Uber vs. Self-Driving Car Stocks: Allies and Enemies

Uber made the record books early in June with a $17 billion valuation and $1.2 billion in a funding round led by Fidelity Investments. This valuation, combined with recent moves into more cities like New Orleans and Miami, cements this taxi app company even further as an up-and-comer, and a company to watch for a big IPO.

Of course, Uber has current challenges, including proposed California legislation regarding state insurance, worries about high costs, and worldwide competition from companies like Lyft. But, with services in 130 cities around the world, more than 1,000 employees, and a business model that is running traditional taxicabs out of town, Uber's path toward a successful IPO in the near future seems assured.

That is, of course, except for one little detail -- the rise of self-driving cars. Companies like Google  (NASDAQ: GOOG  )   (NASDAQ: GOOGL  ) , Intel, and BMW are hard at work creating driver-less car tech, and manufacturers like Autoliv  (NYSE: ALV  ) and Delphi Automotive  (NYSE: DLPH  ) are backing them up. That's where Uber runs into a bit of a problem. The two market segments, taxi apps and self-driving cars, are on a collision course toward the same customers. Both depend on tightly controlled urban environments where driving is a pain and driving services are expected. Neither have a customer base outside cities for the foreseeable future.

If push comes to shove, only one option may survive the rise of self-driving cars. Uber may be faced with some tough decisions, or driver-less cars may not be all they were promised to be. Is there a compromise that allows both sides to work together?

Playing nice, or just playing around?
The obvious compromise, and one already noted by Uber, is for the taxi app service itself to adopt self-driving cars as they grow in popularity. That way, people can still hire a taxi without buying a driver-less car of their own, and both sides could prosper. While no formal partnership has been announced, CEO Travis Kalanick has said that he likes the idea of using Google's driver-less vehicles.

However, there's a bump in this road -- Google technology is designed to work with your life. Google analytics love to learn customer patterns and predict them to better meet needs. One of the draws of a Google self-driving car is the likelihood that it might already know your habits, show up without you needing to summon it, and let you choose pre-programmed routes while bringing up your favorite apps. It could also tie in with shopping lists, phone calls, and social media.

An Uber version of the Google car couldn't do all those things, at least not with the same ease as a personally owned vehicle. With Android Auto, Google also has a vested interest in having people buy driver-less cars: It can encourage developers to sell car-related apps, then bring in revenue from the 30% Google Play cut every app must pay.

Sensors here, sensors there
The burgeoning self-driving car market is also home to suppliers like Delphi Automotive and Autoliv, which create sensors and other equipment these cars depend on. If driver-less cars start to replace traditional taxis, these guys could see a significant jump in demand. If you like future tech stocks with room for growth, both options are worth a look. They've been a little volatile in 2014, but year over year, both show similar patterns of growth, Delphi increased from $50 to nearly $70, and Autoliv rose from $80 to nearly $110 (a lifetime high). Delphi's P/E ratio is 16.82, and Autoliv's is at 20.46.

Of course, the future is growing brighter for these companies, even without considering Uber. But, an Uber switch to driver-less cars, or a preference for those cars instead of taxi services, would be a major win for suppliers like these.

If Uber is planning to embrace the self-driving craze and evolve its strategy, now is the ideal time to create some official partnerships. Sure, self-driving technology is still in the early prototype stages, but what about adopting Android Auto or giving another sign of commitment to the future? If Uber plans to make an IPO within the next year, this type of involvement would be welcome.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 01, 2014, at 11:13 PM, Redskins142 wrote:
  • Report this Comment On July 02, 2014, at 12:08 AM, SuntanIronMan wrote:

    "Neither have a customer base outside cities for the foreseeable future."

    Why exactly would customers for self-driving cars be limited to cities? I get a self-driving car wouldn't be super useful on a farm or something, but why not the suburbs and small towns?

  • Report this Comment On July 02, 2014, at 12:46 AM, kirker wrote:

    Tyler, I would frankly expect more in the way of research from a Fool:

    1. Did you check to see who funded Uber's Series D round? It came almost entirely from Google Ventures. This has *everything* to do with our inevitable future of driverless cars; Uber and Google are staking out their claims on the vertical looooooong before it even *exists*.

    2. Lyft isn't sitting still, either. In January they hired David Estrada away from Google. His job there? Yep: legal director for Google X, their driverless car program. Again, not even remotely a coincidence.

  • Report this Comment On July 07, 2014, at 4:47 PM, TMFJCar wrote:

    Not sure I'd classify Google as a "driverless car company"; I'm pretty sure they are a search/advertising company. Let's wait for them bring the car/technology to market before we call them a "driverless car company."

    Also (and more importantly) kirker is right too: http://techcrunch.com/2013/08/22/google-ventures-puts-258m-i... Not for sure Google would invest if this would end up hurting them. And now it shouldn't because they have ownership in Uber.

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