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Did Uber Just Order 100,000 Self-Driving Mercedes-Benz Sedans?

By John Rosevear – Mar 21, 2016 at 6:06PM

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A German magazine is reporting that the Silicon Valley ride-sharing giant has struck a deal to buy at least 100,000 Mercedes-Benz S-Class sedans with full self-driving capabilities. What is Uber up to?

The 2014 Mercedes-Benz S-Class was the first car to come to market with limited self-driving capability. It's a good bet that the S-Class will be one of the first cars with full self-driving technology -- and Uber may have just ordered a whole lot of them. Image source: Mercedes-Benz

Did ride-sharing giant Uber just order a whole lot of posh Mercedes-Benz sedans with self-driving technology?

If a new report from German business magazine Manager Magazin is accurate, Uber may have struck a deal with Daimler (MBGA.F 2.35%) for a "six-digit number" of Mercedes-Benz S-Class sedans with full self-driving capabilities.

The U.S. version of the S-Class starts at over $95,000. Do the math on a "six-digit" order, and that's a huge sum -- especially given that a fully self-driving S-Class (or any other car) isn't likely to be on the market for at least a few more years.

What's Uber up to here?

Laying the groundwork for a future with no Uber drivers
It's not much of a secret that Uber, like smaller rival Lyft, is laying the groundwork for a future in which it won't have to worry about hiring and retaining drivers, because its cars will drive themselves. 

Many experts believe that fully automated "mobility" services will be a huge business segment in the not-too-distant future, as soon as fully functional self-driving technology comes to market. That belief is probably the biggest reason why Uber is Silicon Valley's most valuable not-yet-public company (and why Detroit giant General Motors (GM 0.47%) invested $500 million in Lyft earlier this year). 

Executives at Alphabet (GOOG -0.19%) (GOOGL -0.28%) have hinted that the ultimate plan for the Google self-driving car project is an automated car service. Some analysts (including your humble Fool) think that Apple's much-rumored effort to develop a car might really be about developing an automated Apple car service that's fully integrated with the company's device ecosphere. And several automakers, including Ford, have also begun laying the groundwork for "mobility services" of their own.

In other words, there's lots of competition brewing. But Uber has a huge advantage over its maybe-future rivals: It's already operating in about 400 cities around the world. Uber is already refining its algorithms with vast reams of real-world data, building out local and regional infrastructure, and gaining a deep understanding of its business.

So why does Uber want to order self-driving cars before they even exist?
Because it wants to preserve that advantage.

Uber is huge. It's going to need a lot of self-driving cars. But the first fully self driving cars are likely to be top-of-the-line luxury models, which are typically not built in huge numbers. (Mercedes-Benz sold about 100,000 S-Class models worldwide in 2015.)

Given that the 2014 S-Class was the first vehicle with (very limited) self-driving capabilities to come to market, Mercedes seems like a good bet for Uber. But it's possible that the company is still shopping around: Reuters reported that Uber executives have been talking to several different automakers about a potential order for a huge fleet of self-driving vehicles.

That makes sense. While Mercedes is likely to be a leader in fully self-driving cars, other automakers are also investing heavily in the technology, including Mercedes' arch-rivals BMW and Audi -- and General Motors, which has already started to lay the groundwork for rolling out self-driving cars with Uber rival Lyft.

Long story short: Uber needs to be doing this now
Uber wants a whole lot of cars, and it wants them as soon as fully self-driving models become available. That means it will have to place its order well in advance, and that's why it might well be talking to automakers (and may have already struck a deal with Daimler) now.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Rosevear owns shares of Apple, Ford, and General Motors. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Ford. The Motley Fool recommends BMW and General Motors. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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