Apparently Uber is bleeding about $2 billion a year and have only $6.6 billion in cash reserve. If this deal adds $1 billion more cash, then that would only last 4 years.
Since full-scale self-driving cars launching across most major cities is unlikely to happen within 4 years, they will need to either:
1) Charge more and lose even more market share to Lyft. This is unlikely.
2) Raise more cash. IPO seems to be the easiest channel for them now. (Maybe SoftBank will provide it from their massive fund but they might also extract concessions from existing shareholders and buy at a very ‘attractive’ price (for SoftBank) but others will likely resist.)
IPO sounds like a good plan for Uber. But if the price drops precipitously at some point afterward because it is outcompeted by other self-driving companies (e.g. Waymo + Lyft expands self-driving fleets to highly profitable market while Uber’s tech is still not ready) it may result in a chilling effect on the overall startup IPO scene as they are the largest unicorn in existence, and there are many startups that sell themselves as Uber for X. (Public investors may not be as astute as VCs in discerning differences in business models of similar sounding startups.)
Also, Tesla often is brought up in this competition - usually mentioned between Uber and Lyft and Chinese companies - however Tesla is positioned to dominate here. I wouldn't doubt that they're working on the apps internally to create the shared vehicle system that Elon speaks of. How many vehicles could Tesla create AT COST spending the $2B / year that Uber is burning? Where Tesla has a fleet of assets on the road ...
While I don't disagree, I think the major question here is "how many vehicles can Tesla create" given their difficulties in scaling Model 3 production.
Tesla could have the best self-driving tech, but if it is exclusive to their cars and they can't manufacture them fast enough, someone else will build their own fleet and win all the market share.
Unfortunately I see Tesla's hurdle being manufacturing volume, and that's a lot harder to solve quickly than fitting sensors to existing cars.
Their current capacity capability at the factory is 500,000 vehicles annually. I suspect once they launch the Semi and get 500k+ pre-orders of it, they'll be able to get a loan to build or acquire another factory.
As Elon has mentioned many times, designing the automation is magnitudes harder than designing the vehicle itself. They're on an exponential growth path and it's going to be amazing once they're pumping out millions of vehicles annually.
I agree with the sentiment, and it baffles me that public markets would consent to shouldering these losses, presumably by overpaying for Uber at and after IPO and riding it back down to sane levels.
Is Tesla Preparing to Roll Out its Ride Sharing Program With the Model 3?
Edit re: safety word or phrase - It should also trigger recording of audio and video, perhaps they will record video and/or audio to make sure there's no shenanigans; as fun as it might be to have "fun" in a vehicle while getting driven somewhere autonomously, if it's shared then I think we as a society would opt to dissuade that behaviour...
I am not clear on the impetus everyone sees for Uber creating self driving cars. If developed by another company, can’t they just add them to the service? Do they really want to be responsible for that capital?
Two party networks are much more difficult to solve than one party network problems. Because with two party networks you have a chicken and egg problem.
Anyone who has solved self driving, has near unlimited scale on the driver side. Their cars can autonomously be present to respond to peak demand - e.g having thousands of cars at Burning Man.
In the autonomous car world, Uber has no place if it doesn't have that tech. There is almost no reason for the company which has self driving tech to license it to Uber, when they are easily run it themselves. The only value Uber has right now is because it has crossed the critical mass on the two party network. And some people thought they could solve self driving cars.
OTOH, a global two party network (e.g Airbnb) is exponentially tougher than a city level two party network. Which is why Airbnb has almost no competition (except some local players in China), while Uber has competition everywhere. In fact, Uber has already lost and conceded a few major markets (China, Russia).
Can Uber - even sustain what they already have. I have my doubts and theories, but that's for another day.
There is no future where Uber is profitable and there isn't someone with deep pockets who wants to undercut them starting with their most profitable markets.
Most riders don't have much customer loyalty, they just want the cheapest price. Drivers don't mind driving for multiple services.
When a deep pocketed competitor launches with zero market share, they can compete with lower prices. If Uber responds too early, Uber would need to cut down prices on their full market share. If Uber waits too long, the competitor gets more traction.
