Uber’s plans for global domination are running into more and more real-world problem.
The Silicon Valley darling acted as if it could bulldoze California’s Department of Motor Vehicles requirement that driverless cars obtain a special registration. Twenty other companies that are piloting autonomous vehicles in California have complied with these requirements, making Uber’s posture particularly indefensible. Nevertheless, Uber continued to operate driverless cars in San Francisco in the face of not just the DMV but the California Attorney General and Transportation Agency having stern words with Uber officials. Yesterday, the DMV pulled the registration for Uber’s 16 San Francisco driverless cars, which means a driver caught at the wheel would face fines and the vehicles could be impounded.
Uber is still refusing to comply with the California registration regime. From the Financial Times:
“We have stopped our self-driving pilot in California as the DMV has revoked the registrations for our self-driving cars,” Uber said on Wednesday evening. “We’re now looking at where we can redeploy these cars but remain 100 per cent committed to California and will be redoubling our efforts to develop workable statewide rules.”
And the pink paper suggests why Uber is so hostile to a requirement other companies have met, aside from its addiction to extreme libertarianism:
Companies that have obtained a permit are required to disclose traffic accidents within 10 business days of the collision and provide an annual “disengagement report” that details how often human drivers had to retake control from the robot car.
Some critics say Uber’s reluctance to apply for a permit is because it does not want to disclose such data, after reports of its vehicles running red lights and endangering cyclists.
“Uber has claimed they’re refusing to get permits ‘on principle’. That’s nonsense; they just don’t want to reveal how flawed and dangerous their robot cars are,” said John Simpson, privacy project director at Consumer Watchdog, a campaign group.
On Tuesday, Bloomberg reported on a leak via The Information website that Uber’s losses in the third quarter had risen to $700 million, up from $580 million in the first quarter. Uber’s net revenue (post driver compensation) increased from $960 million to $1.7 billion. So while superficially one might conclude that Uber’s negative margins are improving, recall that Uber exited its China investment on August 1, and its results don’t include the China investment. Uber boosters claim that China was a big drag in terms of the “investment” required. So if you buy that theory of Uber’s fabulously sketchy information, the apples and apples numbers, the trend line would be worse (as in the first and second quarter losses would be lower, reducing or even reversing the apparent improvement in the level of losses versus revenues.
As important, Uber is still not making money in any major geography. From Bloomberg:
Even in the U.S., Uber’s home market, the company continues to lose money. After turning a slight profit in the in the first quarter of this year, Uber lost $100 million in the U.S. in the second quarter. The loss increased in the third quarter, the person said. Lyft, Uber’s largest U.S. competitor, has promised investors that it will keep its losses below $150 million a quarter.
And recall that Uber cut driver pay in 100 US cities in January. So that gambit did not bring it to profits on a sustained basis in the US (indeed, given Uber’s opaque accounting, one wonders if they managed to game the first quarter results for the US, hoping the repricing would work out, and it didn’t).
Moreover, the Bloomberg story stresses that the figures made public probably don’t include important charges:
The company is said to have lost at least $2 billion last year and is on track to pile up a loss of at least $3 billion this year. Those are rough figures that may underestimate how much money Uber is losing and don’t include interest, taxes or stock-based compensation.
This sorry picture is consistent with what Hubert Horan wrote in his recent series on Uber: the company is a high cost producer, and the technology aspects of its service are comparatively trivial, easily replicated, and do not confer scale or winner take all advantages. Uber is engaged in a predatory pricing strategy, and its apparently “better” value proposition (I hate that expression, BTW), is due to its massive subsidies, which is why users are currently getting a deal relative to traditional taxi services. A fully priced Uber would be at a premium to local car services. But if and when Uber starts covering its full costs, first its revenues would shrink greatly, since fewer riders would use it as those prices, and second, new entrants would come in, since they would have better economics than Uber.
And we have a new possible world of hurt for Uber in the form of VAT charges in the UK and EU. Izabella Kazminska found a post on the Waiting for Godot website titled, That’s One Uber VAT Problem. To make a technical tax argument short, the recent UK ruling that finds Uber drivers to be “workers” under employment law has major implications for VAT. The ruling denied the Uber argument that it was merely a booking service and took the point of view that Uber is in the transportation business.
Tax authorities have even stronger directives to look at the economic substance of business relationships than employment tribunals do. So the tax reading is very likely to be parallel. Here are the implications:
(6) but Uber’s problems don’t end there. It appears that the structure Uber uses in London is replicated across the EU. VAT should operate identically across the EU. And so, if the same structure is used, the VAT treatment of Uber’s services for every other City in the EU should be identical to that in London. Different member states have different rates of VAT – and different rules for claiming unpaid VAT. But that £20m per annum for London just got an awful lot bigger;
(7) nor are Uber’s problems merely historical. They don’t end with it coughing up to HMRC any unpaid VAT which is due. Going forward, absent material change in its operating model, Uber’s revenues in the UK net of VAT will fall by 16.67%. And by equivalent percentages across the rest of the United Kingdom and EU;
(8) there is a basic difficulty in changing Uber’s operating model to avoid this consequence. The Uber commercial proposition is based on Uber’s brand value to actual and would be consumers. But there is a tension between the notion (a) that the brand name ‘Uber’ will encourage customers to book rides and (b) that the service provided by Uber is not provided to customers and is not the provision of rides. Indeed, it is this tension that gives Uber both a commercial advantage over its competitors but also a fiscal difficulty;
Izabella asked Uber for a comment. The reply:
We’re currently appealing the tribunal’s decision so that process needs to be resolved before we comment.
The VAT post and other analyses have suggested Uber is not likely to prevail.
Thus while issue is still in play, the tea leaves don’t look favorable to Uber. I’s best hope would be tax authority inaction, but with Uber a foreign player and the UK facing hefty EU charges if it proceeds with a Brexit, the pressure to find additional revenues will be high. So Uber is also having this issue come up at a particularly unfavorable time.
Couldn’t happen to a nicer bunch.