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

August 14, 2019
Sustainability

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.

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