A Recap: Self-Driving Cars and the Ride-Hailing Marketplace
Wow. It has been insanely difficult to keep track of the changing dynamic in the ride-hailing market these past few months. With so many news stories, some confirmed and some speculative, being released, many people have struggled to see the forest from the trees. As such, I decided to organize a bunch of information that’s come out about Uber, Lyft, Didi Chuxing, Cruise Automation, Tesla, Comma.ai, Apple, and General Motors (GM) since April. While these aren’t all of the players in the self-driving car and ride-hailing industries, they’re certainly some of the big names. By understanding the relationship between these players, one can more confidently hypothesize about the direction of these markets themselves.
The self-driving car market and the ride-hailing market have begun to influence one another unlike ever before.
Quite obviously, players in the ride-hailing market, and the automotive industry as a whole, have an incentive to integrate self-driving technology. For companies like Uber, Lyft, and Didi Chuxing, self-driving technology means the elimination of a major cost: drivers. By leveraging a fleet of self-driving cars, any one of these companies could directly boost its bottom line.
The automotive industry as a whole also has a lot at stake. Aside from improvements in fuel efficiency and GPS / WiFi connectivity, the automotive industry has been slow to innovate in recent decades. But the introduction of self-driving technology could change that. Companies like GM, Tesla, and Uber realize the opportunities that stem from self-driving features. First and foremost is the Trucking industry, which is a multi-billion dollar market. Autonomous trucking companies can ensure that goods are delivered in a timely and efficient manner, without the cost of truck drivers. The result? Autonomous truck startups are getting acquired, and traditional car manufacturers are sourcing the technologies and teams that can best prepare them for the future. The consumer market for self-driving cars is also starting to develop, as research by AutoPacific suggests. And such research isn’t going unnoticed. GM recently bought Cruise Automation, and companies like Comma.ai are developing self-driving car kits that can be retrofitted onto any type of vehicle.
But now, let’s dig a little bit deeper into the ride-hailing market and how it’s developed these last few months.
Well, the real confusion started back in early May, when Apple invested $1B into the Chinese ride-hailing company Didi Chuxing. This was an unprecedented move for Apple, as Tim Cook shared Apple’s intention of “better understanding the Chinese market.” Investors knew that Apple had taken interest in the self-driving car market, but how might this interplay with the new ride-hailing investment? To this day, it’s still not entirely clear, but let’s continue with the story.
So Didi Chuxing takes an investment from Apple, and then the big news hits about Lyft. The second-largest ride-hailing service in the U.S, valued at more than $5B and strategically partnered with GM, has hired Qatalyst Partners. Simply put, Qatalyst Partners is in the business of facilitating major investments and acquisitions. And when Lyft hires Qatalyst in late June, the rumors start coming out that Lyft was looking to be acquired.
Now, it seems pretty obvious that GM would be a potential suitor of Lyft. GM had already purchased Cruise Automation and begun testing its self-driving car technology. With $500M in strategic investment already in Lyft, it would seem logical for GM to buy the company outright in an effort to challenge Uber. In late May, neither Lyft nor Uber had formally announced a rollout of self-driving cars, so perhaps GM could supercharge Lyft’s progress through acquisition. The synergies were too obvious to miss.
But could Lyft also be an acquisition target for Didi Chuxing? The American market was, and still is, completely dominated by Uber and Lyft. While Uber was marketing itself to the Chinese market, Didi avoided U.S expansion. With a Lyft and Didi partnership already established, it would seem logical for Didi to buy Lyft and challenge Uber in the United States.
Phew. Let’s take a second to reflect, because that was a lot of info.
In late June, Lyft seemed to be up for sale, although the company could have just been looking for a massive investment. Lyft had hired Qatalyst Partners. Didi Chuxing and GM seemed to be the most likely acquirers of Lyft.
Now it’s early July, and the rumors keep flying around about who will finally submit an offer for Lyft. Then, John Zimmer, President and Co-founder of Lyft, decides to share some less-than-inspiring news about his company at Brainstorm Tech. Zimmer announces that Lyft was losing as much as $50M a month trying to keep up with rival Uber.
Talk about a curveball. Sure, Lyft needed to invest in its own growth. But $50M a month? That’s a pretty staggering loss for a company that’s trying to draw interest from acquirers.
Yet over the course of July, talk about Lyft begins to die down. As the company’s owners consider options, other pieces of news begin to catch the media’s eye. A prime example was Elon Musk’s “Master Plan, Part Deux.” Musk announces that Tesla has bold new plans in the self-driving car and ride-hailing market. In the weeds of a Tesla blog post, Musk describes how Tesla owners will be able to add their cars to a service fleet while working in the office or resting at home. Then, Teslas will earn their owners income by autonomously picking up those that hail rides. While the program is still years from rollout, the announcement in and of itself was enough to excite self-driving car and ride-hailing enthusiasts.
But now what? Where will the ride-hailing and self-driving car market go from here? And with so much going on, how has Uber stayed out of the spotlight? It was only a matter of time until the United States’ largest ride-hailing service entered the spotlight, and boy, Uber did just that.
It’s July 31st, and every tech and news outlet has the same cover story. Uber is selling its Chinese operations to Didi.
Say what?
Yes, that’s right, Uber’s CEO announces that the company is giving up in China. Well, those aren’t his exact words, but it sure seems like it to every investor and entrepreneur watching from the sidelines.
At the time, anyone tracking Uber knew that the company was losing $1B per year through its efforts in Chinese. So how did CEO Travis Kalanick try to spin a losing effort into a positive for investors? He sold Uber’s Chinese operations to Didi for a $1B investment and a 20% stake in the $35 billion-dollar Didi-Uber joint venture.
