Back when Uber Technologies was going public in 2019, CEO Dara Khosrowshahi gave a low-key warning: The profit gusher would not really begin until the company developed self-driving vehicles, a project on which it was then investing heavily.
In the meantime, Uber lost more than $25 billion, as its early autonomous-vehicle program floundered and it wrote off a myriad of other half-baked expansion ideas the 54-year-old inherited when he took the job in 2017.
“For most of our history, profitable wasn’t the first thing that came up when you asked someone about Uber,” Khosrowshahi said on Uber’s second-quarter conference call Aug. 1. “In fact, many observers over the years boldly proclaimed that we would never make any money, and I understood why they felt that way.”
That strategy may yet come full circle, as progress in autonomous vehicles converges with Uber’s rapidly improving cash flow, imminent profitability, and one additional goal for the company: having all of its U.S. fleet become all-electric by 2030.
“By 2030, every single driver on the platform will have an EV because it will be crazy for them not to,” the Uber CEO said at the recent Aspen Ideas Festival in an interview with NBC’s Savannah Sellers. “Our job is to get them to that spot.”
Analysts argue that EVs could be the key to a back-to-the-future business model for the world’s largest ridesharing company, especially since electric-powered autonomous vehicles are showing more signs of life as a ride-hailing strategy. News like General Motors‘ second-quarter report of rapidly falling costs in its Cruise Automation AV unit, which said it will soon push operating costs below $1 a mile, as well as the California Public Utility Commission’s Aug. 10 decision to remove limits on the number of autonomous vehicles that Cruise and Alphabet‘s Waymo unit can operate on the streets of San Francisco and the times of day when they can be deployed, have some contending that the future is coming sooner than many investors expect.
The road won’t be without bumps. Shortly after the California decision, a series of Cruise traffic accidents led the state and GM to agree to quickly cut the robotaxi fleet experiment by 50% while investigations are pursued. But analysts are convinced of the trend over the longer term.
“All the AVs will be electric,” CFRA Research analyst Angelo Zino said. “Uber is more than happy to bring them in, and they will get a piece of the ride. The price points should come down significantly because there won’t be drivers. Then the number of rides should rise exponentially.”
Certainly, Uber went through a messy period. Its $45-a-share IPO sank to $27 within a few months, and as low as $21 in the early days of the Covid pandemic – a low it revisited last summer before doubling to $44. From 2019 through 2022, its income statements show a net loss totaling nearly $25 billion, mostly from writing down its past mistakes – including the $1.7 billion it lost on its autonomous-car development effort between 2018 and 2020, when it sold the unit to Pittsburgh-based Aurora Innovation.
But beneath the surface, lots of things were happening that turned Uber into a profitable company, at least by dot-com accounting, by the second half of 2022. Its operating cash flow for the last five quarters comes to $2.69 billion – and this year’s $3 billion in operating cash flow should expand to $5 billion in 2024, Zino said.
That’s one reason all 32 analysts who follow Uber recommend the stock, according to TipRanks.”They right-sized the business because they had to during the pandemic,” said Wedbush Securities analyst Scott Devitt.
Morgan Stanley’s Brian Nowak now argues that a combination of single-digit increases each year in users, frequency of trips by each user, and price hikes will keep revenue rising at double digits for several years.
One unlikely helper for Uber was inflation. The company simply raised the cost of services it had long been criticized for undercharging for, even as it drove to build market share faster than rivals like Lyft. It saved money by doing layoffs as recently as this year, when it let go nearly a third of its recruiting team to reflect its slowed hiring pace. But the most important force was that Uber finally got big enough, as revenue climbed to $31.9 billion last year from $13 billion in pre-Covid 2019.
“They’ve been a net beneficiary of inflation,” said Zino, who said relatively flat expenses, especially for research and development, has made revenue gains like the second quarter’s 40% jump in revenue from its ride-hailing division drop to the bottom line. “They’re generating significant cash flow and will expand that. It’s a business that is all about scale.”
All of that is background for the push into an all-electric fleet.
