Uber Autonomous – Big Hero Zero.

This asset is virtually worthless.

• Disclosures in Uber’s Q3 19 10-Q SEC filing reveal that the situation at its autonomous driving unit is worse than even I had anticipated further re-enforcing my view that this asset is virtually worthless (see here).
• This will not please Honda or Denso who have between them invested $667m in this Uber’s autonomous driving division at a mind-melting valuation of $7.5bn.
• I say mind-melting because all of the evidence available points to a deeply troubled operation that has relied on misappropriated intellectual property.
• This investment was almost certainly led by Softbank who I suspect was instrumental in bringing the other two investors onboard who I think will have to write down their investments less than 12 months after putting the money in.
• As part f its 2018 settlement with Waymo, Uber had to submit its IP to an independent software expert who would determine whether Uber had removed the Waymo IP as it claimed to have done.
• In its Q3 19 10-Q SEC filing, Uber states that the independent software expert has “made adverse findings as to certain functions in our autonomous vehicle software.” and that these findings are final.
• In plain terms means that Uber is still using Waymo IP and will either have to license it from Waymo or make further revisions to its already battered code.
• When it settled with Waymo in 2018, it made changes that degraded the performance of its offering by a factor of 3.
• In 2017, Uber made 1 disengagement per mile (see here) which then degraded to 3 per mile in 2018 (see here).
• At the time I was of the opinion that this degradation was the result of removing the Waymo IP and consequently I am surprised that the independent expert has concluded that Waymo’s IP is still there.
• Whether it is or not is now immaterial as Uber will have to take action as if it is.
• This means taking a license from Waymo (should it want to grant one) or throw more of its offering in the bin and replace it with something else.
• The net result is that the quality of Uber’s autonomous IP is even worse than I thought, and its autonomous driving performance will take now take another hit.
• In 2018 (see here), Uber was already 31,570x worse than Waymo and 3.2x worse than Apple who is the least experienced of all the players.
• The prospect of Uber’s performance taking yet another leg down strengthens the case for Uber to acquire one of the small independent rivals or start all over again.
• The irony is that Denso or Toyota could have invested in much better assets such as Zoox or Nuro for less than half of what they paid for Uber’s autonomous driving division.
• This makes me wonder if they did any due diligence or did they simply have a bad case of fear-of-missing-out (see here) and blindly followed Softbank’s lead.
• I continue to believe that this asset is virtually worthless and that further write-downs at its owners must now surely follow.
• I see Uber buying one of the independents where it should have Zoox or Nuro at the top of its shopping list.
• This is another black-eye for Softbank which comes at a very bad time.