Uber's Shift to Bikes, Scooters, and Toyota Could Be Key to Profitability

Uber’s decision several years ago to pursue development of automated driving technologies always struck me as a risky proposition for the company. However, the recent moves by CEO Dara Khosrowshahi may just be what it takes to make the company a viable business. Moving into adjacent services like food delivery, dockless bikes, and electric scooters while developing an automated driving partnership with Toyota builds on Uber’s asset-light model while leveraging its core strength as a logistics platform.

Automated Driving Vision Was Shortsighted

The original plan from former CEO Travis Kalanick involved developing automated driving systems and applying them to cars and trucks that would replace the current fleet of independent contractor drivers. Setting aside the labor issues around refusing to recognize those drivers as employees, the reality is that they brought all the physical assets that enabled Uber to even offer a service to customers. Uber has at times attempted to facilitate rental programs to get drivers into newer vehicles. But the drivers ultimately bear the financial burden for the assets that make the service possible.

Uber’s plan to buy Volvo XC90s to use as a vehicle platform for its automated mobility service was not a clear path to profitability. The company would instead need to make extensive new capital investments, despite eliminating the cost of drivers.

Diversifying Transportation Options

In a recent interview, Khosrowshahi acknowledged that it makes far more sense to use a bike or scooter than a car for short urban trips. With its Jump bike division developing an electric scooter, the company will be well positioned to expand its core smartphone app to give access to a multimodal mobility ecosystem that will be far less costly than owning a fleet of cars. It will also give its customers more options, potentially at lower cost.

Strategic Changes

Uber already shut down its automated truck program earlier this summer. Its new deal with Toyota signals a shift on the car side as well. Rather than Uber building or buying its own automated vehicle fleet, it seems more likely to develop similar partnerships to the one with Toyota. While its automated driving development program has been troubled, Uber can offer its software to OEMs that are looking for a secondary system for partners looking for redundancy and diversity. Many experts in the automated driving field agree that vehicles need two or more unique algorithms for at least the perception system to ensure safety. Those systems can cross check each other as Toyota is doing with Uber to make sure everything around the vehicle is properly detected. Aptiv’s 2017 acquisition of nuTonomy gave that supplier a similar capability by combining nuTonomy’s system with the one already developed by Ottomatika (which Aptiv had previously acquired).

Uber Should Continue to Focus on Logistics