Analysis
20 May 19

Even driverless ridehailing won’t be profitable

A new study of the Massachusetts Institute of Technology found that even driverless ridehailing companies won’t be profitable, taking away the often-quoted answer when ridehailing companies are asked about their unprofitable status. 

Especially since big ridehailing companies Uber and Lyft filed their IPO the last weeks, questions about their long-term profitability are rising again. Ridehailing companies are known to operate at huge losses. 

Often their high investment in new technologies – such as driverless cars – is seen as a major source of financial losses, while the development of autonomous technology is also quoted as the way to financial benefit. 

Twice as expensive

Yet, the new study of MIT suggests that even autonomous ridehailing cars won’t operate at a profit. Based on the San Francisco market, the researchers figured out that the price per mile for an automated taxi would range from $1.58 to $6.01 compared to $0.72 per mile in a personally owned car. Which means that the cost would be at least twice that of the conventional, privately owned car. 

Low utilisation rate

MIT does not only bring the drivers' costs into account – which the ridehailing companies cite as the main cost for driven ridehailing cars – but also the operational costs of driverless cars. Add to that the fact that the usage rate of the ridehailing car is still low. Too often cars are driving around waiting for a new ride, compared to the number of paid miles. The study concluded that on average ride hailing vehicles in San Francisco have a utilisation rate of 52% and in Beijing of 56%. However, even with a utilisation rate of 100% ridehailers would not be able to provide a fare comparable to car ownership. 

So, ridehailers should increase the number of paying passengers per vehicle, which they already do with features as Uber Pool and Lyft Line. However, this might be counterproductive because the ridehailers have to give discount fares in order to incentivise people to share their ride, again decreasing the financial margins. 

Confusion

In addition to that, taking away the driver does not only take away the driver’s costs, but it adds other costs, such as a teleoperations centre in which remote human operators can intervene if necessary, and operational costs in general for autonomous vehicles.

Deux-ex-Machina

Hence, driverless cars aren’t the deus-ex-machina for the ridehailing companies, since new costs can pop up. In addition, it will be difficult to set a competitive fare which convinces the riders to keep on ridehailing, while still creating financial gains for the ridehailing company. 

In addition, earlier this year and before both companies filed their IPO, ITS International reported how Uber admitted that they might never be profitable at all. In the filing to the US Securities and Exchange Commission (SEC) Uber reported that they expect their operating expenses to increase significantly in the foreseeable future, and that they may not achieve profitability. 

The explanation they give refers to the high investments in new technology. “We are making substantial investments in new offerings and technologies, and expect to increase such investments in the future. These new ventures are inherently risky, and we may never realise any expected benefits from them.”

In addition, they admit that their autonomous driving technology hasn’t reached the stage of development yet that they wanted to reach, and that other competitors might be ahead of them.  

The future of ridehailing?

Yet, although the stocks of both ridehailing companies aren’t performing as successfully as expected, and the ridehailing companies are facing other complaints such as their contribution to traffic congestion, and their competitive position with public transit, both companies never made their future strategy public and known, so it remains a guess for both researchers and journalists what are the real strategies to stop losing money – if there are any. 

Eventually, even while both companies keep operating at losses, they keep reshaping our mobility system with not only ridehailing, but new technologies such as the development of autonomous vehicles, and other (online) mobility related services.

Authored by: Fien Van den steen
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