Uber to sell minority stake of its autonomous vehicle unit to Japanese consortium

Uber Technologies is planning to sell a 14 percent stake in its autonomous vehicle unit to existing investor Softbank, Japanese automaker Toyota, and auto parts manufacturer Denso ahead of its much-anticipated initial public offering (IPO), which is expected to happen in May. Though it could be argued that Uber’s self-driving car unit holds the ticket to Uber’s eventual profit realization, replacing all human-driven taxis on its payroll is currently more utopian than a reality.

The self-driving unit has had a prickly past, with Uber spending over $20 million a month on its development since its inception in 2016, and a total of over $1 billion on the unit – thus making it a constant in the company’s mounting overall cash burn. Uber’s hopes had a major jolt in March 2018, after one test run in Arizona ended up in an accident, killing a pedestrian crossing the street. This led to Uber ceasing test operations until December 2018.

By selling a minority stake of the self-driving arm, Uber is in a position to leverage it when it goes public, as the move can enhance public perception of the company’s future growth prospects. The Japanese consortium is expected to pool $1 billion for the stake, according to a report from The Wall Street Journal. This arrangement could still fall apart, but if Uber’s succeeds in pushing the deal through, it would get a much-needed capital infusion and help it exert greater control over the company post-IPO.

That said, Lyft’s slide in the stock market since its IPO last month is definitely something that Uber must be studying. Uber, as one of the front-runners in the on-demand cab hailing market and of the overall “gig economy,” has played a vital role in the industry’s astronomic growth over the years. However, even after raising over $24 billion in investment, acquiring seven companies, and branching out across several on-demand niches, Uber is still trying to turn a profit – a crucial factor for being successful at the stock market.

Lyft’s recent misfortune in the market cannot be overstated. The company opened at $87.24 per share – well over its expected $72 per share – but has seen its stock slide ever since – losing over 30 percent of its value to stand at $59.51 per share as of April 17. This could be attributed to the fact that public investors find it hard to gauge the actual value of Lyft.

Much like Uber, Lyft has yet to make a profit as it prioritizes expansion across different markets and verticals over making money. Though this is a sentiment that is understandable to private investors, the stock market is a whole different game and Uber would be well-served to learn from Lyft’s misery.

Uber has reportedly reduced its estimates on fundraising through its IPO to $10 billion, a tone-down that might have resulted from Lyft’s stock market debacle. The valuation of Uber is also expected to be around $100 billion, rather than the initial estimates that were twice that number.

If the autonomous driving unit deal that Uber is pursuing with the Japanese consortium goes through, the unit will have a post-investment valuation of $7.25 billion. In the unit’s board of directors, six seats would remain with Uber while two seats would be taken by Toyota and Softbank –  in the event of Softbank receiving the regulatory approval.

That said, the valuation of self-driving technology units are still hazy; all that the companies can show at the moment are controlled pilot runs, with the SAE Level 5 autonomous vehicle technology still a distant reality. However, Softbank has shown extensive interest in this niche, having already invested in General Motors’ Cruise autonomous car division that put the unit’s value at over $14 billion. Reports have surfaced that Google’s Waymo, arguably the largest and most experienced within the self-driving niche, is also eyeing external investment.

The situation that unwinds today in the self-driving space is fascinating – as even cash-rich companies are seeking outside investment. Companies are uncertain of the timeline regarding when they will commercially deploy autonomous driving vehicles (albeit with limited scope) and are likely hoping that the external capital inflow will help expedite the process.

Self-driving vehicles are an amalgamation of several pieces including vehicle design, core autonomous technology, auto cybersecurity, regulatory approval, and most importantly, public perception. If companies are to inch closer to self-driving reality, it is essential that they open up to working with several key stakeholders in the market – the absence of which would only keep delaying their prospects in the niche.