Uber Aims to Build the World's Largest Autonomous Vehicle Platform. Can It Compete With Tesla?
Uber aims to build the world's largest autonomous vehicle platform, leveraging $10 billion in free cash flow to invest in robotaxis. Despite strong financial performance with $2 billion operating income, Uber faces challenges competing with Tesla due to its smaller market cap and lack of manufacturing capabilities. Uber is partnering with Lucid and Rivian while taking equity positions in suppliers. However, investors reacted negatively to earnings, citing concerns over the capital-intensive nature of the robotaxi strategy.
From a stock price perspective, Uber Technologies (UBER -6.35%) has struggled this year. Shares are down 20% year-to-date.
From a business perspective, however, things seem to be going quite well. The company reported earnings on Aug. 5, and many experts were impressed by the results. Gross bookings surged 22% year-over-year. The number of trips, meanwhile, grew by 18%, suggesting Uber has been able to flex some pricing power.
Most impressively, Uber was able to post roughly $2 billion in operating income, up 40% versus the year prior. That income translated to diluted earnings per share of $1.17. Uber struggled to achieve profitability in its early years. But the company has been consistently profitable over the last two years.
Uber’s core business isn’t very capital intensive. Its drivers are typically the ones purchasing and maintaining their equipment. That has allowed higher earnings to translate into higher cash flows.
“[T] railing twelve-month free cash flow exceeded $10 billion for the first time in Uber’s history,” Uber announced, “giving us the flexibility to both invest for the future and pursue strategic opportunities, while continuing to reduce our share count.”
Where exactly will Uber be investing its new cash? There’s one obvious answer: robotaxis.
NYSE: UBER
Key Data Points
Can Uber dominate the robotaxi market?
I have long been a fan of Tesla’s (TSLA -2.04%) robotaxi ambitions. A growing number of experts believe that robotaxis will be a multi-trillion-dollar market. Some even believe the global market will one day be worth $10 trillion. Tesla not only has impressive access to capital, but it also has the ability to manufacture its own self-driving vehicles.
For now, Uber does not share all of these advantages. While profitable with positive cash flows, Uber is just 13% the size of Tesla That limits its relative ability to raise capital. Uber also doesn’t have the ability to produce its own vehicles. That’s why it has forged deals with the likes of Lucid Group (LCID -17.23%) and Rivian (RIVN -1.90%), companies that have committed to delivering tens of thousands of vehicles to help power Uber’s future robotaxi fleet.
Image source: Getty Images
Make no mistake, Uber is well-positioned to compete in the robotaxi market long term. The company has invested aggressively to shore up its weaknesses.
During the latest earnings call, management stressed that it would continue taking direct equity positions in key suppliers, shoring up their balance sheets to ensure those suppliers not only stay in business, but produce products for the benefit of Uber’s robotaxi roadmap.
Unlike Uber’s legacy business, however, robotaxis are already proving to be capital intensive. “Uber would need billions of dollars over the next four to five years to support autonomous-driving partners as they scale,” a report from Reuters warns. Shares actually fell in value after Uber reported earnings on Aug. 5, largely due to investor concerns regarding capital allocation.
Uber is clearly committed to pursuing robotaxis. And it’s not hard to understand why. If autonomous vehicles become the norm, ride-sharing services would experience a sudden transformation. If Uber lacks a robotaxi fleet, its ability to compete long-term would suffer.
With production capabilities already paid for and online, Tesla clearly has the advantage in pursuing robotaxis. But Tesla’s market cap is also considerably higher. The choice for investors here is simple: invest in the leader at a premium, or bet on the laggard trading at a much lower valuation.