In the end it is a zero sum game for Uber, unless they could have used their money and focus to create Autonomous Driving Tech. Not sure if that is going to happen now! Their new CEO's mandate is to do the IPO and get investors their return ASAP.
In the next 2 years, Amazon will enter as an Uber competitor starting with Seattle and then slowly expand to Uber's most profitable markets.
Any bets :)
But this value is also impossible to defend against the combination of more local networks aggregated by some global directory specialist who follows a low cost/low commission/high volume strategy.
The original comment was wondering why should Uber invest in building Autonomous Driving at all.
And I am suggesting that once we have true autonomous driving (all conditions), and if Uber doesn't have it - Uber has not reason to exist at all.
A company with many existing human drivers can easily enlist those drivers with autonomous-car quality mapping kits. The drivers are all already driving all possible routes, so mapping a new market is much easier and cheaper. Furthermore, a mixture of autonomous cars for routes that autonomous cars can operate safely and human-driven cars for routes that are still being learned guarantees that the service is useful for any route a rideshare customer might want to take.
Lastly, you won't be able to operate a self-driving network without great ops. You need people to maintain the vehicles and provide customer service. Building out a great ops org is yet another massive learning curve for a purely autonomous company.
Additionally you need people maintaining them.
Right now an Uber driver who is probably online 60 hours a week, needs to support a car priced around 25k (amortized over 5 years), gas (which is more expensive than electricity), maintenance and 50k-70k/yr driver income. Assuming lower end we are looking at 5k car + 10k fuel + 5k maintenance + 50k driver income. So cost to support a driving car is 70k/yr for lower hours of operation.
So we are looking at a 5x cost and lesser hours of operation with human driving vs autonomous driving.
These are off the napkin numbers so please don't take them literally. It is meant to highlight that driver income is the biggest factor.
Whoever has self driving tech, they can start undercutting Uber with the most profitable markets (NYC, SF, Boston, LA etc) and expand from there.
I feel that we are at least 5-8 years away from main stream self driving. But I could be wrong.
Let me take a stab at it as well, because I think it could be simpler.
Let's assume the driver drives the exact same model as the autonomous one, except he saves $10k upfront on the sensors. So his costs are 12k/year. A decent alternate job would pay $10/hour, and a person could probably work 9 hours a day * 6 days a week * 50 weeks, which comes to $27k. So for the taxi driving gig to be worthwhile, the driver needs to make somewhere in the region of $35-40k ($27k + $12k).
As mentioned earlier, the costs of the self-driving car is $14k/year. So that's a difference of 2.5x-3x. Still significant enough that the a taxi company that offers rides at 30-40% of the cost of its competitors will just win.
On factor I have not seen fully addressed is the ability of driverless cars to run near 24/7. Given than demand is variable and human drivers could share cars like taxis what is the worth in practice?
This is why I think Tesla is a bigger threat to Uber in long term. If you are not sure then refer to Tesla's plan 2 but Uber also have a counter plan - UberAir
Benefits of Autonomous drones:
1. Do not need to deal other non autonomous devices while in flight. Cars needs to deal with human, other cars driven by humans.
2. Do not need to follow existing road traffic rules.
3. Lot of paths available. Cars are limited to existing roads. Drones can have a lot of flight paths.
I understand that there are other challenges - more energy required, less safe in case of an accident, flight regulations.
But still. It seems like if the technology is there, it would be an easier transition with Drones vs Cars.
In a decent-sized city, there will be low-flying helicopters for police, fire and medical emergencies. Admittedly, this is much less common than for autonomous cars, but any slight problem could easily become catastrophic (no such thing as a fender bender in mid-air).
> Do not need to follow existing road traffic rules.
But do need to follow existing air traffic rules. New regulation would also certainly be drafted (one would hope anyway).
> Lot of paths available.
Maybe, again depends on regulation. Commercial airplanes do have certain "lanes" they are supposed to stay in, and are not allowed over certain areas.
Birds and power lines both come to mind as obvious things to deal with while flying in urban areas.
They may also have to deal with hobbyist drones.
