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Driverless Cars A Threat to Uber and Lyft?

April 6, 2015

Media coverage around Uber and driverless cars suggests that this is the promising future for the company. In May 2014, Uber’s chief executive, Travis Kalanick, told Code conference that

“the reason Uber could be expensive is because you’re not just paying for the car — you’re paying for the other dude in the car. When there’s no other dude in the car, the cost of taking an Uber anywhere becomes cheaper than owning a vehicle. So the magic there is, you basically bring the cost below the cost of ownership for everybody, and then car ownership goes away.”

Further coverage focuses on Uber and Google becoming rivals in driverless cars.

What seems to be missing in the analysis here are the auto makers. Mercedes Benz is working on a driverless car. Ford, Audi and of Course Tesla are also in R&D here.

Screen Shot 2015-04-06 at 9.21.15 AM

Imagine a few years forward instead of launching your Uber app you launch a Mercedes or Tesla app to summon a driverless car. At this point why would you need Uber? Today Uber’s value is that they command the driver pool. The app itself is not anything that a car maker could not easily replicate.

Why would auto makers want to compete with Uber? Well Uber is valued at $40 billion+. Tesla is valued at $25 billion. Why wouldn’t Tesla want to have additional earnings simply by flooding a city with driverless cars and adding a driving service to it’s app?

Who has the advantage with driverless cars services like Uber or auto-makers like Mercedes and Tesla? It might be a wash. But auto-makers invest a lot in marketing, they can acquire the autos at cost, and because they control the supply chain they might be able to get a jump on Uber by getting driverless cars into a city at scale faster than Uber can.

We won’t know how this plays out for a few years but for those interested in an impending Uber IPO it will be interesting to see the extent to which they flag auto-makers as a threat.

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