Transportation is going to look more different in 10 years than it has ever been. For the first time in history, there will be no need for the driver’s seat in a car. And, for the first time in the history of many, it is cheaper to not own a car. According to Statista, the ride-hailing market is expected to show an annual growth rate (CAGR 2021-2025) of 11.18%, resulting in a projected market volume of US$1,068m by 2025. This high growth opportunity has caused the ride-hailing market to become crowded with competition with young Silicon Valley companies looking to capitalize upon the trend, while traditional automotive manufacturers are looking for ways to survive the end of ownership. Among the many companies choosing to enter this market, we will discuss which companies are likely, and unlikely, to succeed in transport’s changing landscape.
Uber’s reign as the ride-hailing king should continue over the course of the next 5 years. However, companies such as Waymo and Tesla will soon be biting at Uber’s heels and Uber’s current plans will not protect their heels when Tesla and Waymo approach. Uber lack the technological excellence that the other two have. Their driverless software is far behind that of the likes of Waymo and Tesla, as they were fined for stealing Waymo’s driverless technology and thus had to take a few steps back in development. Uber’s best bet is to leverage its network effect and go platform agnostic. They can subsequently integrate third party driverless tech software and expand their partnerships with OEMs such as Volvo (who look promising in the Robo-taxi space) and thus have a formidable product. If they choose not to do this, then expect Uber to be majorly disrupted.
Tesla has an unconventional, yet creative approach to ride-hailing, which will likely give them an edge. Traditional ride-hailing platforms have a two-sided marketplace, the drivers and the riders. This creates a powerful network effect. More riders will attract more drivers and vice versa. However, with autonomous ride-hailing platforms, this network effect disappears. In fact, the network effect won’t just disappear, it will create a reverse network effect due to the elimination of the driver. As more riders log onto an autonomous ride hailing platform, more cars are used up, thus decreasing the availability of rides and/or making riders wait a long time for a ride. If there’re enough cars, then that won’t be issue. It means that the companies with enough capital to meet demand will win. However, that creates another issue where too many cars are on the street, thus increasing traffic congestion and wait times. A Tesla owner will get driven to work and while at work, allow his Tesla to go around transporting people and earn effortless passive income. This retains the two-sided marketplace (and subsequent network effect) that non-autonomous services such as Uber currently have. In areas where Tesla owners are lacking, or aren’t willing to lend their car, Tesla will deploy a fleet of their own vehicles. This will also mean that Tesla will be able to save money against competitors who have to deploy fleets as they don’t sell vehicles to individual citizens. While network effects usually occur in software companies, Tesla’s hardware business also has a massive network effect. Typically, a company sells a car in exchange for money. However, with Tesla, that is not the only way Tesla gain value from the customer, as they have a network effect.
Waymo has received a lot hype for good reason. They have the first mover advantage and have a colossal lead. Morgan Stanley estimates say Waymo has a value of over $100 billion. Waymo’s first mover status isn’t the only advantage it has. Alphabet owns the world’s two most AI companies (Deepmind and Google) and has over $100 billion dollars in cash. Waymo has access to Alphabet’s ecosystem and array of technologies that can help maintain and/or boost its lead in AV software. Despite heavy R&D investments Alphabet is still the internet’s most profitable company and the 7th most profitable company in the world. With plenty of visionary capital and technology at its disposal, who can stop Waymo?
The answer is, itself. While the company is well known, it is still very secretive. Not only is it secretive to consumers, but also to its partners. Honda ditched Waymo, because Waymo doesn’t want to share any degree of control with its OEM partners. They want the vertical integration advantage that their sister company Google had. To Waymo, OEMs are merely suppliers and nothing else. The exiting of Honda from the partnership was a big loss for Waymo. Waymo and Honda were going to develop a Tesla Model 3 competitor together. Now, Waymo must either find another partner, build an AV with an existing partner or develop its own AV. With no shortage of capital, the third option is not out of the equation.
It can be expected that all 3 companies will make big moves over the next 5 years. Tesla looks like the probable winner due to its ride-hailing business. It is the most vertically integrated of the three, as they produce their own cars, driverless software and ride-hailing service. However, Waymo has plenty of technological firepower and Uber has a powerful existing network effect.