Now, each of those 10,000 cars could work 24x7. Assuming each ride is $10, and you can do 50 rides in a day (2 trips per hour on average over the entire day), that's $500 per day less electricity and maintenance. That's $5M/day with no employee costs except for maintenance workers. You could scale up by simply buying more cars, and whichever cars aren't needed could roost at homebase, without people picketing or sending nasty tweets saying they don't have enough work.
I doubt you have to pay for marketing costs at this point, word of mouth would be strong enough, and you just develop an app.
Even putting that aside, I have questions about the business side of things. Demand for transportation has been pretty consistent with big lumps during the morning and evening commutes.
One of the beauties of Uber's existing business model is that it can theoretically spin up and down drivers as needed with Surge pricing. With a fleet of cars, it's not guaranteed that supply will perfectly match demand most of the time.
The counter to that, which I sort of buy, is that it will kind of be like broadband Internet. We don't even know what demand and opportunities self-driving cars will create. My hesitancy with fully embracing this is that broadband was an acceleration of something new whereas self-driving is a leap to an existing quantity of transportation. It will still change lots of things but it will take longer for things like where you choose to live to change.
Finally, my main hesitancy is the human aspect. For self-driving to make the impact that many want/believe, there's going to have to be a hard line in the regulatory sand where human-controlled cars are outlawed or limited. I don't see that happening in the United States for a long, long time.
If the tech is indeed safer vs human, it would also have an added benefit of not having safety risks similar to Uber where some Uber drivers have assaulted their riders.
As for capital costs: I would expect competitors to have a much easier time raising capital for their fleet than Uber, where all new investors have to to share their stake with several billions (!) of pre-selfdriving investment. Not every competitor will be drowned in investment, (there is an infinite number of ways to share off investors) but one or two will be enough to cause serious trouble for uber.
Let some guy buy a couple of cars, clean them at the end of shift, etc.
Sounds like a great way to piss off the organizers of Burning Man and get a bunch of damaged vehicles. The desert itself is very damaging to car paint, nevermind how Uber operating there would be the antithesis of the purpose of Burning Man.
Google lost both of them as well, not because they were out-competed by superior products. Amazon also 'lost' China, it also had nothing to do with being out-competed.
What matters for Uber are the hundred other important markets globally. China was never on the table as a possibility, it's a small miracle they got out of it what they got (a big chunk of Didi).
There's no barrier to entry at all.
Waymo is a spinoff from Google (and Alphabet is Google's parent company). Ebay, HP all have its own spinoffs.
In fact the new Uber CEO Khosrowshahi guided Expedia spinoff. See . So a spinoff isn't unlikely. The spin-off could be just a research entity, but license to parent company later.
Even US and high tech markets like japan and korea will take several years to transition to self-drive cars. Specially because this will start either with trucks or very high cost cars so they can offset support and iron out bugs.
And that's my guess assuming self-driving cars are ready tomorrow.
It's one thing to drive on the wide streets of american cities literally built around cars. It's an other to navigate the narrow, crowded streets of many european cities, with scooters and bikes zooming left and right, people parking anywhere they can, passing where they shouldn't be etc... Let's not even talk about some places in Africa and Asia where it seems that driving is more art than science.
I'm expecting self driving cars to start on friendlier turf (large avenues, highways connecting cities etc...) and then expand iteratively to "wilder" areas. I'm sure it'll take a while to completely take over though.
But the converse is not true, i.e. even if Uber is the first large scale company operating autonomous cars, this is by no means a guarantee for success. This is where the whole "betting on Uber" investment scheme kind of falls flat in my opinion: even if all goes according to plan, Uber does not have anything special (since by that time, autonomous driving will be open to its competitors, too). They probably bet on "hacking" the regulatory process to allow only their cars for a certain period, but this merely delays the issue of competition a bit.
Softbank is 50 % saudi arabia public funds money.
Saudi Arabia is trying to buy all these assets to secure their future. Returns will likely be reinvested or stashed abroad!
However with the dismal future of oil based economies and the unstable situation in Middle East - only scenario their would be able to retain these assets would be if they are somehow able to transition into a functioning (hopefully democratic), educated and productive society - which would be awesome! It's better for them and the world. I would love it if they are able to use this money to achieve that!
