Turmoil at Cruise Raises Hope for Uber

In a recent turn of events, the ongoing turmoil at Cruise, General Motors' robotaxi unit, has raised hope for the ride-hailing giant Uber Technologies.

As of Tuesday trading, Uber stock (ticker: UBER) had surged approximately 24% since California suspended Cruise's license to operate self-driving taxis in the wake of a crash involving one of their vehicles in late October. In comparison, the S&P 500 had risen about 7% during the same period.

The situation at Cruise took a further hit on Monday when co-founder Daniel Kan announced his resignation in light of CEO Kyle Vogt's departure from the company. In response to the accident, which involved a hit-and-run victim being dragged several feet by a Cruise taxi before the vehicle stopped, Cruise has suspended all operations, including those monitored by human drivers.

To address safety concerns, Cruise has committed to conducting comprehensive safety reviews with the assistance of third-party experts. Although there have been a few other incidents involving Cruise vehicles, these setbacks have had little impact on General Motors (GM) stock. With its price remaining relatively stable and trading at around four times the expected per-share earnings for 2024, it seems that GM stock does not fully reflect the value of Cruise.

However, while the troubles at Cruise may not significantly affect GM, other companies stand to benefit. The increase in Uber stock following the suspension of Cruise's license aligns with New Street Research analyst Pierre Ferragu's perspective on robotaxi technology. Ferragu believes that the "recent debacle" serves as support for his positive view on the potential of this technology.

In conclusion, while Cruise faces ongoing challenges and uncertain prospects, Uber seems to be capitalizing on the situation and is poised for potential growth in the ride-hailing market.

The Challenges of Robotaxis in the Ride-Sharing Market

In a recent report, analyst Ferragu emphasizes the difficulties faced by self-driving taxi companies like Cruise in achieving profitability. While not against the concept of self-driving taxis, Ferragu believes that pure-play robotaxi companies lack the scale necessary to succeed in the market. Deploying a fleet of self-driving cars capable of offering a universal robotaxi service requires significant resources.

Cruise, for example, experienced losses of approximately $1.9 billion in the first three quarters of 2023, despite generating sales of around $76 million.

Ferragu highlights the major challenge of competing against human-driven ride-sharing networks, stating that it is much easier for leading ride-sharing platforms to gradually introduce autonomous technology within their existing fleet of human drivers. By doing so, these platforms can easily incorporate the costs associated with the ramping up of autonomous technology, while also benefiting from immediate economic advantages.

According to Ferragu, partnerships will be crucial for self-driving taxi services such as Cruise and Waymo. With its dominance in the global ride-hailing market, Uber is seen as the most obvious partner for these companies.

Ferragu rates Uber shares as Buy and sets a price target of $59 for the stock.

It's worth noting that Wall Street analysts generally hold a positive view of Uber stock. Out of the 46 analysts covering Uber, 45 rate the shares as Buy, amounting to a staggering 98% buy-rating ratio. In comparison, the average Buy-rating ratio for stocks in the S&P 500 stands at around 55%. The average price target set by analysts is approximately $61 per share, while the stock was valued at $54.60 on Tuesday morning.