The Fuse

Uber’s Purchase of Autonomous Vehicles Would Accelerate Transportation Changes

by Matt Piotrowski | March 21, 2016

Ride-sharing service Uber is rumored to have purchased 100,000 autonomous vehicles from German automaker Daimler’s Mercedes Benz. While Daimler and Uber have yet to comment based on press reports, the deal would make a lot of sense for both companies, and it would be an important step for the penetration self-driving cars.

German publication Manager Magazin reported that Uber has ordered at least 100,000 Mercedes S-Class cars, citing sources at both companies.

An order of this magnitude would make sense for Uber, which was founded in 2009 and operates worldwide, given that its biggest expense is paying drivers. With autonomous vehicles, margins for Uber—which has an estimated worth of $62.5 billion but is now seeing losses—would explode. Uber’s rival Lyft is also bullish on autonomous vehicles. Last week, before the Senate Commerce Committee, Lyft’s vice president of government relations discussed his firm’s excitement for using autonomous vehicles in its fleet and the overall benefits these types of cars will deliver to society as a whole. U.S. automakers are also catching on. So far this year, GM has bought a $500 million stake in Lyft and also spent $1 billion to acquire Cruise Automation, signaling that the U.S. automaker is comfortable with both ride-sharing and self-driving technology.

It should be no surprise that ride-sharing companies are leading the way in the adoption of autonomous vehicles. These services would be a natural fit for self-driving cars.

It should be no surprise that ride-sharing companies are leading the way in the adoption of autonomous vehicles. These services would be a natural fit for self-driving cars. Ride-sharing has taken off in urban areas where personal vehicle ownership is not a high priority. Many consumers in these markets prefer efficient and safe services that can be delivered on demand over owning their own cars and going through the hassle of driving.

“Ridesharing makes great sense as a first application for autonomy,” said Amitai Bin-Nun, Director, Autonomous Vehicle Initiative for Securing America’s Future Energy (SAFE). “The vehicles will be managed by a company that will take responsibility for having the cars operate within their constraints and for maintaining them. If autonomous vehicles can only operate within certain areas, they may not make much sense as a privately owned car, but can work well with a fleet manager.”

He added: “The combination of these factors means that on-demand ridesharing is the route by which the public will gain their first exposure to AVs. If it goes well, we can see very rapid scaling and adoption.”

Outside of ride-sharing companies, autonomous vehicles will face a number of obstacles. Some consumers may not like sitting passively in a vehicle, while others enjoy the experience of driving. Moreover, there are concerns, as lawmakers pointed out at last week’s hearing, about the speed of adoption, liability, licensing, insurance, privacy and cybersecurity.

Nonetheless, with the rapid advancement of technology and investment from automakers, which besides Daimler includes GM, BMW and Volkswagen, the penetration self-driving cars is expected to grow rapidly. For instance, Exane BNP Paribas forecasts the number of passenger cars that are automated to sharply rise at the start of next decade.


Risks for Uber, Daimler

The Uber-Daimler deal, if it goes through, appears to provide benefits beyond boosting margins for the ride-sharing service. Daimler has been ahead of the curve with advanced driver assist technologies, including Distronic Plus, and was one of the first to warm up to autonomous cars. Other automakers, including Toyota, said they believe there will always be a place for drivers in vehicles. “It is possible that Uber found Daimler to be the most advanced of the companies that agreed to work with them,” said SAFE’s Bin-Nun.

There are, of course, risks for both companies if they move ahead with this massive deal. For Daimler, there’s the question of whether it would it be able to meet Uber’s order specifications by 2020. There’s also the sticky issue of liability. If the cars do not perform according to specification or, even worse, are involved in serious accidents, Daimler would have to deal with lawsuits.

For Uber, the company would be tied to Daimler, making it difficult for it to pivot to Google, Tesla or another company that may leap ahead of the competition with autonomous cars. There’s also a big regulatory risk. As witnesses pointed out at last week’s hearing, there is an emerging patchwork of state and local regulations throughout the country that make it difficult for using autonomous cars. Some companies with stakes in self-driving cars are frustrated that the federal government may not take the lead on this issue and that technology will continue to outpace regulatory changes that are needed. According to SAFE’s Bin-Nun, “Uber may be on the hook to pay for the order even if the regulatory/legal framework does not allow them to deploy when the vehicles are ready.”

Whatever the outcome of the Uber-Daimler deal, the companies’ interest and actions in the autonomous vehicle space are a reflection of how quickly trends are changing in automotive transportation, consumer mobility, and corporate priorities. More changes will occur soon enough.