11.32 - Wrongmarket
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Monday, August 21, 2023
31st edition of the 11th year of SmartDrivingCars eLetter
GM Cruise and Lidar Robotaxi's Business Model Is Go Through $100 Billion in Losses to Try to Reach Profitable Scale
B. Wang, Aug. 15, "GM's Cruise robotaxi service has expanded from 70 to 300 robotaxis operating in San Francisco and will soon expand to Phoenix, Los Angeles, Austin and Dubai. GM Cruise had increasing losses of $561 million in the first quarter of 2023. This will be over $2 billion in losses in 2023. GM Cruise will having increasing billions in net losses until they reach profitable scale. IF GM Cruise grows revenue by 1000 to 2000 times (100,000% to 200,000%) by 2030 and achieves operational and financial efficiency then it would become very profitable. Robotaxi's must continue to undercut Uber, taxi and public transit pricing to get the market share. This will take perhaps $100 billion or much more cumulative losses to finally reach profitability.
Waymo financials is in Google Other Bets and were a lot of the Other Bet losses of $4.8 billion in 2020 and $5.2 billion in 2021 and $6B in 2022. Morgan Stanley analysts valued Waymo at $175 billion in 2018, $105 billion in Sept 2019 and the Waymo valuation estimate in 2023 is $30 billion…." Read more
Hmmmm… All the more reason that focusing on serving the folks whom Uber/Lyft serve amounts to chasing the wrong customers. Those customers are simply too diffuse spatially and too needy to justify their high price. Being marginally cheaper (~20% discount) isn't sufficiently disruptive to expand this customer base and is inconsequential to the bulk of valued ride-hailing customers - those taking longer trips who tip well. Even if Cruise & Waymo got'em all, the financials aren't pretty. Too few, too needy to end up contributing anywhere near enough to have any hope for profit, even after bankruptcy, let alone an RoI on the initial investment.
Proof-of-market only makes sense when the fundamental advantages of driverless on-demand, spatial land temporal flexibility can be leveraged to offer really good mobility at a very low price within sufficiently concentrated areas to people who need a ride within that concentrated area and are willing to put a little shoe leather into the game.
Such market disruptions happen every day in even not-so-tall buildings. Just think: if getting around in tall buildings required a "ride-hailing" service model, we would have no tall buildings. You'd need an app, an elevator operator, a rating system, layers of public oversight, … but, you could go directly from the front door to your room… maybe??? No reason why the elevator service (easily accessible pick up and drop off, on-demand 24/7, casual rid-sharing attendant/driver-free service) model can't be enormously disruptive in attracting the loyalty of the vast number of people who need a ride and, also, to the many who find themselves forced into giving themselves a ride and even some who can readily give themselves a ride.
In case I haven't been clear, the ride-hailing service model is not a sufficiently disruptive business model to afford the investment that driverless requires. Had it been easy to do driverless and the Elaine Herzberg crash had not occurred, then maybe Uber/Lyft would be financial darlings. Unfortunately, driverless has proven to be really tough and Uber/Lyft are but taxis with a really nice app, but are forever burdened with providing a living wage to an individual who services but one rider at a time, not only for that ride, but also the time waiting around for that rider and the time getting to that rider. The driver has very little opportunity to be more productive, since, apparently, ride-sharing destroys ride-hailing's service concept to an extent that is greater than can be restored by a cheaper price to the valued ride-hailing customers. Thus, no ride sharing. Moreover, the non-constant demand throughout the day induces a substantial amount dead time further challenging driver productivity. Thus, as with taxis and limos, Under/Lyft ride hailing can't be less substantially less expensive than taxis/limos and given the expected returns and life-styles of the Silicon Valley inventors of ride-hailing it is not the right disruptive business model for driverless. The elevator business model of making it easy for anyone to get a ride any time from and to many places, with or without others, no app required and is such a good way to go that those benefiting from that equitable accessibility might be willing to pitch in an make it even free because in the end it is so inexpensive to deliver. Now that's disruptive!
If you want to learn more about the wrong business model for driverless, see Brian being interviewed in Tesla Expert: Why Cruise and Waymo Will Go Bankrupt
Alain