Ride-hailing giants, Uber and Lyft, have divested their autonomous driving divisions. This insight examines what this means for the future of ride-sharing as well as competition in the autonomous driving space.
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Summary
On April 26, 2021, Lyft—North America’s second-largest ride-sharing platform provider—announced its intention to sell its self-driving division, Level 5, to a subsidiary of Toyota for $550 million. This move followed Uber’s decision in December 2020 to sell off its self-driving division to autonomous driving start-up, Aurora, for $4 billion. Selling off these divisions marks a clear shift in the business strategies for ride-sharing companies, while also suggesting that competition in the race to build autonomous vehicles is becoming too intense for many players.
COVID-19 forces a change of plans
Uber and Lyft, and many other ride-hailing companies, have greatly disrupted private transportation, which a few taxi companies dominated in the past, that could thrive despite offering poor service and high tariffs to the consumers because of a lack of alternative options.
In one respect, Uber and Lyft could be democratizing private transportation, providing those with access to a vehicle the ability to charge those needing transportation for taxi-like services. The app-based platforms offered by both companies match drivers with passengers based on location and other needs. The companies’ ability to address the shortcomings of local transportation coupled with their abilities to rapidly scale in terms of geographic coverage and rides tendered propelled both companies to unicorn status.
At the same time, since their inception, both companies have hemorrhaged money. While losing funds to gain market shares and launch adjacent products, such as Uber Eats, have always been part of the business plan models of both companies, it was also apparent this was likely not a sustainable long-term path. Of particular concern were legal/public policy issues as to whether drivers should be considered employees rather than contractors and, therefore, be entitled to greater benefits and protections. It is not surprising that both companies eyed autonomous vehicles to reduce, and at some point, altogether remove the cost and complexity of using human drivers in their day-to-day operations. One could argue that current drivers were helping to fuel technologies that would make them redundant in the future.
- Uber’s Advanced Technologies Group, which partnered with Volvo, tested autonomous vehicles in a closed loop in Pittsburg, Pennsylvania and tested vehicles in cities including Dallas; Washington, D.C.; Toronto; and San Francisco, though not all vehicles operated without a driver. Despite a major setback in 2018, when an Uber self-driving car struck and killed a pedestrian in Tempe, Arizona (the company was later cleared of wrongdoing by authorities), the company continued to pursue autonomous driving. Not long before selling off the division to Aurora, Uber’s ATG announced its third-generation self-driving car.
- Similarly, Lyft launched Level 5, its autonomous driving group, in July 2017 and began testing at the end of that year. One of Lyft’s largest and earliest investors was General Motors, which staked the company with $500 million and sought at times to partner with Lyft. However, it also pursued its path to autonomous driving software through its acquisition of Cruise. Lyft further forged relationships with Ford, Aptiv, and Waymo, and its semi-autonomous BMWs were often a staple on the Las Vegas strip. In November 2020, Level 5 began testing its fourth-generation vehicle platform on public roads. Despite this progress, the division was sold to Toyota Research Institute for $550 million just under six months later.
While the original rationale for investing in autonomous vehicle technology is apparent, it is also clear that neither Uber and Lyft were likely to succeed on a path of developing their autonomous vehicles. Furthermore, COVID-19 has had a particularly pernicious impact on ride-hailing companies. Lyft, for instance, reported a drop in monthly active users of 45%, from 22 million in the fourth quarter of 2019 to 12.5 million in 2020. Cumulatively, the two companies reported losing more than 9.3 billion in 2020.
Given the numerous challenges they were already facing, it is likely COVID-19 simply accelerated Lyft and Uber’s decisions to sell off their autonomous driving divisions. However, it should be noted that the two ride-sharing giants’ decision to offload their self-driving divisions does not thwart their plans to eventually move to autonomous vehicles, which can operate 24/7; it simply means they will likely need to license autonomous driving software. As well, it removes a significant barrier to entry that Uber and Lyft hoped to erect and could see those with autonomous driving solutions enter the ride-sharing space.
Pursuing autonomous driving means go big or go home
Autonomous driving represents an economic step change, and it should be of little surprise that the market is of such great interest and is receiving such high levels of investments. Automotive OEMs, tech giants, and many other institutional investors are all looking to not only cash in on this market but also differentiate themselves through autonomous driving. Many investors are hedging their bets and investing in multiple companies and technologies.
Table 1 below shows just some of the investments in autonomous driving since 2020; this is on top of existing investments that companies like Cruise, Waymo, and Pony.AI have enjoyed. The figure also shows that the hyperscalers, e.g., Google (owns Waymo), Amazon, and Microsoft, are not going to sit on the sidelines and let automotive OEMs have this market. The hyperscalers are uniquely positioned to take advantage of autonomous driving not only because of revenues associated with licensing software and hardware but also because the technology is an important horizontal asset. Amazon sees how autonomous driving could improve its retail service and aspects of warehouse management. Microsoft sees how its suite of productivity software could be leveraged in-vehicle once people are commuting without having to keep their eyes on the road. Meanwhile, connectivity service providers (CSPs) have made relatively fewer investments in this market.
Table 1: Select autonomous driving investment from 2020 to 2021 (April)
|
Investor/acquirer |
Investee/acquired company |
Investment* ($ million) |
|
Toyota |
Lyft (Level 5) |
$550 |
|
Aurora |
Uber Advanced Technology Group |
$4,000 |
|
Microsoft and others |
Cruise |
$2,000 |
|
General Motors |
Nikola |
$2,000 |
|
Navistar |
TuSimple |
$100 |
|
Amazon |
Zoox |
Undisclosed |
|
Softbank |
Didi Chuxing |
$500 |
|
SK Telecom |
Otonomo Technologies |
$46 |
|
AutoNation, Magna |
Waymo |
$2,250 |
|
Toyota |
Pony.AI |
$400 |
|
Notes: *Indicates total for the investment round |
||
Source: Omdia
On top of these investments, Tesla, which many perceive as the leader in autonomous driving, is increasing its war chest. Tesla’s current market cap is $686.6 billion (as of April 30, 2021) and its earnings call for the first quarter of 2021 reported revenues surging 74% year-over-year while vehicle deliveries increased by 109%. Tesla has the money and, equally important, the ambition to compete for dominance in this market while relying almost entirely on in-house talent.
Chinese Internet search giant, Baidu, announced on May 1, 2021, that the following Sunday, it would debut its Apollo Go service the next day in Shougang Park on the outskirts of Beijing, one of the venues of the 2022 Winter Olympics. The service will be China’s first paid self-driving service with no one behind the wheel, however, vehicles will be monitored remotely, and a service member will sit in the passenger seat. Baidu’s entrance into this market could indicate that autonomous driving technology is the differentiator in the future of ride-hailing as opposed to the platform and market share.
Given all the money pouring into autonomous driving, Uber and Lyft were unlikely to succeed had they continued a path of developing their autonomous vehicles. Instead, divesting their autonomous driving divisions not only provided them with much-needed cash but also likely help secure potentially favorable terms in future licensing deals. As far as autonomous driving goes, Lyft and Uber now understand that they should stay in their lane and focus on their ride-hailing platforms, but questions remain as to whether their platforms will be enough in the future.
Appendix
Further reading
IoT Investment Tracker – 2H20 (January 2021)
Omdia Market Radar: CSPs’ Automotive and Connected Car Strategies and Propositions (April 2020)
IoT Market Landscape: Connected and Autonomous Cars (October 2019)
Cellular IoT in Fleet Management Report (October 2019)
V2X Technologies Report – 2018 (August 2018)
Author
John Canali, Senior Analyst, IoT