Uber may spin out driverless unit, go for early IPO

Uber may spin out driverless unit, go for early IPO

Uber may be considering spinning out its self-driving car unit, or seeking minority investments in the division, the Advanced Technologies Group (ATG).

After receiving expressions of interest in such a deal – according to a report in the FT – the ride-hailing giant has said it could retain operational control and be the majority owner, while external partners share the enormous cost of developing and commercialising the technology.

In the US, Uber is locked in a head-to-head race against Waymo, General Motors, Apple, Tesla, and others, to develop driverless cars, and with Waymo and GM’s Cruise division to be the first company to bring an autonomous taxi service to US roads.

A time to focus

The news of a possible spinout comes as Uber gears up for IPO next year, with some investors urging the divestiture of ATG so that Uber can focus on its core ride-hailing business.

In July, Uber announced that it was pulling down the shutters on its self-driving trucks division, a programme rooted in the 2016, $680 million acquisition of San Francisco-based Otto. It also confirmed that its fleet of self-driving test cars was being redeployed to Pittsburgh, Pennsylvania, to resume public testing.

Since then, the US has announced that it is sweeping aside federal regulations on autonomous vehicle testing in favour of industry self-policing in order to spur innovation nationwide.

Uber’s autonomous vehicles were pulled from public roads in March, following a fatal collision with a pedestrian in Tempe, Arizona. In the aftermath, it became clear that responsibility lay both with the vehicle’s onboard safety systems and the safety driver who was behind the wheel at the time of the crash.

The decision to shut the trucks unit emphasised Uber’s renewed focus on frictionless personal mobility.

No sale, says CEO

But will it spin off its autonomous cars unit? A sale is not on the cards, according to CEO Dara Khosrowshahi. “It’s not something we’re thinking about at this point,” he told Reuters in September, while in August he told the FT that “it makes all the sense for us to have ATG under our roof”, but added that this was “not exclusive to partnering” with another company.

An obvious partner would be Toyota. In August, the Japanese car giant announced that it was investing $500 million in Uber, in a bid to accelerate the progress of autonomous ride-sharing.

That investment valued Uber at $72 billion, up from $62 billion in May.

The two companies also announced that they were extending their technology collaboration with the aim of bringing to market autonomous mobility as a service (‘AutonoMaaS’) at scale.

Technology from each company will be integrated into purpose-built Toyota vehicles, based on its Sienna minivans, and deployed on Uber’s network. The companies plan to pilot the scheme in 2021.

IPO manoeuvres

The deal suggests that Uber plans to focus on safety in the run-up to its IPO next year.

Until this week, it was thought that Uber would float in the second half of next year. However, the FT reports this morning that the company is pushing the pedal to the metal and going for IPO in the next six months. That timescale puts Uber on a collision course with rival Lyft, which plans to go public in the Spring.

Uber’s long-anticipated IPO will see it target a valuation of more than $100 billion, according to some industry insiders – almost one-third higher than its valuation in the summer.

Whether the move is designed to push its rival off the road, or the IPO has been pulled forward thanks to the downturn in tech stocks is unknown.

Plus: Uber to launch ‘Powerloop’

The Wall Street Journal reports that Uber is to announce a new tractor-trailer rental unit, called Powerloop, to “help big-rig truckers haul freight around the country”.

According to the WSJ, the division could be swiftly profitable, which would help the loss-making company in its IPO next year.

Internet of Business says

2018 has been a year of expansion for the definitive mobile app.

In the summer, Uber announced plans to extend its ride-hailing service in Africa. Meanwhile in the Middle East, Uber has been in lengthy talks with local rival Careem to combine ride-hailing services in the region.

However, news earlier this year that market regulators in Singapore are acting against its merger with local rival Grab may damage the prospects of further deals that reduce regional competition.

Despite its global expansion plans, Uber reported a Q2 adjusted EBITDA loss of $404 million – an increase of 31 percent on the previous quarter, and up on the same period last year. Revenues were up 49 percent.

These sequential losses are what persuaded some investors to call for the sell-off of the self-driving car unit, which has contributed 15-30 percent of the company’s total losses each quarter.

Investors are worried that Uber’s IPO may be damaged by rising losses, especially those spurred by a division that will have to fund expensive technology development for many years to come.

Earlier this year, Uber repositioned itself as an Amazon-style hub for all forms of connected transport, from ride-hailing and electric bike hire to public transport ticketing.

The company is also developing a pilotless air taxi concept.

But whether the company can sustain a focused global business in connecting users with on-demand transport while at the same time pouring money into developing autonomous vehicles must be in doubt.

Public support for driverless cars has fallen in the US, in the wake of the fatal crash in March and the Tesla accident just days later, in which a driver died while his vehicle was running under software control.

Given the major challenges that Uber faces, and with its impending IPO, spinning out ATG would appear to be the best option on the table. Uber would retain control and technology access, but wall off long-term, high-risk technology development from its core business.

• According to the FT, Uber raised $2 billion in its debut bond sale this week. The ride-hailing company sold $1.5bn in eight-year notes, and another $500 million from five-year notes.