This is great because it's so simple, and I always try and explain it but it takes way too long. You've managed to very clearly explain why it will never work to the extent they pretend it will.
It will work, but the market cap is much lower than everyone thinks, and competition will be fierce once the subsidies go away.
We saw this during the dot-com era and we've been seeing this play out again over the past decade or so. There are tons of things that middle-class/upper-middle-class people would like to have done for them.
Many of us would probably like daily housekeepers, drivers on call, people to do home maintenance, assistants to handle travel and random appointments (e.g. taking car in for service), etc. (Child care of course if needed.) Sure, we might be fine doing some of those things ourselves just for variety or because they're essentially as easy to do ourselves. However, help on call would be great a lot of the time.
But most of us can't actually afford to employ the equivalent of one or two people full-time even at rates significantly less than we're paid. Some things can work out because of economies of scale--e.g. eating out frequently in dense cities--but mostly people can't afford to have every "menial task" done for them on a day-to-day basis.
...and among households I know who have taken people out of the labour pool full time, 100% of them have chosen a stay-at-home parent before they've chosen a full time driver or housekeeper or nanny.
Making things even less optimistic for Uber, IMHO.
That's exactly my conclusion as well. Uber and Lyft will adjust their prices close to what taxis used to charge. Their market cap will dramatically go down until self driving reignite the price war.
Self driving as an escape path for Uber makes no sense to me. Right now Uber puts the cost of the fleet on the drivers. If they were to move to self driving they would need to build out both the fleet and the fleet support. That’s an enormous capital expenditure. I think it’s just a distraction for investors.
Think of it like this: Most calculations of take-home pay for Uber drivers factoring in all vehicle costs come out to somewhere at or below minimum wage in local markets. That means that if Uber can get rid of human drivers, its potential margin increase including vehicle costs is that same minimum wage in the local market, which is actually respectable. It's probably slightly better than that since Uber as a large-scale fleet operator would get economies of scale for repairs, maintenance, cleaning, fuel/electricity/insurance, etc. that individual drivers don't get.
It's difficult to put real numbers on it, but I'd say a good guess is Uber could drop its ride prices 10% or more from current levels and still turn a profit with driverless cars. Raising enough capital to purchase the vehicles initially would be pretty easy.
I have considered that. My objection is that Uber is very unlikely to be the entity that solves AV and so they will be buying the fleet (assuming one can). At that point, most of the Uber incumbency is of little value. Yes, they could likely raise the capital to transition the company, but others would be doing so without the cannibalism problem.
AVs are not coming soon, in any case. The consensus finally seems to e waking up about this.
1) Totally agree that Uber will not be the manufacturer of the first wave of true AVs. That's likely to be whichever manufacturer Waymo is partnered with in a few years.
2) The value you assign to AV-enabled Uber is going to be related to whatever value you assign their brand name, gathered data, platform maturity, mindshare, marketing ability, and cash pile. It's technically not all that difficult to spin up a competing dispatch service to Uber, but it is difficult enough and capital intensive enough that there are very few competitors in most markets. Notably absent are the potential AV manufacturers who would basically be starting from scratch unless they grabbed Lyft at a discount or something.
3) It's important to define what "soon" means and what scope you're talking about when making predictions about AVs. Waymo is legitimately looking like they will be ready to launch true driverless vehicles for taxi service in select markets and conditions in under 5 years.
Given the above, the question is can Uber last long enough burning cash every quarter and still remain a market force by the time it's in a position to leverage AVs? I don't think so, but I'm also not shorting the stock.
It will work, but the market cap is much lower than everyone thinks, and competition will be fierce once the subsidies go away.
edit: typo /s/extend/extent