and some of those may have to be charging or being cleaned. If an autonomous vehicle is not available and close by, Uber will simply route a human driver to come pick up the customer. Hence, the customer does not have to worry about extra long wait times to be picked up. Now, assume that a few months later, Uber is able to deploy 65 more autonomous vehicles to Chicago, for a total of 80. The customer’s experience will stay essentially the same. The only difference is that now there is a higher chance that the vehicle that picks them up will be driven autonomously. From the customer’s perspective, Uber is still able to offer the same availability of rides as before. Uber can keep scaling the number of autonomous vehicles they have in Chicago until it comes to a point when they will only offer rides via autonomous vehicles. This same type of situation can occur eventually in essentially any city that Uber operates in.

Now, compare this with what may happen if autonomous vehicle companies try to offer their own robotaxi network. Assume MobilEye were to try to offer their own robotaxi network. If they were to begin operations in Chicago with 15 vehicles, customers would likely experience low levels of availability. Trying to get a ride during peak times would be very challenging since, unlike Uber, MobilEye wouldn’t have human drivers to supplement their autonomous fleet. MobilEye would have to either wait until they have a large autonomous fleet to operate in Chicago or else offer very spotty service. If they take the former, it will take MobilEye a long time to deploy all throughout the United States let alone internationally, giving Uber more time to, with one or more partners, deploy their own robotaxis, and if they choose the latter, then customers will have little reason to use MobilEye since wait times might be very long. Also, many travelers to Chicago from other cities where Uber operates but MobilEye doesn’t yet operate would have a major incentive to use Uber since they already are familiar with Uber and already have an Uber account.

The point is that Uber will be able to transition into a fully autonomous vehicle fleet while continuing to offer high levels of availability of rides in contrast to autonomous vehicle companies trying to start their own robotaxi networks which would have to either wait until they have a large fleet of vehicles to enter a market or else offer very spotty service. Autonomous vehicle companies could take advantage of Uber’s already established ridesharing network by partnering with Uber rather than trying to compete against them. This advantage will be one of the largest reasons I believe many autonomous vehicle companies will try to partner with Uber rather than try to compete against them with their own networks.

Conclusion

It is my opinion that Uber will be able to continue to succeed in the era of autonomous vehicles. I think Uber’s already established customer base and ridesharing network makes them best positioned to gradually deploy an autonomous fleet. However, like always, it is hard to predict the future, especially with technology that can change rapidly. Thus, while I believe that Uber will succeed with autonomous vehicles, I am aware that autonomous vehicles also pose a major risk to Uber if they fail to establish successful partnerships with autonomous vehicle companies.

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