Uber’s Woes Mount: California Strips Driverless Cars’ Registration, Losses Rise, VAT Charges Loom

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.

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  1. Cry Shop

    Uber has been a ping-pong ball in the battle between Hong Kong’s Chief Executive CY Leung and Barrister cum China Consultant/bribery middle-woman Maria Tam, another sleazebag taxi license owner (under the British she was in charge of the Transport Dept for a time, and set up the policy limiting new licenses (so much for UK colonial integrity vs the CCP)). CY Leung has either let lose Uber or reversed course depending on how well Maria did his bidding in Beijing’s People’s Consultative Committee. It’s been fun watching scum using other scum to pressure yet other scum.

  2. Larry

    The Uber series is getting quite a bit of attention in the wider press, with Gizmodo media picking it up as well as Bloomberg and FT Alphaville. Kudos to Hubert and Yves.

    And with that increased scrutiny one must assume investors are paying more attention. I’m frankly surprised that Uber could report a profit in any time period at all, and wonder what type of accounting that must have taken.

    In the meantime, both Uber and Lyft are burning money still trying to get people to ride. I was in line at a concert in Providence a few weeks ago and two people were handing out coupons for free Lyft rides. Uber has an ongoing promotion co-branded with American Express to give you free rides from select airports to your destination after arrival. And there are other services popping up around the country. In Boston I’ve seen a service called Fasten that promises better pay and employee status for drivers https://fasten.com/cities as well as Juno in NYC, which is promising the same thing: https://www.gojuno.com/.

    One would think that sophisticated investors would have seen financials and requested or seen plans for how Uber and it’s ilk generates profit, but maybe I’m incorrect on that count.

    1. John Wright

      As Uber has yet to IPO, I’d imagine the early investors (such as angel investors, Blackrock, Barclays, Goldman, Mitch Kapor, Microsoft, Saudi Arabia’s Public Investment fund) are kept well informed by Uber as they might be hit up for more operating funds and certainly want to monitor their investments.

      see https://www.crunchbase.com/organization/uber/investors

      The investors only hope seems to be to do the IPO and unload their positions on the IPO buying public as Uber sure does not seem to be moving into a positive cash flow generating phase.

      What we outsiders see is Uber theater designed, as much as possible, to put on a good performance prior on the Uber IPO that was expected to hit in 2017.

      Perhaps the Uber investors are looking at a nearly complete loss of their investments?

      What does Uber have in the way of assets other than its application code and a few driverless cars?

      1. Martin Finnucane

        My thought is that the investors are hoping that Uber succeeds in cornering the taxi/livery cab market, at which point revenue, and hence profits, would skyrocket, to the benefit of such investors and to the detriment of society. That would make the whole process something like steel dumping – subsidize a losing business long enough to drive out the competition, then enjoy the sweet fruits of monopoly.

        Supporting this idea: (1) the underlying economics of Uber have not really changed since its inception; (2) as a the series here shows conclusively, the economics only make sense if Uber obtains a monopoly; and, (3) it stretches credulity to supposed that sophisticated investors didn’t know all this ahead of time.

        NOT supporting this idea: the whole notion that Uber could get away with this is a bit cockamamie. Is a decent investment really that hard to come by? Are big money men [sic] really that desperate to find returns? Is capitalism really in such big trouble?

        As the rate of profit falls to nothing, capital vampirizes the productive economy in search of safe harbors – that is, rents. But in a finite world, this process of continuing primitive accumulation itself becomes untenable – eventually, the peasants will just walk. Then the continuing appearance of monster births like Uber, and eventually crisis and collapse.

        If, on the other hand, the Uber IPO is just kind of a scam, the implication is much the same, though with a different proximal victim.

        1. Rosario

          I think you are touching on exactly what is happening with globalized capitalism. Its constant revolutionizing and drive for markets/capital make it an ouroboros. How close is it to its own head?

        2. /L

          Suppose the big investors in Uber see the taxi biz from their perspective in the back seat. And is totally lost on small biz economics. In their eyes the little man always make “to much”. So, if just Uber could squeeze those drivers and cab owners that make “big money” there could be serious money made on a big scale.
          It’s like people that think it’s nice to be a restaurant guest and start their own believing it’s a similar experience to be a guest.

