UBER’S NEW BUSINESS MODEL: OWNING 24,000 VOLVO SELF-DRIVING TAXIS IN 2019

Automakers, tech start-ups and ride-hailing companies are forging closer alliances in a multi-billion-dollar business. That can only mean one thing – self-driving taxis will be taking over the street, like it or not. Uber, a leader in ride-hailing business has been stripped of its London licenceHowever, the company has last month filed its legal appeal against losing its licence. 

But even if London eventually decides Uber cannot operate in the city, it’s not the end of the world for the San Francisco-based global transportation technology company. Uber is on a transition from being an app to summon a taxi to the ultimate owner and operator of taxis. And the plan involves buying up to 24,000 self-driving cars from Volvo.

Eventually, Uber drivers making a living would be jobless. But that’s the price of embracing technologies. Chinese Geely-owned Volvo said in a statement on Monday it would provide Uber with its flagship XC90 SUVs equipped with autonomous technology as part of a non-exclusive deal from 2019 to 2021 – a deal covering up to 24,000 vehicles.

Uber - Volvo XC90 SUV

Under the deal, Volvo’s XC90 SUVs would be outfitted with the Swedish automaker’s infamous safety, redundancy and core autonomous driving technologies. Uber will then add its own self-driving technology to the fleet of taxis. The partnership would certainly benefit Uber as Volvo’s reputation for safety could help the San Francisco firm’s tainted image.

From accusations of bullying, sexual harassment and discrimination, Uber has been attracting the publicity for the wrong reason. The company was also being hit with an intellectual property lawsuit filed by Waymo, a self-driving driving car company founded by Google. Waymo accuses Uber of trade secrets theft after the ride-hailing firm bought Otto.

Waymo alleges Anthony Levandowski, founder of Otto, had downloaded thousands of sensitive files when he left the company and brought them to Uber. Therefore, Uber hopes to regain the public trust with the Volvo’s deal. Earlier this year, Uber signed an agreement with Daimler in which the German automaker will introduce self-driving vehicles.

Uber - Water Bottle

The purchase by Uber would be Volvo’s largest order and the biggest sale in the autonomous vehicle industry. At a typical retail pricing of about US$50,000 a pop for a new basic Volvo XC90, the fleet of 24,000 taxis would set Uber US$1.2 billion poorer. But Uber is already losing more than US$600 million a quarterbased on the present business model.

Chances are Uber could buy the base version of the XC90 plug-in hybrid, the model that’s been part of its collaboration with Volvo since 2015. The models will come with some sensors and radar already installed. Uber will then have to spend additional money to install the rooftop camera and LiDAR rig, as well as a computer in the trunk to process visual data.

It appears that Uber’s long-standing business model where contractor drivers buy or lease and maintain their own cars isn’t working. And the company plans to get its hand dirty by owning and maintaining its own cars. Similar to Uber, Volvo, which has been under Chinese ownership since it was bought by Zhejiang Geely Holding Group from Ford in 2010, is also on a desperate mission.

Uber - Taxi

Uber’s rival Lyft has this year struck a research partnership with Alphabet’s unit Waymo and secured deals with Ford Motor. Hence, Volvo would like to prove that it could rival Ford in a world of increased automation. While Uber is forced to start automating to cut driver costs and turn profits, Volvo is forced to avoid becoming obsolete.

Still, driverless technologies are far from perfect. Naturally, Uber couldn’t promise when its cars will drive without human safety operators. Both Volvo and Ford have said they planned to have autonomous vehicles on the road by 2021. If indeed Uber could integrate its driverless technology with the Volvo’s autonomous vehicles by 2019, they might include human safety operators after all.

Like it or not, all the players have to start at some point. Uber might still make loses with the new business model but the same cannot be said about Volvo. The Chinese-owned Volvo plans to make the SUVs at its Torslanda plant in western Sweden, and said they would be sold at roughly the same profit margin as Volvo sells through dealers.

Uber - Car Sticker

However, Uber will not take the delivery of 24,000 Volvo XC90 in one go, unless the company wants to be burdened with a bulk purchase order and a warehouse of unusable SUVs. The deal would likely involve the option for Uber to order more should its business accelerate. Ultimately, Uber wants more control and not relying on its partners is just the beginning.

– Finance Twitter

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