The striking thing about Uber’s plan is how capital light it is, Devitt said – enough that Uber should be able to juggle it with rising stock repurchases. Hertz‘s partnership with Uber lets drivers rent EVs for as little as $273 a week for a Chevy Bolt or Hyundai Kona and $299 for a Tesla Model 3, with up to 45% off public charging fees under a partnership with EVgo.
To help drivers recoup that cost, Uber pays drivers an extra $1 per ride, and registers EV users in its Uber Green program, with drivers of most EVs eligible for the premium-priced Comfort Electric plan. The $1 a ride alone can add up to $4,000 to a driver’s annual revenue, the company says. In London, the company charges a clean air fee on all rides that has raised at least 145 million pounds to subsidize drivers’ purchases of EVs In the U.S., drivers who buy an EV through TrueCar.com can get $1,000 back if they use the vehicle for at least 100 Uber trips.
So far, 20% of miles driven by Uber in London are electric, the company says, far above the 10% of miles in California or the 5% across North America. That’s well short of the company’s goal of being all-electric in the city by 2025. The company says it has no plans to bring the clean-air fee to U.S. markets.
“We’ll see in 2025 or 2026 where they are, and whether something like this gets put on the table in the U.S.,” Zino said.
It’s working so far. The number of EVs on Uber’s platform has tripled in the last year
That’s backed up by Tracy Lynn Young, who has driven for Uber in metro Atlanta for seven years. She told CNBC in May that she pays $340 a week for her Tesla through Hertz, and says she can bank $1,800 driving on a busy weekend, thanks partly to the EV incentives and the curiosity of riders who request a Tesla because they’ve never been in an EV. The incentives alone nearly pay for the car, she said.
Bonus: Her charging costs $120 a week less than her gas once did, monthly maintenance on the car is included, and she’s saving her own car, which had racked up 95,000 miles in two years working as a rideshare driver and real-estate salesperson.
Most of the $800 million Uber plans to spend will go toward subsidizing those benefits, Khosrowshahi said. Much of the rest will go into developing charging stations, and phone apps that let drivers find those charging stations. The company also is developing software to monitor how drivers’ batteries are doing, dispatch them on rides to areas where chargers are plentiful when needed, and guide them to charge up during slower times of the day so they don’t lose revenue.
“If you’re at 15%, it won’t send you to places that will strand you,” Khosrowshahi said.
But Zino says the investment is peanuts if, as the CEO hopes, it’s enough to get nearly all drivers to switch to electric by 2030. Khosrowshahi stopped short of saying existing drivers who hadn’t gone electric will be cut off from Uber, saying he’s thinking about incentives rather than punishments.
But the real payoff will be from the deals with Waymo, Cruise and other AV players over time, if AVs really are on the cusp of being useful at scale, analysts think. They foresee a hybrid Uber where many routes are served by AVs that are dispatched by Uber but don’t belong to the company, eliminating many drivers.
Since Uber took in only 29% of gross mobility bookings as revenue in the second quarter this year, and even that is up from about 26% a year ago, that would let Uber cut fares on many routes and still make far more money, Zino said. And it will bring the company back to what it vowed to one day become, $25 billion in losses ago.
If it all works, that is.
Analysts don’t think Uber will ever own a big fleet of autonomous vehicles. Instead, the likelier outcome is that the app becomes a smart hub for Cruise, Waymo, Tesla and AV players to come. All of them will compete for customers on Uber’s platform much as hotels search for business on Expedia.com – a business once run by Khosrowshahi.
Indeed, one threat to Uber’s current status as a market darling is if AV makers, especially Tesla, decide to compete with Uber directly for riders, Zino said. And recession fears could hurt the shares, as they did for a spell last year, worsening if a recession actually happens.
Khosrowshahi told Sellers that 10-20% of Uber drivers may soon be robots, but said he still thinks more people will be driving for Uber than there are today.
“We want every single driver in the world to be on our platform; if that driver happens to be a robot, that’s ok, as long as that driver is safe,” he said. “2030 is coming up fast.”