Uber, Drivers, Robots, and Costs

With the decision in California that Uber drivers are in fact misclassified employees rather than 1099 independent contractors, a lot of people are talking about the increased importance of Uber’s self-driving research and development happening in Pittsburgh.

Add to that Uber CEO Travis Kalanick’s comments last week that he would like 500,000 self-driving Teslas in 2020 and we’ve got plenty to speculate on.

The shift from now potentially much more expensive employed drivers (who might now carry with them costs like payroll tax, overtime, workers comp, social security, healthcare, additional taxes) to a fleet of self-driving robot vehicles seems obvious. Much like Netflix’s DVD delivery business evolving into a much larger streaming business. If you can get consumers on board with the new delivery mechanism (which is now commoditized), you can creep much closer to your customer on the value chain. And if Uber is already working to commoditize dispatching and modularizing cars, that will only be amplified with a self-driving fleet. 

But one fact is being overlooked: a huge reason Uber has been so profitable so quickly is because they shift an enormous amount of costs and risk over to their drivers and thei fleets. Cars are expensive to lease or purchase, maintain and insure. If Uber suddenly has to own those big hunks of metal and the risk of moving humans around in them, their business model will change drastically, even if self-driving vehicles end up costing much less to build and insure.

Finally, despite all the hype around self-driving cars, we’re still quite a ways off from that being a reality. While California is only one state, if this sets a precedent for other local governments or the IRS to jump in, Uber might be looking at several years of much higher expenses before they can bring their robots to life.