Uber’s latest move should worry Tesla

The three companies are teaming up to build a fleet of at least 20,000 robotaxis, using Lucid’s Gravity electric SUV fitted with Nuro’s autonomous vehicle (AV) system, and owned and operated by Uber or third-party partners.

They plan to deploy the first ones next year in an unnamed major US city. As part of the deal, Uber will invest in both companies. For Lucid, the funding is to refit its assembly line to incorporate Nuro’s technology.

But along with the sales pipeline, it has already refit Lucid’s distressed stock: Having fallen by nearly 90% over the past three years, it jumped by more than a third on the news as an army of short bets got squeezed.

In theory, robotaxis are bad for Uber’s ridesharing business, letting the likes of Waymo, Alphabet’s AV unit, Tesla and a few others eat into its business. In December, Uber’s stock suffered its single biggest one-day drop in more than two years on news of Waymo’s expansion to Miami.

The reality, however, is that AVs, currently less than 1% of the rideshare market, aren’t suddenly going to displace human drivers. Rather, we’ll likely see a hybrid model develop.

Like airlines, making AVs profitable relies largely on higher utilization: More butts in seats going places. But we humans travel erratically, so building enough robotaxis to meet peak demand would inevitably mean a lot of empty ones for long stretches of the day, a downside known as ‘deadheading’.

In addition, AVs can struggle with some of the most profitable but complex routes such as picking up and dropping off at the automotive melee known as the airport line.

A better model, at least for the foreseeable future, would involve a baseload of AVs covering a steady diet of rides supplemented by human drivers serving the more lucrative demand surges as well as routes that befuddle robots.

This takes us to a wider point raised by Uber’s deal: No one yet knows what success in the autonomy market will look like. In this case, Uber is capitalizing on its own success—free cash flow doubled last year to $6.9 billion—and the struggles of Lucid to secure a pipeline of high-end electric robotaxis.

But that is just one of several bets it is making. In April, it announced an agreement with Volkswagen to deploy the latter’s Buzz electric vans for autonomous rides in Los Angeles, targeting commercial operation in 2026.

And rather than outright competitors, Uber and Waymo are more like frenemies, with the latter’s robotaxis operating exclusively through Uber’s app in Atlanta and Austin.

The robotaxi business is ripe for such cross-cutting competition and collaboration.

Besides the hardware and software mix in the vehicles themselves, there is a surrounding ecosystem—cleaning and maintenance, charging, network management and, often overlooked, remote customer service and tele-operations for when robotaxis or passengers require assistance.

Beyond this, there is an opportunity for AV developers to license their technology to legacy firms like Detroit’s automakers, which have struggled with in-house efforts at self-driving cars.

One company that stands apart from all this is Tesla. Mostly vertical integration served the company well in disrupting the auto market with desirable EVs. The benefits in AVs are, thus far, less clear.

Last month’s launch of Tesla’s long-delayed robotaxi service in a patch of Austin has been disappointing, relative at least to the stratospheric expectations set over the years by CEO Elon Musk and which underpin Tesla’s triple-digit earnings multiple.

One of this new market’s central debates is whether Tesla’s cheaper camera-based general-autonomy model can beat the more expensive, gradualist approach using multiple sensors such as Lidar that characterizes Waymo’s rollout.

Tesla’s limited Austin rollout undercuts its high-buzz narrative, but its resilient stock speaks to the strength of belief in Musk’s ability to not merely take the lead, but outright crush the competition.

Yet, in launching its service, Tesla has started the clock on having to demonstrate real progress. In some ways, the dream of a robotaxi was more valuable to the company than actual deployment.

Meanwhile, competitors are placing multiple bets in multiple markets, knowing that some may pay off while others become footnotes. It will be years before we can judge the success of Uber’s latest move. For Tesla’s stock, priced for dominance, it’s a problem already. ©Bloomberg

The author is a Bloomberg Opinion columnist covering energy.