Sector News

Uber and Lyft Are Betting That Driverless Cars Will Help Them Finally Make Money. Here’s Why It Won’t Work

August 14, 2019
Borderless Future

Uber and Lyft are still losing money. In a recent quartly report, Uber posted a loss of $5.2 billion, its largest ever, and Lyft expects to lose as much as $875 million this year. So you can understand why both companies are looking for ways to boost revenue and cut expenses.

You can also understand why, then, they are aggressively pursuing driverless cars. Cut out the driver and you eliminate a major expense, right?

Sure, that’s true, but right now ridesharing companies like Uber act essentially as a broker between riders who need transportation and drivers who have excess capacity. Those drivers provide their own vehicle, maintain it, insure it, pay for their own gas, and set their availability.

Change the equation.

That changes with an autonomous vehicle. The ride sharing company now becomes a fleet service without drivers. However, in eliminating that expense, it now takes on the cost of building and maintaining a fleet of vehicles, as well as the additional liability that comes with it.

And, along with that additional expense comes another problem. People aren’t likely to pay as much for a driverless ride. In fact, in an article in MarketWatch, Rich Alton argues that “ride-hailing is fundamentally a commodity,” meaning that fares will likely fall considerably.

Uber and Lyft are apparently betting that while riders will expect to pay less, it won’t be so much less that it doesn’t cover the expenses associated with autonomous vehicles.

So, driverless cars mean lower revenue from fares, increased expenses associated with managing an autonomous vehicle fleet and the research and development that comes with it, and decreased expenses from driver payments.

There are a lot of variables in that equation that have to align just right for either company to start making money.

But here’s the thing, it’s not just the math.

Change the experience.

Getting into a car with a driver you don’t know is strange the first time you do it, but most people who use Uber or Lyft are well past that point. It’s pretty normal by now.

And most of the time, it’s far more convenient and a better overall experience than the alternatives. Often, it’s even cheaper.

But getting into a car without a driver at all is another thing altogether, regardless of the price.

See, most of us don’t love giving up control. But when you get in a taxi or a ride share, you at least give up control to a person you can see and talk to y. You get to decide whether you trust this person to get you to your destination safely.

Because while it might be strange to catch a ride in someone else’s car, at the end of the day, you know that person has a vested interest in getting you to your destination safely.

That doesn’t mean that accidents don’t happen, or drivers don’t have bad days, but all of those things are already factored into the equation when you open the app and tap for a ride.

A lot of unanswered questions.

All of that changes with driverless cars. Is it safe? What if it gets confused and takes me to the wrong place? What if there’s an accident?

Will enough people pay enough money to support driverless cars? Will the money the companies save in paying drivers be more than the additional expenses associated with managing a driverless fleet?

That’s a lot of questions without good answers, which makes it hard to see how driverless cars are suddenly going to be the thing that helps Uber and Lyft turn a profit.

Of course, if a driverless ride is your thing, there’s always the subway. Wait, that won’t work– in every city I know of, the subway train still has a driver. And the subway doesn’t make a profit either.

By: Jason Aten

Source: Inc.

comments closed

Related News

May 15, 2022

Reengineering your business for a smart and connected World

Borderless Future

The shift from standalone hardware to smart, connected products is pervasive—and it’s here to stay. Forward-thinking hardware companies are taking leadership positions in a new era of product development. Will you be one of them?

May 7, 2022

Is real-time data too late?

Borderless Future

It’s interesting to reflect on the opportunities which were imagined back in 2010, and which regularly appear on today’s supply chain agenda. Some progress has been made over the past decade, but there are still plenty of early observers to be convinced, and early adopters who haven’t realized that real-time information alone will not necessarily deliver competitive advantage.

April 30, 2022

Six pitfalls to avoid when mobilizing for sustainability

Borderless Future

Companies across industries and regions increasingly see sustainability as a critical driver of competitive advantage. And many are setting audacious sustainability goals reflected in concrete environmental, social, and governance (ESG) targets. The challenge: most are struggling to translate their goals into action.