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Uber Is Making a $1 Billion Bet on Owning a Fleet of Driverless Cars

November 20, 2017

The ride-hailer’s business model is about to change beyond recognition. Reuters reports that Uber has entered an agreement with Volvo to buy as many as 24,000 of its XC90 SUVs—which it currently uses for testing—between 2019 and 2021. Those vehicles will have Uber’s own self-driving technology added to them, which is currently developed in-house by the firm’s Advanced Technologies Group.

With a list price of around $50,000 per vehicle, an entire fleet of 24,000 XC90s would be worth around $1.2 billion. No financial details about the deal have been released, though it’s likely that Uber will be receiving a healthy discount. Even so, if the ride-hailer does go ahead and buy all 24,000 vehicles, its investment could easily be around the $1 billion mark. That obviously ignores the cost of the autonomous hardware, such as lidar sensors and cameras, and the R&D costs poured into development. That will end up dwarfing the cost of the vehicles themselves. 

As we’ve explained in the past, autonomy has been part of Uber’s master plan for some time. Indeed, the company’s dizzying market valuation of around $60 billion really makes sense only if it’s based on wholesale disruption of the mobility industry, not just the regular taxi business (which generates about $40 billion a year). That means, essentially, that investors are assuming Uber will be able to roll out a fleet of expensive autonomous cars and find a way to make money off it. The upside, of course, is utilization: while humans must sleep, an autonomous car can drive 24-7, save for refueling and maintenance.

Even so, owning a fleet of robo-taxis will mark a huge inflection point for Uber, which has until now relied mainly on drivers to provide their own vehicles. (The firm shuttered a car leasing scheme in the U.S. earlier this year because it was hemorrhaging cash.) It remains to be seen if pouring such huge sums into autonomous driving, and the necessary assets to make it happen, will play out as Uber hopes. Currently, the firm currently appears to be lagging behind its major rival, Waymo, which recently announced that it would start testing autonomous cars without safety drivers in the coming months.

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