Google, Uber, Lyft unite for a self-driving car lobby
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Sondra Vine's Paint the Town art submission as part of Google's promo of its beta mini self-driving cars (image, Google Self-Driving Car Project on Google+)

While the biggest ridesharing companies in the United States carpool their influence to push for self-driving cabs, autonomous ridesharing profits aren’t guaranteed

Uber and Lyft don’t get along. They are fighting for marketshare across the United States, the founding grounds of the modern ridesharing industry. Lyft has entered an international coalition of companies much like the Sky Alliance to better challenge Uber resources around the world. But they are both on the same team for a new lobby heading to Washington D.C.: the self-driving car lobby.

Like most lobbies, this one will have some heavy industry hitters behind it and the leadership of a seasoned civil servant. David Strickland, who brings experience from the U.S. National Highway Traffic Safety Administration (NHTSA), will lead the Self-Driving Coalition for Safer Streets. Besides Uber and Lyft, they will have the backing of Ford, Volvo, and most importantly Google. Expect also General Motors (GM) to get into the game, considering they are now Lyft’s largest corporate investor having put $500 million into the company in January.

The lobby’s angle is clear from its name: “Safer Streets.” They will push the angle that algorithmic drivers will be safer than human ones. Therefore, there should be no need for strict regulation to get them on the roads.

Virtually everyone says these cars are advancing fast and are a done deal for the future economy. Elon Musk predicted Tesla cars would be able to drive themselves across the U.S. as soon as 2018IHS Automotive estimates that fully autonomous cars will be begin steadily taking up more of the road by 2025. Research and Markets asserts that automotive sensors will grow another 6.92% by 2020 and the value of the connected car market, including in-car infotainment and communications features (music, calls, voicemail, etc.), will reach $95.75 billion by the end of the decade. That means a whole lot of other companies could support the shift to a self-driving economy.

Investors play the long game waiting for a market shift

The GM funding round in Lyft was reported to have the explicit purpose of developing a fleet of self-driving taxis. Clearly self-driving cars have more utility than just cabs. However, the likes of Lyft and Uber are pushing the argument that their business models are sustainable for the long term based on a ride model similar to Spotify’s for music: Just as music will no longer be owned but rather made available by subscription, so too will cars one day be the property of service companies and rides will be provided by subscription. So just as we are moving to MaaS (Music as a Service), so too we are pushing forward with CaaS (Cars as a Service).

The Lyft mustache. Photo Credit: Praiselightmedia / Creative Commons

The Lyft mustache. Photo Credit: Praiselightmedia / Creative Commons

That argument is likely what is pushing investors to continue committing massive and frequent financing rounds to ridesharing companies around the world, because it sure ain’t because of the profit margins. There are none.

Uber has seen explosive growth but massive losses, tallying bookings worth $2.93 billion in all of 2014 and $3.63 billion in the first half of 2015. But the revenue from those rides is far lower. 2014 saw $495.3 million in revenue (not profit) and $663.2 million in revenue in H1 2015. Losses amounted to $671.4 million in 2014 and $987.2 million in H1 2015 alone. And when you consider the plentiful competition worldwide, you can infer the ability to collect profits is diminished even further.

Photo credit: AFP/ Getty Images, via Flickr

Photo credit: AFP/ Getty Images, via Flickr

Of course, a lot of time has passed since these financial periods, but going into July 2015, Uber was losing a lot of money fast. They were spending as much as $1 billion breaking into a couple dozen cities in China, where local competitor Didi Kuaidi was on its way to a presence in 400 towns (large and small) across the country. Competition is everywhere: Ola Cabs in India, GrabTaxi in Singapore and Southeast Asia, GoCatch and GoCar in Australia, BlaBlaCar in France and Europe, Cabify in Spain and South America. Small competitors are also plentiful, like auto-rickshaw company Jungoo in northern India and now small players like TappCar in Edmonton and Teo in Montreal.

No one knows yet if CaaS is a profitable business model

The writing is on the wall: ridesharing as the primary business of Uber and all its competitors is simply not sustainable. A pivot, or at least a diversification of offered services, is necessary and presumably inevitable to keep those companies alive. That is what keeps investors in the game. Knowing that the world of car ownership will be challenged keeps San Francisco’s wealthiest venture capitalists in their seats and further digging into their trenches. The General Motors deal with Lyft also gives the pink mustache company access to a fleet of GM rental cars to incorporate into their ridesharing services, probably with an eye toward flipping that fleet into something autonomous.

The question is, just how profitable will that new economy be?

Like any business, they will need to keep expenses and maintenance to a minimum and rides to a maximum. They will have to look at established business models like cabs and more importantly buses to see how those public and private companies manage to continue operating.

TappCar's founders went from lobbying for the city's drivers to employing them as a new alternative to Uber. They are also expanding to other parts of the Alberta province (image, courtesy)

TappCar’s founders went from lobbying for the city’s drivers to employing them as a new alternative to Uber. They are also expanding to other parts of the Alberta province (image, courtesy)

Zack Kanter, the founder of car chassis parts distributor Proforged, wrote last year that Uber would need $4.3 billion to replace all 171,000 cabs in the U.S. with $25,000-per-unit autonomous vehicles. Uber still has to make that money up to be profitable, and replacing cabs does not replace more widely-used city buses and inner-city trains.

Public bus companies tend to operate at a loss despite their efficiency. That’s a big problem in pushing for CaaS. Presumably extending this model to the rest of the world would force Uber and Lyft to operate at a loss.

Metro systems in cities lose several cents, sometimes several dollars per ride. In places like San Francisco, BART loses nearly $1 per ride according to a 2013 study by the Brookings Institution’s Hamilton Project. And that’s on the low end. The wider the system, the more the losses. NJ Transit between New York and Philadelphia loses an average of $4.50 per rider, while Santa Clara, California (in the kidneys of Silicon Valley) loses about $5.50.

The Brookings Institution outlined how severe losses are on public trains (image, Hamilton Project)

The Brookings Institution outlined how severe losses are on public trains (image, Hamilton Project)

But Uber, Lyft, Ola, Grab, Didi and the rest will have the on-demand consumers. Instead of being compelled to cover areas with low ridership (which often results in near-empty buses in low-density areas and at non-peak hours), they will only go where their rides are ordered. Again, the denser the area of operation, the more likely this will save on expenses like gas and later maintenance costs (with the glaring exception of replacing brakes).

It is hard to assess if even that will be practical though. A purely on-demand service would face a challenge of maintaining separate cars to pick up small groups or single passengers. This is why buses exist in addition to taxis: sharing a ride keeps more cars off the road, saves on gas and lowers the price of riding for everyone.

Sondra Vine's Paint the Town art submission as part of Google's promo of its beta mini self-driving cars (image, Google Self-Driving Car Project on Google+)

Sondra Vine’s Paint the Town art submission as part of Google’s promo of its beta mini self-driving cars (image, Google Self-Driving Car Project on Google+)

One might presume other services are on Uber’s and Lyft’s respective drawing boards in addition to rides and freight (autonomous 18-wheelers?) to make sure they can keep their businesses afloat. But the question of profitability still exists for Uber and Lyft when extending the ridesharing model to an economy with less car ownership and more autonomous vehicles.

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