If not they would descend into chaos and all assets would likely be seized by whichever country hosts them. E.g. Gaddafi!
What specifically they will receive is unknown, but at the very least they will have a 1x liquidation preference on that $1B invested, which means if the company sells for the total amount of money raised (well below $70B), the investors get all of their money back.
So think of preferred shares like "insured" shares, which is why investors are willing to pay more, because the likelihood of entirely losing their investment is lowered significantly.
However, Uber may not want to raise more capital, take on extra dilution, etc, so they are selling only $1B that will flow to their balance sheet.
The other $9B will be purchased from common shares, or employee shares. These shares do not have these preferred rights and most significant they do not carry a liquidation preference. Which means if the company sells for the amount raised, or below that, you lose the entire $9B.
Since there is no downside protection and there is no liquid market, this is usually used to negotiate a lower price than that of preferred shares.
If there had been considerable time between when the last priced round happened and when secondary shares are purchased then the investor may have to buy them above the last round price because the company has made significant traction and the perceived value of the company is now higher.
But since the last two priced rounds are at the $70B mark and these shares are unsecured, they will usually be bought at a discount.
How much varies but you can expect a 10-30% lower price.
However, since this is sponsored by the company early employees will most likely be allowed to sell shares at a very large valuation compared to what their strike price is.
So it's possible of course, but isn't done 99.99999% of the time.
Now if they were purchasing $1B in preferred and another $100MM in secondary maybe, but certainly not when the common shares amount is $9B would put the other existing investors in jeopardy for their own preferred shares providing their invested capital back should things go south.
As a side note, if you were to try and double $100B, I think Softbank's approach is pretty good. You'd aim to invest large amounts of capital into late stage companies and negotiate to be the most senior liquidation preference. This strategy would give you growth potential as well as plenty of downside protection. One downside is that companies that take Softbank's money may struggle to raise additional private rounds. As a result, I think Softbank will be the last round of private capital that many of these companies will raise before IPO or some kind of M&A.
* liquidation preferences
* various wratchet provisions in case of a liquidity event yielding a lower ROI than anticipated
* pro rata rights
* dividend accrual
* board seats
Common shares have none of that.
- Would existing employees with stock options be allowed to sell or the ones with RSU's are also eligible?
- Would ex employees be eligible too?
Something typical is if you have been at the company for X number of years, you can sell X% of your vested equity.
They will have a large bank or some other third party as the underwriter for the deal to figure out the correct pricing and then offer it to the employees that are eligible to sell shares until they reach the buyer's total requested amount, which in this case is $9B.
Secondaries aren’t underwritten; they’re brokered. Underwriters purchase the shares for their own account and then resell them. In a secondary, the buyer and seller negotiate directly.
In anyway, SoftBank is known for very acute investment, so with SoftBank stepping in, the board won't allow any more fuck-ups. Though I am very surprised SB didn't invest in Uber early on...
Uber is nothing more than a taxi company using VC capital to undercut competitors. There are no self driving cars. That’s just a story to get money and make the brand bigger than its product. Come back to reality.
There is no futuristic mars colony with Uber robots driving everyone around. It’s just a bunch of taxi drivers with dispatch replaced by an app.
I agree with all you on all the other points.
But then again, the market can stay irrational longer than any individual can stay solvent.
Ah, screw it; things just happen, what the hell.
> A person who thinks they are the shit, dressed down with sagging pants, a high need for a belt, too much gold to make the national reserve jealous, and an attitude that stems from not having parents who knew how to refrain from the use of crack cocaine.
Don't sue me for libel, I'm quoting "deez nutz"!
“Without tunnels we’ll be in traffic hell forever” -Elon Musk
> “Without tunnels we’ll be in traffic hell forever” -Elon Musk
Public transport solves all the problems tunnels solve as well. Tunnels don’t change the fact that cars (self-driving or not) are still an incredibly inefficient use of space when they’re all going in the same direction to the same place.
(Image of shared/public transport tunnel vehicle)
People around here like trains, I've noticed.
Car trains is an idea I could buy.
Google’s Waymo passes milestone in driverless car race