        1. Bobby Gladd

          Yves, I have to say, this entire Uber series has had me in rapt attention. It is fabulous. I have always been skeptical of this whole “1099/gig sharing-economy” thing. All I see is “Gresham’s Dynamic.” I cover the Health IT space for my little KHIT.org blog (just a cranky, retired piss-ant independent ankle-biter), and the BS I see there in the Health IT VC space has long had me shaking my head. Every time I hear the breathless “Uber for Healthcare” speculative allusions, I want to puke. Yeah, health care needs an Uber like it needs another Gruber.

          Gumshoeing the dubious “Neurocore” at the moment. Our new Trump Education Secretary, Betsy DeVos, is their principal investor.

          I’ve told James T. Hamilton of Stanford (“Democracy’s Detectives” author and a triple-threat BS/MS/PhD economist) of your Uber stuff.

          Keep up the great work. I’ll be citing your Uber stuff on my blog.

    2. diptherio

      In Austin, they figured out that you could accomplish largely the same thing Uber does with a facebook group. It’s called Arcade City, and it worked great for me while I was visiting this summer, despite the fact that I don’t have a smartphone. They got pretty popular and now have their own app and are spreading to other cities. A worker co-op recently got going in Austin too. Who needs Uber?



      1. /L

        I looked at the article, dident find the facebook thing but the non profit “Ride|Austin”. http://www.rideaustin.com/drivers/
        On regular the drivers compensation is the same as the customer pay.
        $0.99 per mile + $0.25 per minute
        $1.50 base fare, $5 minimum fare”
        Now I don’t know US total ballpark figure to maintain and drive a vehicle. But the numbers don’t seem good even if you have rides 100% of the time.

  3. Carl

    Re: easily replicated technology

    Uber exited the Austin Texas metro area this year, and at least four other rideshare services sprang up, three of them with “apps.” Also, the existence of Lyft pretty much disproves the “unique” aspect of Uber.

  4. broadsteve

    It is ironic bordering on the satirical that the Daily Mail should comment on fake news.

    For years the UK print version of this ‘news’paper has fearlessly and endlessly revealed: 1) Immigrants are the root cause of every social or economic problem 2) Everyone on Social Security really lives like a King at your expense 3) Everything you do, touch, eat, breath, (and I suspect think if you happen to be left-leaning), will give you cancer; the more innocuous or everyday, the deadlier it always is.

  5. rusti

    Twenty other companies that are piloting autonomous vehicles in California have complied with these requirements, making Uber’s posture particularly indefensible.

    I’ve been involved in projects in which we’ve needed to apply for permits from state and national governments to deploy semi-autonomous driving features on public roads and my experience is that governments don’t employ people competent to do more than the most cursory of technical analyses on whether the technology is safe, so they are pretty laissez-faire when handing out permits, particularly if it’s to a company with influence in local politics.

    Looking up the California DMV’s Autonomous Vehicle Tester Program, the requirements are loose enough that even smaller startups are among the 20 companies that have been granted permission. That Uber refuses to comply with such easy rules is definitely worth a closer look, seems like it would be easier for them to just fudge on their “disengagement” reports. Tesla’s latest one from the beginning of 2016 is a single paragraph saying they had “zero” disengagements, which is sort of darkly ironic in retrospect considering someone got killed a few months later with their “Autopilot” feature engaged.

  6. Quanka

    It was great to see mainstream outlets referring back to the NC / Hubert Horan series on Uber, it was almost a little twilight zone-y given the trending fake news story. Great work NC, maybe this should be FW’ed to WaPo.

    As an aside, here in Denver my assessment is that Uber has peaked. First, I haven’t seen one of those sign-wavers in months nor have I heard one of their “first ride free” ads in what seems like forever. Lyft seems to be more predominant and available (not that that denotes an improvement) and there are a number of co-op outfits forming, owned by the drivers, and leveraging technology similar to Uber/Lyft. The drivers of the “regular” cab companies seem to go out of there way to thank you for business – you know the whole customer service thing still works in my mind.

    As you said, couldn’t happen to a nicer bunch.

