Yes well what about the robot cars?

In an earlier thingy, I unburdened myself of some thoughts on Über which include, amongst other things, a sense that it’s no improvement on the current state of transport, certainly not one worth 51BN, or the loss of privacy, or of the civic, and that whatever the case it’s run by a C-suite — if that is the collective noun — of reprobates it would be wise to distrust. Some of you wrote in, and if I were to generalise so as not to embarrass anyone, you said: “I found your piece expertly reasoned, exciting even when talking about insurance, but I still think it doesn’t amount to much because what about the robot cars?”

Yes, well, what about the robot cars? Firstly, before doing anything, commit that phrase to memory as I think you’ll find it wins far more arguments than you would expect. Secondly, while previously dismissed as speculation upon speculation — and, as such, silly to talk about — two recent statements, namely Travis Kalanick’s that were Tesla to make self-driving cars he would buy all them all up, and Elon Musk’s even more recent statement that were Über interested in buying all of said cars, he, uh, “hmmm”, are both reason enough to spend a few minutes thinking about what might be despite my full plate.

Tesla plan on producing 500,000 autonomous cars by 2020. We can step backwards from that horizon.

There are many reasons for Über, or indeed anyone, to want to buy a fleet of cars that drive themselves. They are pretty nifty. Imagine the good life: you live farther from work than you used to, but no matter because the drivetime is spent sitting in the back seat on conference calls or reading the funnies; after you get to the office, your car turns home to bring your layabout husband some donuts and take your kids to school; round lunchtime, it heads across the tracks to what passes for a grocery store in 2020 and picks up the pre-ordered weekly shop; it drops this at home (husband’s job done) and picks up a few local fares while it has some free time; later, after it has carried you back from your office, it tucks in at a garage for overnight parking and cheaper off-grid charging. It does all this without complaint, rinse-lather-repeat, forever. The industries and companies this might affect are larger than just the automotive: power, Amazon, real-estate, shipping, insurance, and, yes, even taxis. This change will happen in the bat of an eye and is a pretty good, entirely fictitious example of how a technology can disrupt some things, like cities, that we’ve taken to be pretty permanent.

Sometimes simply being in the proximity of a fantastic idea can have an effect on a company’s stock. Amazon’s drone announcement was similarly SF and yet it had people talking. It is possible Kalanick is looking for a hint of that glow (“I’m talking about the future and you keep going on about insurance…”). More likely, what he is doing is thinking aloud, in the direction of his investors, about a longterm solution to the company’s growing labour problems. It is a wishful thought.

Barring disaster — a high bar — Über has gone public by 2020 if for no reason other than the increasing impossibility of raising additional private funds (given its large valuation) and the understandable desire for current investors to be reunited with their money and its interest. The company, as today, will derive most of its revenues from its cut on each ride and, despite losing some regulatory battles, it has still avoided any employee-employer obligations to drivers. This sounds kinda rosy, and the world is equally roseate for Lyft and the hundreds of smaller, local competitors and preexisting taxi companies.

Tesla are doing quite well by 2020. I don’t believe this is any more fantastic than the fantasies we’ve already agreed to. (If they aren’t doing well, they won’t have any cars for Kalanick and we can stop right here.) Tesla’s 2015 cash constrictions are partly due to having too many cars trapped in China (which*) and partly due to large investments, like the Gigafactory, that will have started paying off long before 2020. None of these issues really affect the demand side; heck, meeting demand was an issue before the Magical Robot Car. Between now and the MRC, an entry-level Tesla comes out but without sacrificing any of the trimmings that are intrinsic to an electric vehicle: spacious in the absence of an axle, cooler, better pickup, a nice central touchscreen, software updates, an iPhone app. Basically, as has been the strategy all along, Tesla have built the platform for their mass business from luxury on down and they have done so without sacrificing any of the attention to detail or delight.

And then, on a Tuesday, Kalanick gets on whatever passes for a telephone in 2020 and says, “Elon, remember when I told UK Business Insider that I wanted to buy all of your robot cars…Ok, well I did and I meant it so let’s talk details…Sure I’ll hold.” Musk takes out a large iPad Pro (about time) and creates a list of Yays and Nays. He is worried, given Über’s reputation, about how this might affect his brand. Would all past and future customers be happy having their car become the sharing-generation’s Lincoln Towncar? Is this a bit foolish given how we’ve had no shortage of demand and are still growing? What if personal car ownership is going out the window and this is a way of getting ahead of the inevitable? But if that is the case, can’t we just do this ourselves? Like by licensing it? Or by buying Lyft? But then again, given that we’re rolling out 500,000 of these cars in the next year and it’ll require building new facilities, wouldn’t it be great to get that cash upfront? But, to that point, will Über be good for the cash?

Über have not shown themselves to be good stewards of their cash, and nor should they be as they grow. But a fleet of MRCs could cost in excess of 35bn and any idea that Über will have preserved that much cash (or the equivalent) is utter nonsense. They would have to finance all or part of that sum, and one must wonder whether they could do so with better terms than Tesla could get by itself? If Kalanick wants every single car then Musk could use this and Über’s public filings to quickly reverse into some approximation of where the demand for rides is and whether or not this is a good business. Neither company own depots so there’s nothing tilting in Über’s favour there. No, both would start at square one as taxi owners, only Über would be at the added disadvantage of having to preserve enough profit to make the sale worthwhile for Tesla.

But let’s imagine they do go ahead with it, magic cars bringing magic money. Maybe a dispatch system and their existing customers are more valuable 500,000 cars? No matter how far fetched the reason, how does Über transition elegantly to a fully-automated fleet while maintaining their income? Unless the ride-share/taxi/whatever market has become a market of one — which, despite Über’s designs, is dubious — we’ll see those drivers who were kept free from healthcare and a retirement plan similarly free to jump ship en masse. Remember, most of the company’s value drives out the door every evening; very little brings them back the next day except the promise of continued work. Network effects often work in two directions, and any perceived weakness can compound just as perceived strength once did. If those Über drivers learned anything from being part of the company’s various lobbying passion plays, they will put that knowledge to the test and rally drivers to their new cause and new boss.

A partnership between Über and Tesla is most promising. The agent model works really well in unequal partnerships where you want to preserve good feeling for one party while demanding top dollar for both. Ostensibly it’s good cop, bad cop, or how you love the people who make Game of Thrones but hate the people who deliver you your cable bill. This structure might not be a bad way to ensure that any ill-feeling left behind by allowing strangers in your car is handled by a separate company that manages trust. But for some of the reasons mentioned above, or that other companies could do this better (including Facebook), it is unclear how Über’s role as middleman isn’t still a bit superfluous — particularly over the long-term. With a faint pattern of Über turning to compete with partners, like with Google Ventures, even this partnership route is not without risks that seems to outweigh the reward.

It’s just occurred to me that we left Kalanick on hold.

“Travis, sorry about that…We were talking about robot cabs. It sounds really nifty and there’s definitely something there: I’m just not certain we’re the right company for it and I’m even less certain that you are…I don’t see why we don’t just leave it as a feature to each owner’s taste? People could even just set their car to pick up strangers and help them out, or have them drive meals to the elderly…No, I don’t think that sounds ‘really lame’…I’m just spitballing but I’m trying to think along the lines of sharing…I thought that’s what we were talking about…No, I haven’t read the Virtue of Selfishness, maybe you could lend me a copy?…Fine, I’ll get my own…I’d rather not do that…Well, not being flexible enough for a start…Ok, I’m leaving you now.”