Toyota and Uber – Metal shells.

On course to become a commodity.

• Toyota is partnering with Uber in a move that confirms that it has no confidence in an in-house autonomous vehicle offering as well as little understanding of how its industry is becoming driven by software.
• Toyota will invest $500m in Uber at a valuation of $72bn and begin manufacturing Sierra Minivans with Uber’s self-driving technology embedded which will hit the road for testing in 2021.
• This investment adds to its $1bn investment in South East Asia’s ride-hailing king Grab, its partnership with Didi and its investment in Japan Taxi.
• This deal marks Toyota’s first partnership where it will actually embed the software of a third party into its vehicles which in my opinion leads Toyota one step closer to becoming a commodity.
• It is clear that Toyota is trying to secure routes to market for its vehicles should autonomous driving change the landscape so much that few private persons own vehicles.
• In that instance, most cars would then be purchased by large fleet operators (read Uber, Grab, Didi, Japan Taxi and so on) whose volume Toyota is looking to secure through these relationships.
• However, this will come at a heavy price as fleets will care less about petrol engines, form factor and design meaning that most of what Toyota competes on today will have become obsolete.
• Today, OEMs compete on their engines, drivetrains, design and safety most which will become obsolete when vehicles are electric and not owned by private persons.
• Furthermore, because Toyota will be making a vehicle with Uber’s self-driving technology embedded, it has effectively given up the opportunity to compete in software.
• This path leads to a commoditised future where, like the Android handset makers, Toyota makes the shells that others use to profit from their software and their services.
• The view that one must rush into autonomous driving is relatively common among the OEMs, but I think that there is no need for it.
• RFM estimates that the market will not be ready to receive autonomous driving much before 2028 meaning that the technology will be ready long before the market is.
• This means that by 2024 or so there will be a series of mature autonomous driving solutions that are unable to generate revenues.
• This would give the OEMs the opportunity simply to buy one off the shelf at a good price and be ready for when autonomous driving is needed and still maintain control over their software.
• Hence, they would have a chance to make money from software and to use the data that their vehicles generate to offer value-added services.
• This is badly needed because there is a real possibility that an electric autonomous world will need far fewer vehicles on the road.
• This could lead to a substantial decline in vehicle shipments that most of the automotive industry is unlikely to survive.
• This is why it is critical for OEMs to hold onto control of the software and vehicle data for as long as they can.
• Failure to so looks set relegate them into little more than handsets of wheels from which very little money will be made.