  7. JTMcPhee

    Will Uber’s “in-your-face, implacable, externalizing illegality” business model pay off, eventually, as it has done for so many other parts of the Sickonomy? Now that edge-of-the-law-and-beyond-skaters have been brought into the Imperial power structure so vigorously and visibly and blatantly. And the Fourth Estate that used investigate-and-expose to provide a bit of a brake, and the legislatures that at least included the occasional grandstander or actual Person of Good Will to at least “investigate” and occasionally manage passage of legislation that, with some modicum of effective enforcement actually “regulated” kleptocratic behaviors a bit, and an executive and judiciary not “totally on board” with looting, are “quaint notions from a bygone age.”

    What outcomes do “we” want from “our” political economy, again? What outcomes that “promote the general welfare” are even possible any more, especially given Bernaysianism and the habits of vastly dishonest and twisted thought that a century and more of it has produced, those “morbid symptoms” but “morbid” as compared to what standard of “healthy”? Is there any agreement on a set of goals and conditions that do anything more than promote MOREFORME-ism in one guise of “public interest” or another? Are the gonifs, http://www.thefreedictionary.com/gonif , now completely in charge of the henhouse and sheep pastures and granaries? Who are “we,” and what power and drive do “we” have as we go about getting and spending and trying to just stay alive against the pressures of the First andSecond Laws of New Economics, to foment and maintain the energies it takes to compel and enforce and continue (against that implacable apparently insatiable, vastly careless and indifferent drive for MORE that activates the Rulers-and-Looters, the drive ordinary people always subject to temptation would need to deploy daily to keep the Vampire Squids and other parasites in some kind of check? http://www.theaustralian.com.au/arts/review/careless-people-of-f-scott-fitzgeralds-great-gatsby-have-a-modern-equivalent/news-story/741508cb31dc43801a0a7144223a2ac2

  8. Pete Prunskunas

    If I drove an unsafe vehicle on a public road, I would receive a ticket which required me to stop driving that vehicle. If, however, I continued to drive that vehicle, I would end up in jail and/or the vehicle would be impounded. The corporate veil must be eliminated in cases of public safety. Travis Kalanick and a few other members of Uber management should have been arrested and perp-walked after Uber continued to drive its vehicle illegally.

    Self-driving vehicles from My Mother the Car to Google’s Big Brother the Car

  9. Marco

    So how can I convince friends who use Uber ALL THE TIME to stop? From my own experience the happiest Uber drivers are those still new to the racket. The seasoned drivers usually are more skeptical of their lot with the company.

    1. JTMcPhee

      Good luck changing your Uber-users’ (“User” is the chief characteristic of the whole Uber scam is “using,” after all, for the short-term benefit of the Few and those who think they are on its bleeding periphery) minds and behaviors. Americans/USians are mostly all about themselves and their immediate wants and “convenience,” and who cares about externalities when we all know in our hearts that the planet is Fokked so why not sing and dance today, devil-may-care-but WE-sure-don’t”?

      Interesting the breadth of meanings associated with the word “:user,” isn’t it? http://www.oxfordreference.com/search?q=User&searchBtn=Search&isQuickSearch=true

      1. Marco

        Without a car of my own I regretfully admit using Uber more than I should. I always make sure to tip 20% or $5 whatever is more. Most drivers say the tip is the make or break variable. What is telling is that most drivers are NEW drivers and I assume that without the continual influx of “fresh meat” Uber would grind to a halt.

    2. Elizabeth Burton

      I suspect there’s more than a little of the “putting it to the man” mentality that goes along with using Uber and Lyft, and in my experience that attitude is all but impossible to get past. We e-book publishers run into it all the time when it comes to people downloading pirated books, and no matter how many times you point out that the only “man” they’re “putting it to” are the poor authors who are losing money, their sense of self-righteous nobility that they are somehow soldiers in the battle against rampant capitalism runs too deep.

      1. tempar555510

        Elizabeth you expose here the lie that the internet ‘ lifts all boats ‘ . It doesn’t . There is no ‘ sharing economy ‘ yet, but that idea is out there now and there may be ‘ troubles ahead ‘ as the song goes, but somehow if we can get through this morbid phase some better tomorrow could be on the horizon. But make no mistake it will NOT be called Capitalism. That’s finished.

  10. Matthew G. Saroff

    Uber’s super power is in getting regulatory forbearance from regulatory and tax authorities, so I’m inclined to agree with point 9, where the original author states that he does not expect action from the tax authorities.