Quite honestly, this decision provided investors with a sigh of relief. Uber made it out of the Chinese market without fully divesting from the opportunity. Instead of fueling a price war with rival Didi, Uber conceded the majority of the market but salvaged a meaningful growth opportunity through its ownership interest in Didi. So Didi and Uber are friends instead of rivals now, right?
Wrong.
Didi and its owners have a fiduciary responsibility to do what’s best for their investors. And only days after agreeing to merge with Uber in China, Didi participated in a $600M fundraising round for a company that directly competes with Uber in Southeast Asia. Talk about cold-blooded.
After this news, many began to speculate that Didi was trying to get Uber out of Asia altogether. First, Didi made sure to take majority ownership of its core market in China. Then, Didi bought a stake in one of Uber’s rivals, fueling the rival’s growth without regard for Uber’s presence in the market. This move made it quite clear that Didi and Uber were still directly competing. And perhaps more importantly, it signaled to the market that Uber needed Didi in Asia far more than Didi needed Uber.
With the foreign markets officially a mess by the end of July, it only makes sense for Lyft to retake the stage and draw attention back to the U.S. market.
We’ve now entered August, and Lyft owners have had enough time to engage in conversations with a number of potential suitors. Have they? No one really knows, as John Zimmer repeatedly denies any rumors of a sale. But nearly every tech blog and finance magazine headline has a similar message: Lyft rebuffs GM’s acquisition offer. In fact, the New York Times reported that Lyft representatives approached representatives from GM, Didi, Apple, Google, Amazon, and even Uber in an effort to find a suitor. As such, it seems highly likely that there is some truth to the acquisition rumors.
Then, right in the midst of all this madness, Uber pulls the ultimate mic drop. Travis Kalanick announces that Uber will launch self-driving Ubers in Pittsburgh by the end of August. Yes, that’s right. Self-driving Ubers. And he certainly wasn’t joking, based on the Mayor of Pittsburgh’s tweet. The pilot program will begin right as students come back to school, and with any luck, I’ll be able to try out a self-driving Uber as a student at Carnegie Mellon. It’s a super exciting time to be a resident of Pittsburgh.
But now, we’ve reached the present day, so let’s give this super complicated story a bit of a wrap-up.
Didi Chuxing
The company owns the majority of the Didi-Uber joint venture in China. As such, Didi dominates the Chinese market. The company also has a financial interest other Southeast Asian ride-hailing services, so it seems to be pushing Uber out of Asia altogether.
Uber
Relatively divested from the Asian market, Uber is the dominant player in the United States. Uber is the first to bring an autonomous fleet to market, and the company’s competitive advantage will continue to grow as it expands its autonomous fleet. Without another autonomous player in the ride-hailing market, Uber will dominate the U.S. (and perhaps other markets as well).
General Motors
GM owns a lot of IP involving self-driving cars through its acquisition of Cruise Automation. GM also has a financial stake in Lyft, and the company seems to be the most-interested in acquiring Lyft outright. With a self-driving fleet already in the works, GM could be a serious player in the ride-hailing market in the months to come.
Lyft
Lyft is a company losing money fast, and it’s unclear as to whether they’re up for sale. It seems unlikely that the company will be able to survive in the U.S. market without some type of integration of self-driving car technology.
Tesla
There’s an opportunity for Tesla to make a name for itself in the ride-hailing industry, but it probably won’t be until regulators provide guidance around self-driving cars. The company’s first priority is getting Teslas to as many consumers as possible.
Comma.ai
The company is really unique in its do-it-yourself (DIY) offering. Although the world might not be ready (technologically or culturally) to retrofit their cars with self-driving technology, the value proposition of Comma.ai is quite intriguing. Their recently open-sourced dataset will hopefully help their mission.
Apple
Traditionally on the outskirts of the self-driving car movement, the company seems to now be more involved in the technology. I could definitely see Apple making a strategic investment or acquisition in the space.
Altogether, the ride-hailing and autonomous vehicle markets are highly interconnected. Players from both sides share financial interests, and all of the companies discussed in this post are looking to bridge the self-driving car market and the ride-hailing market together. The first company / companies to do so will certainly be rewarded.
If I were to guess, I think that Uber and Didi will become the major winners at the end of the day. I think that Didi will dominate the Asian market and ultimately integrate autonomous vehicles into its fleet. I think that Uber is leaps and bounds ahead of its competitors in the U.S., based on technological traction, financing, and brand recognition. For the automakers, I think that the consumer-fleet play is much more important. I believe that GM will leverage Cruise Automation’s technology and team to bring self-driving technology into the general marketplace, much like Tesla. Then, down the road, I could see GM and Tesla leveraging consumer-level autonomous fleets to create ride-hailing services. Splitting the profits with car owners might not be as lucrative, but I think that it will be the only way for a traditional automaker to compete with a company like Uber.
The real question is whether these automakers will be able to compete with Uber in the long term. My guess is no. I think that Uber’s autonomous ride-hailing service will be well established by the time automakers have the resources and reach to focus on ride-hailing. Also, I think that regulations will really shake up this industry, but it’s unclear as to whether future regulation will more severely impact Uber or automakers. Finally, I think that Comma.ai and DIY companies are in a tangential but independent market, and I don’t anticipate consumers being ready to leverage DIY kits until the technology is proven trustworthy and safe.
Only time will tell, but watching these markets evolve over the past few months has been really interesting. I hope that this post was helpful in understanding the complicated, always-evolving landscape.