“Hello, Daimler? I’d like to order 100,000 Mercedes S-Class, please”

Enrique Dans

Petrolheads will recognize the vehicle in the photograph as a 2016 Mercedes-Benz S-Class, the German carmaker’s flagship car, and one that while not fully self-driving, comes with advanced assisted steering. The starting price for one of these beasts, depending on the options, is a reassuringly expensive $90,000.

Media reports that began in Germany’s Manager Magazin, were then picked up by Reuters, and have since been circulated widely, suggest that Uber might have placed the largest order in the car maker’s history: no less than 100,000, worth more than $8 billion, without taking into account likely discounts. To put the rumored deal into perspective, that’s the equivalent of all the S-Class’ that Daimler sold in 2015.

The story has not been confirmed by Uber or Daimler, and looks so incredible that extreme caution should be applied in analyzing it. Despite Uber’s estimated $62.5 billion recent valuation (for insight, try “How do you value a company like Uber? by Aswath Damodaran) we shouldn’t forget that this figure has been reached on the basis of extrapolating the amount investors have paid for a relatively small stake in the company, and that in reality, doesn’t really exist, and certainly isn’t to be found in any bank account held by Uber.

If Uber really is prepared to part with a sixth of its estimated value to buy partially self-driving cars, bearing in mind that one of the most notable aspects of its success is precisely that it doesn’t own vehicle fleet, then it would certainly rank as one of the boldest moves in the history of business, as well as announcing a clear change of strategy to reduce Uber’s greatest single overhead: its drivers. If the rumors are true, then Uber would be well-placed to take advantage of the seemingly inevitable transition towards self-driving vehicles on our roads, one that while well advanced, is unlikely to take place, even by the most optimistic estimates, before 2020. Given the rate at which luxury cars like Mercedes depreciate, along with the cost of paying for them, buying a fleet of 2016 models seems a very risky bet indeed.

On the other hand, we shouldn’t forget the logic that rules the market today: not long ago, Mark Zuckerberg spent more than double that figure on a company with no business model and a workforce of fewer than 50 people…

Uber has been working for some time now with Carnegie Mellon on developing self-driving vehicle technology. The company’s aggressive approach led the Pittsburgh-based university to complain that it had bought up most of its team, effectively leaving it without staff at its National Robotics Engineering Center. After the story broke, Uber made a $5.5 million donation to finance a new lab there.

Could Uber’s research already have advanced to the point it would be able to equip the vehicles it has reportedly bought from Daimler with full self-driving technology? If not, it faces a huge increase in costs, as it will still have to employ drivers, even if they don’t do much more than sit behind the wheel or open the door for customers.

At the same time, Daimler’s interest in developing these kinds of disruptive technologies, along with its huge investment in driving change in the motor industry should make it the ideal partner, aside perhaps from Tesla, which although hugely attractive, simply lacks the scale to compete at the moment — and despite that, has been involved in similarly incredible rumors

Is Uber about to make the leap toward becoming the world’s biggest provider of passenger transport based on self-driving vehicles? Is this a major strategy transition from a platform originally designed to bring supply (drivers) and demand (passengers) together to one that would see it own a vast fleet of luxury vehicles, with all that entails in terms of running costs, maintenance, etc? I seriously doubt it.

My impression is that this would be a leap too far, even for an ambitious company like Uber. But let’s wait until the rumors are denied or confirmed before getting into the details.

That said, it is still pretty amazing that in 2016, we are able even to speculate about such things…

(En español, aquí)

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

Enrique Dans

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Professor of Innovation at IE Business School and blogger at enriquedans.com

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)