Will Driverless Cars Ever Yield Profits for Uber and Lyft?

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attract good reviews and more fares. Drivers can also help an elderly person step into their cars; or take a call if a panicky passenger has left an indispensable cell phone in the backseat, Ramsey says. How would that work out with a driverless car that speeds off to pick up the next rider, he wonders.

These are what Farshchi calls “second order problems” in the development of the driverless taxi as a technology business. But they’re not insignificant challenges, he says.

“These are the tough problems,” Farshchi says.

Ironically, the adoption of driverless cars may make operating autonomous fleets a much more high-touch business, rather than a hands-off endeavor handled remotely by tech engineers. Farshchi says the consumer-facing components of the autonomous taxi business, such as a ride-hailing company controlling a fleet, may have a chance at reaping a higher share of the profit margin than the car manufacturers themselves—-even though the total potential profit may still be small. Returns for the consumer-facing brand could hinge on the quality of the experience provided, he says.

This might create an opening for small-scale, value-added taxi services that can charge higher rates, such as self-driving, limousine-like cars that ferry CEOs or prom dates.

Uber and Lyft, however may be locked into keeping prices low if they want to please a huge ridership. It’s worth asking if they can ever be profitable if they don’t charge more, whether they switch to driverless fleets or stick with contract drivers.

Why carmakers are betting on driverless taxis

Ramsey says the automakers who are exploring future business lines such as self-driving taxis are following a familiar pattern. They’ve long been criticized for operating cyclical, low-margin businesses.

“They attempt to delve into other businesses with higher margins,” Ramsey says. Car makers see tech companies disrupting other businesses, and they don’t want to become the next Kodak or Nokia, he says.

But past investments into service businesses didn’t work out well for car manufacturers. “Car companies all bought rental car companies, but it didn’t make sense. Then they sold them off,” Ramsey says.

He predicts that the same thing will happen with self-driving taxis, and even with the by-the-hour spot car rental service Maven, which GM is operating with its own conventional cars. Maven is spreading across the country, but Ramsey says GM hasn’t revealed how much the initiative is costing. (GM has not yet responded to Xconomy’s interview request.)

“These car companies will try all these models, then either close them off or sell them to someone else,” Ramsey predicts.

This is not to say that Ramsey is bearish on self-driving cars in general, or the advanced driver assistance features being pioneered by car companies. He just thinks that innovative car makers will free themselves from high-cost taxi services that bring in low fares.

There could be commercial niches where a self-driving car service makes sense, such as shuttles that circle a downtown area, stopping at known pickup and drop-off points, Ramsey says.

Automakers could also appeal to wealthy customers by selling them self-driving cars, or traditional cars with highway autopilot features that relieve them from miserable back-and-forth driving in heavy traffic—say, between Palo Alto and San Francisco, Ramsey says.

The most profitable use of the early generations of driverless cars may not be taxicab fleets. Instead, it might be something like a jaunty SUV sold to an active family who could keep all the kids’ school and soccer gear stowed inside, and program the complex schedule of after-school activities and best routes into the vehicle.

Creating a luxury market for rich early adopters could pave the way for these expensive, high-end features to become available later to a wider population, Ramsey says.

Carmakers have already developed extremely valuable technologies that save lives, such as electronic stability control and automated emergency braking, Ramsey says. As yet, the life-saving braking feature now exists in fewer than 10 percent of new vehicles sold, he says.

“My view is that autonomy will be built in slowly over time,” Ramsey says.

Photo credit: Depositphotos

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