Uber just sold its self-driving car unit. Here’s why.
By: Malachi Shy
Tags: Self Driving Cars, Aurora, Uber, Autonomous Vehicles, Technology

Uber just sold its self-driving car unit. Here’s why.

Photo by Austin Distel on Unsplash

First called by TechCrunch about a month ago, Uber and Aurora Innovation — a tech company focused on the development of autonomous vehicles (AVs) — have agreed yesterday to transfer majority ownership of Uber’s self-driving car business, Uber ATG. You can find more details in this article, but the gist is that once the deal closes in Q1 2021, Uber will give Uber ATG to Aurora in return for a total of 40% ownership in the new combined company.

The question is, why? Autonomous vehicles have long been the crux of Uber’s long-term vision for profitability and a major selling point to investors is the opportunity to get in early before this revolutionary technology takes off. Uber’s constant enormous annual losses have always been justified by the idea that they were simply coiling the likes of early Amazon: years of aggressive spending to build the strongest base then springing to the forefront of the industry through unbeatable value.

So why sell your golden goose before it’s laid its first egg?

They’ve outsourced development to more capable talent.

Aurora’s CEO, Chris Urmson, used to be the lead at Waymo. Having the former spearhead of the current AV industry leader means Uber’s chances of AV success are likely far higher than if they kept development in-house.

This deal values Uber ATG at $4 billion, down from last year’s $7.25 billion, which says a lot about how confident Uber is that Aurora can succeed in this space where they couldn’t. It’s possible the valuation has dropped simply because Uber’s leadership dropped the ball with ATG, but even that increases Uber’s upside in selling.

They no longer have to pay for AV development themselves.

In the lead-up to its 2019 IPO, SEC filings revealed that Uber spent $457 million on self-driving and flying car R&D in 2018 and nearly $1.1 billion since 2016. That billion dollars certainly wasn’t getting bankrolled by any of Uber’s nonexistent profits, and selling off pieces of themselves to plug bleeding caused by developing expensive AV tech isn’t a viable long-term strategy.

The deal may be equity-only but the avoided cost of financing future AV research is a very real cash flow benefit that can’t be overlooked. Sure, they’ll probably continue to burn cash as they always have, but that’s simply the current competitive landscape of the rideshare and delivery industries and it’s far better to burn cash on strengthening core operations than on “maybe we’ll make a flying car one day.”

No more regulatory headaches.

It’s been over two years since an Uber self-driving car made headlines for the worst possible reason: killing a woman because it had no idea how to deal with a jaywalker. Now that Uber’s no longer in charge of the tech, their hands are clean should state governments decide to crack down on AV’s.

They’re not losing access to self-driving cars.

And finally, the most important part of the deal. According to Bloomberg, the deal terms guarantee that Aurora will launch their vehicles on Uber’s platform should they ever reach production, meaning Uber will still have their Uber-branded self-driving cars: their apparent golden ticket to profitability.

Essentially, Uber has eliminated significant downside from their value proposition without losing much long-term upside. Undoubtedly they’ll spin the sale something along the lines of “streamlining the business to focus on core revenue-generating operations.” So now they look leaner and more focused, their financials look better now that they’re spending less money on “maybes,” and they still get to say that self-driving cars are the future of Uber to keep precious investor sentiment high, all while Aurora deals with the “dirty work.”

What are your thoughts? A well-founded restructuring or a desperate act made out of financial necessity?