Autonomous Ambitions: Uber's Next Moonshot or Money Pit?

Key Points

• Autonomous vehicle technology still has some developmental work to be done.

• It’s showing enough cost-effective success already, however, to say robotaxis will become a common reality.

• The math makes sense, too -- or will soon enough.

• 10 stocks we like better than Uber Technologies ›

Twenty years ago, the notion of anyone using their own vehicle to drive a complete stranger from point A to point B seemed laughable, while self-driving cars were mostly the stuff of science fiction. What a difference just a few years makes.

Now, largely thanks to Uber Technologies (NYSE: UBER), ride-sharing is quite common, and autonomous vehicles are a reality. They're even being commercialized as so-called robotaxis on a small scale right now to get the technology's final kinks worked out while companies figure out how to best operate the business.

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Uber is one of the companies easing its way into this autonomous ride-hailing market, starting with a partnership with Alphabet's (NASDAQ: GOOG)(NASDAQ: GOOGL) Waymo, although it also recently made a robotaxi development deal with electric vehicle (EV) maker Lucid.

The only problem(s)? Aside from no guarantees that most consumers and governmental jurisdictions will embrace self-driving automobiles, these cars aren't cheap. Getting into the autonomous robotaxi business presents a huge cost that Uber Technologies isn't paying right now. Remember, its drivers supply their own vehicles.

This uncertainty leaves the company's current and prospective shareholders in a pickle. Will Uber's expensive ambitions pan out profitably, or is it wasting its money and time?

Image source: Getty Images.

The numbers to consider when it comes to Uber

Answering the question first requires knowing all the relevant numbers. Chief among these numbers is the cost of an autonomous vehicle, and more specifically, a self-driving robotaxi.

The possible figures are all over the map, but as it stands right now, the combination of a car and its autonomous driving tech can easily put the price of such a vehicle at over $100,000. As is the case with any technology, though, the longer that self-driving solutions are developed and the greater their production scale grows, the cheaper they get.

For perspective, electric vehicle maker Tesla's (NASDAQ: TSLA) CEO Elon Musk has suggested its planned robotaxi -- called Cybercab, slated to begin production next year -- could be priced at less than $30,000 apiece. Realistically speaking, based on these numbers, Uber's cost to get into the autonomous ride-hailing business is likely to be in the ballpark of $75,000 per car. This obviously isn't cheap. But are human drivers who supply their own vehicles actually any cheaper?

Although the numbers can vary a great deal, data from salary-research website Glassdoor suggests Uber's drivers are earning an average of around $20 per hour -- a figure that jibes with reporting from several other sources. While most of its 7 million-plus drivers don't drive on a full-time basis, if they did work 40 hours per week, this would translate into an annual pay of a little over $40,000 per year. All other things being equal, Uber could have just as many cars on the road for 40 hours per week as it does now and either annually save this amount of money, lower its prices, or a combination of both. There's certainly enough fiscal advantage for this company to cover the cost of these cars.

All other things aren't equal, of course. Vehicles cost money above and beyond their sticker price. They also require maintenance, commercial registration, taxes, and a place to park them when they're not in use.

Still, owners of commercial vehicles get to depreciate their cost, and they'll likely last for at least a couple of years before they need to be replaced. Let's also assume that Uber CEO Dara Khosrowshahi thought carefully about all of these numbers -- both current and projected -- before saying in May that "we are confident that AV [autonomous vehicle] technology is the single greatest opportunity ahead for Uber."

The thing is, despite his bias, Khosrowshahi may be exactly right.

The market is beginning to form

Getting straight to the point, ride-hailing itself is becoming more mainstream.

As of its first fiscal quarter of the year, on global basis, 170 million different people use Uber's services at least once per month, with the U.S. being its single biggest market. Although a majority of people living in the United States have never used any ride-hailing service like Uber's, over one-third of them have, and that number continues growing every year. Ditto for outside of the U.S. Indeed, Straits Research believes the global ride-hailing market is set to grow at an average annualized pace of 21% through 2033, growing from less than $90 billion per year now to more than $900 billion per year by the end of this stretch. Uber's important North American market is expected to lead this growth, too.

But will the company be able to produce this growth using robotaxis in an environment where so many consumers are still skeptical of autonomously driven vehicles? Once again, things may be less different than they seem and feel.

Most U.S. drivers are still more fearful than not, to be clear. A recent survey taken by trip-planning service AAA indicates 61% of the country's drivers are afraid of self-driving vehicles, versus only 13% that trust them (26% are still unsure).

The world was also largely fearful of riding in airplanes in that industry's infancy, too (or, for that matter, traveling by train). As their reliability and safety were proven, consumers came to appreciate their cost-effective convenience. The robotaxi business isn't apt to be any different. It's largely just a matter of education and marketing, highlighting numbers like the fact that -- on a per-mile basis -- Waymo's self-driving taxis are 92% less likely to injure a pedestrian and 96% less likely to be involved in a collision at an intersection than a human-driven vehicle is, according to data compiled by Alphabet and published in industry journal Traffic Injury Prevention.

To this end, Goldman Sachs says the autonomous taxi market is set to grow at an annualized pace of nearly 67% over the course of the coming five years. Goldman adds that gross margins for vertically integrated operators like Tesla could reach a healthy 40% to 50%, implying the per-vehicle cost of self-driving cars will indeed decrease as the business scales up. Uber technically isn't vertically integrated. But partnerships like the aforementioned one with Lucid will provide it with the advantage of similar flexibility.

The verdict on Uber

So, are Uber's autonomous ambitions a savvy moonshot, or a money pit?

It's not really up for debate -- while there's a significant cost component to Uber's foray into the robotaxi business, autonomous vehicles are a high-odds bet with a huge payoff. As Khosrowshahi himself noted in February's Q1 earnings call, Uber's commanding lead of the ride-hailing market paired with its progress on the self-driving technology means this ride-hailing company is "uniquely positioned to capture the $1 trillion-plus opportunity that autonomy will unlock in the U.S. alone."

Data by YCharts.

The only downside? Even Khosrowshahi knows it's still going to take another 10 to 15 years for all of this work and investment to really start bearing fruit.

The good news for investors is, Uber Technologies is already profitable, and increasingly so, thanks to the continued growth of the ride-hailing business that's currently being handled well enough by humans. There are certainly less-compelling stocks to own than this one in the meantime.

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James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Goldman Sachs Group, Tesla, and Uber Technologies. The Motley Fool has a disclosure policy.