Will Uber sell its crippled self-driving division?
With losses mounting and no progress, investors want it gone
Uber recently announced it lost $891 million in the second quarter of 2018 — not the improvement that investors want CEO Dara Khosrowshahi to deliver after the company lost a record $4.5 billion in 2017. A report from The Information suggests that the struggling self-driving division is responsible for $125–200 million of that quarterly loss, which comes out to $500–800 million a year — and that’s been going on for a while.
As a result, investors are calling for the company to finally drop its autonomous ambitions completely. They’ve already been significantly scaled back since the Tempe crash in March, but as Khosrowshahi has shifted Uber’s focus to become the “Amazon for transportation,” there’s little reason to keep shelling out so much on a division that isn’t delivering.
Investors have called the shots before
Uber maintains it’s committed to self-driving vehicles, but Khosrowshahi made an important statement at the Code Conference in May, telling Kara Swisher that Uber doesn’t have to make autonomous-driving technology, it just needs to have access to it. This leaves Khosrowshahi a lot of room in determining the future of the self-driving division.
And let’s remember that Khosrowshahi has claimed to oppose the will of investors in the past, only to announce not long after that he had complied with their wishes. When SoftBank made its investment in December 2017, it said it wanted Uber to pull out of certain markets, including Southeast Asia. At the time, Khosrowshahi said that wouldn’t happen, but only a few months later, in March 2018, he announced a deal for Grab to take over Uber’s Southeast Asian operations.
There’s little reason why Khosrowshahi would oppose investors this time around. Not only does autonomous driving have a much smaller role in the company’s new vision, which focuses more on expanding mobility options to become the dominant transportation-planning app, but the division doesn’t seem to be making any notable progress and has had a number of high-profile setbacks (to put it lightly) over the past few months.
Problems mounting for Uber’s self-driving ambitions
Disgraced former CEO Travis Kalanick positioned self-driving cars as Uber’s path to profitability: by automating drivers, Uber could further reduce the cost of a trip to entice more customers to use the service, while still reducing the cost to deliver the trip to get the company’s finances into the black. However, Khosrowshahi was skeptical of the self-driving vision from the beginning, and after an Uber vehicle killed a pedestrian in Tempe, he put his “Amazon for transportation” plan into action.
Even before the tragedy in Tempe, Uber’s efforts were struggling to keep up with the other players in the industry, particularly Alphabet’s Waymo and GM’s Cruise. However, after the accident, documents were leaked showing how the company was cutting corners to catch up — reminiscent of a leaked conversation between Kalanick and Anthony Levandowski, who was at the center of the Waymo-Uber lawsuit, where they talked about finding “cheat codes” to win the self-driving race — but even that failed to make a difference.
In short, Uber’s technology could only go short distances without needing a human to take over, and it continually failed to show any significant improvement in disengagement rates — the distance the vehicle traveled before a human had to take over.
Uber then had to take its vehicles off the road, as they were rightfully seen as dangerous by the public, and testing only resumed in July with vehicles not allowed to be driven in autonomous mode. During that break, Uber pulled its driverless test vehicles out of Arizona completely — they’re only being driven in Pittsburgh — and further cut its safety drivers from a peak of around 400 to just 55 people, more in line with the limited scope of the project.
The self-driving division’s days are numbered
Given Khosrowshahi’s new strategy, the failure of the division to deliver an autonomous vehicle that can reliably provide a limited public service, and the massive losses being undertaken to keep it going, it wouldn’t be surprising to see Khosrowshahi give into the demands of investors and get rid of the division — whether by selling it, spinning it off, or shutting it down altogether.
It seems very unlikely that the division will deliver a product that can recoup all the money that’s already been lost and that continues to be shoveled into its black hole, so it would be better to get rid of it sooner than later. The company claims to be performing a “top-to-bottom” review of the division, so maybe it will conclude the self-driving project should be abandoned.
The ride-hailing service is just one offering in Uber’s future model, where users will be able to choose from bikes, scooters, transit, and who knows what else. Khosrowshahi has talked about trying to entice companies like Waymo or GM to offer their self-driving vehicles through the Uber app, but even if they choose not to, there will still be other ways for the company to gain “access” to autonomous-driving technology without wasting money on its own failing effort as industry timelines keep getting pushed back.
Whether Uber can ever reach profitability remains to be seen. Khosrowshahi’s new “Amazon for transportation” strategy could still fail to make more money than it costs to operate, but there’s no doubt that the money being poinlessly wasted on a self-driving effort in shambles would be better off the balance sheet before Uber’s planned public offering in 2019.
