Uber & Aurora – Back to front.

Only a joint venture makes any sense at all.

• While it makes complete sense for Uber to get rid of its autonomous driving activity and start again, I think Aurora would be crazy to even consider paying good money for this worthless asset.
• As far as RFM is concerned, Aurora is one of the also-rans in the autonomous driving game ranking 14^th in terms of performance in 2019, three notches down from 11^th in 2018.
• This is based on the California DMV disengagement data which is a far from perfect measure but has to date, been a reasonable estimate of reality.
• By contrast, Uber as been by far the worst on this measure in 2017 and 2018 and did not produce any data in 2019 in a sign of just how bad things have become.
• The problems at this division of Uber are so severe that I have repeatedly valued the division at $0 (see here and here) and advocated that Uber should throw this asset away and start again from scratch.
• Hence, if Uber can convince Aurora (which reportedly actually has some technology worth mentioning) to pay good money for this dreadful asset then it will be a triumph of salesmanship.
• However, Uber needs an autonomous driving capability of some description for the long-term and so a straight sale and exit makes no sense.
• Autonomous driving is crucial to Uber because when it becomes a reality, it will change the face of Uber’s business meaning that a good position here is critical for its long-term business case.
• Uber is currently a marketplace where drivers sell their services to riders or restaurants (for delivery) on which Uber takes a commission for every transaction.
• When drivers are no longer needed, Uber goes from being a marketplace to being a service of which the quality of the software driving the vehicles becomes a critical element,
• This is why I have long believed that Uber’s long-term future depends on its ownership of a decent autonomous driving solution so that it can maintain a greater degree of differentiation.
• If it were to be late to come to market with autonomous vehicles, others would have a chance to eat into its share and it would lose its status as the go-to place to get a ride.
• Uber badly needs a solution but the solution it has looks to be beyond repair meaning that throwing it away and acquiring something else makes a lot of sense.
• Hence, it would seem to make more sense for Uber to acquire Aurora rather than the other way around.
• One possibility would be to create a joint venture between Aurora and Uber where Uber would still own a piece of the company but not enough for its red ink to be splashed all over its income statement every quarter.
• Furthermore, I am not convinced that Aurora has the financial strength to make this acquisition even if the valuation was cut substantially.
• This is because Aurora has been having difficulties for some time (see here) and is not going to see any revenues for a while making a pooling of assets are more likely scenario.
• Should this prove to be the case, I would expect the Uber IP to be quietly jettisoned and the 1,200 person team at Uber to migrate its activities onto improving the Aurora IP and bringing it to market.
• Whatever the outcome, the investors who invested in this asset at an eye-watering $7.8bn valuation face taking a very substantial hit marking what has become yet another bad investment decision by SoftBank.
• The consolidation in this sector is now well underway but remains far from over.