    1. Yves Smith Post author

      Why should you believe they have special friends in the UK or EU? American arrogance does not go over well, and all tax authorities, particularly in the EU, are hungry for revenue. Moreover, Eurocrats are much more rigid in their reading of rules that Americans are.

      And they just failed to get regulatory forbearance in their very own back yard, San Francisco.

      1. Cry Shop

        Yves is right on about the taxes. Uber will only get forbearance if it can throw enough money at every government’s oligarchy’s objectives. They don’t have nearly enough, and they are stomping on the toes of taxi license/medallion holders, who will eventually find a way through to a compromise with the current oligarchy. As they piss off drivers, Uber is also losing it’s own political base.

        I tried to make an earlier post, partly for the fun of the story, but also party to show how Uber is often used as a political football, and when they are no longer useful for that function, and are a ring around the neck instead, then they will be tossed to the curb. Airbnb is heading for the same direction, but may gain more time as wealthy housing-speculators who benefit from renting vis it are often part of the local governments network of benefactors.

        (Outis, I’ve sent the email and made a mark above, any luck?)

        1. Outis Philalithopoulos

          Your original 7:23 a.m. comment is up now. The email you sent arrived, but it got derailed by gmail and so I didn’t know it existed until seeing this comment. I just sent you an email as well.

  11. TheCatSaid

    If the whole purpose of Uber was to suck up LOTS of money that will go to key insiders at the top, its ultimate failure will be irrelevant. Only “little people” will be hurt while massive wealth transfer will have occurred.

  12. Dave

    In Russia people throw themselves onto the hoods of cars as an insurance scam, so much so that many Russian cars have dashcams to avoid this. Hence, the huge number of Russian dashcam videos on Youtube. Quite entertaining actually, all the accidents that are recorded and it’s like a street level travelogue of the country.

    Uber driverless cars from the pictures I’ve seen are easily spotted. I predict the homeless and hustlers in our cities will take to throwing themselves onto unmanned Uber car hoods for insurance settlements.

    Also, who gets a ticket for running a red light or speeding in a driverless car? The passenger or Uber?
    I think it will be a fun game to box in driverless cars at intersections where other vehicles are not blocked.
    If and when they park–will they ever park? Vandalism from pro-worker luddites should be fun.
    How about graffiti opportunities, tag the Uber car with your name or art, just like some railroad freight cars. The opportunities are endless.

    1. JTMcPhee

      You can bet lawless Uber will DEMAND and get harsh prosecution of any taggers, street artists, Luddites etc. that dare to impair or deface their autobots…

  13. ChrisPacific

    After the final piece in the Hubert series I did wonder whether the planned end game was to build up a massive store of customer data that could then be monetized in the usual Silicon Valley manner (c.f. Amazon, Facebook). But if that was going to be the kind of goldmine that it would need to be, I’d expect to have seen some sign of it in the results by now. I suspect that either it won’t be significant enough to make much difference, or that it requires monopoly or near-monopoly power in order to push through the necessary gutting of privacy policies to allow them to get the really valuable data.

    I also don’t see anything about the business that makes it a potential monopoly in the sense that (say) Microsoft control of the desktop OS did. Yes, there is a network effect of sorts at work for driver coverage and responsiveness, but Uber doesn’t own the driver network (as they are always at pains to point out). If a competitor came out with a cool app and better operating terms, and drivers decided to switch to it en masse, I don’t see anything that would prevent them from doing so.

    I am pleased that governments are starting to see through Uber’s tactic of ignoring any regulations that don’t suit them and calling it innovation. Time will tell, but this looks to me to have all the makings of another Enron or WorldCom.

  14. robnume

    Screw Uber. Give me a good old fashioned London taxi any day of the week. The requirements of professionalism in dealing with customers, their extensive knowledge of the difficulty of traffic in London and their knowledge of the street layouts – London is a notoriously difficult place in which to find one’s way around, if not a native – is worth its wait in gold to this traveler.

  15. robnume

    I forgot: Id like to thank Yves and Hubert for their good work on the Uber story. Also, thanks for all of the hard work put in by Lambert, Jerri-Lynn, Yves and all of those who contributed to NC this “crazy news” year. We readers appreciate you so much and wish you all the best Christmas season and a very Happy New Year.

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