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Big-city Uber drivers don’t make a great living. Could this innovation help their cause?

January 19, 2023, 6:18 PM UTC
Johannes Eisele—AFP/Getty Images

For Uber drivers, the economics of ride-sharing and grocery delivery have always been troublesome. Owning a car and driving it frequently is expensive, and working as an Uber driver doesn’t pay all that much considering the costs (median hourly earnings before expenses in the U.S. were $21 in the third quarter of 2022, per Gridwise estimates).

It’s a recipe for a high-churn business, albeit one that Uber executives have generally navigated well. Uber has made the side hustle just flexible and gainful enough for millions of independent contractors, mostly avoiding driver shortages that would cause trip prices to spike.

But wouldn’t it be a win-win for everyone if drivers could cut their costs while maintaining their modest income? Drivers could make a better living (provided Uber doesn’t slash ride prices or hike its commission). And Uber could keep more drivers on the road, trimming its recruitment- and incentive-related expenses.

That intriguing scenario sat top of mind Thursday for Uber CEO Dara Khosrowshahi while speaking at a Davos event hosted by the Wall Street Journal

Khosrowshahi told a small crowd that his mobility company is working with an undisclosed number of automakers to develop lower-cost, small electric vehicles designed for traversing busy city streets. Khosrowshahi said automakers could accomplish this feat by eliminating features seen in higher-horsepower cars, building vehicles with two or three tires, and reimagining seating areas. 

“I do think that top speeds, for example, that many cars have are not necessary for city driving that’s associated with ride-share,” Khosrowshahi said, according to the Journal. “That can reduce the specs and if you reduce the specs you can reduce the ultimate cost.”

Khosrowshahi provided few specifics about the company’s efforts, including which automakers are on board.

In theory, the proliferation of sleek, city-bound vehicles could become a boon for Uber and Lyft.

A huge chunk of Uber’s mobility and delivery business is done in big cities, where cost-of-living and gas prices are high. Uber doesn’t break out financial results by geographic area, but the company said in its 2021 annual report that nearly one-quarter of its $7 billion in ride-hailing revenue came from five metropolitan areas (New York City, Chicago, Miami, London, and São Paulo).

Uber has worked to make driving for the company more attractive, primarily through the addition of food delivery and efficiency-focused technological upgrades to its platform. Still, as the New York Times detailed last week, Uber drivers continue to struggle to make ends meet in the Big Apple. Notably, the Times featured two local drivers who bought expensive cars—a $42,000 Lexus and a $50,000-plus Toyota Highlander—that proved to be bad investments.

A cheap, city-centric vehicle might not cure Uber drivers’ poor decision-making (don’t buy a Lexus!), but it could make the arrangement more tenable. In turn, Uber could cut driver turnover expenses that likely cost the company tens of millions—if not hundreds of millions—of dollars each year. (Uber doesn’t release its driver churn rate. The best available data on turnover came in 2017 from The Information, which reported that only 3% of Uber drivers stayed on the road for more than a year, but that statistic is woefully outdated.)

Still, for Uber, the challenge of turning this proposition into a reality remains daunting.

For legacy automakers, the economics of mass-producing a low-cost—read: low margin—electric vehicle has proven unattractive to date. Sales of smaller sedans haven’t been particularly strong, likely owing to their still-high price tag (typically $30,000-plus). 

Many automotive startups, meanwhile, are fighting to stay afloat while focused on higher-margin passenger and commercial trucks. The one company that has publicly disclosed a partnership with Uber on a lightweight car, U.K.-based Arrival, said in November that it might not have enough cash to survive past the end of 2023. Arrival’s U.S.-based shares have crashed to penny stock territory, well below their March 2021 IPO price of $22.40.

Uber’s aspirations also assume that drivers are willing to buy an electric vehicle designed specifically for ride-hailing and delivery. While those vehicles might have decent resale value if sold to other ride-sharing drivers, the lack of space, comforts, and flexibility will make them a tough sell to those who see Uber as a temporary gig.

Khosrowshahi has successfully expanded Uber’s business by rapidly ramping up food delivery, offering additional ride-sharing options, and starting to partner with taxicabs (though he’s yet to turn an annual profit). He’s moved Uber away from previous efforts under cofounder Travis Kalanick to develop flying cars and self-driving cars.

In that sense, Khosrowshahi’s new EV effort is somewhat out of character for him—but even if his latest idea doesn’t pan out, it’s certainly worth kicking the tires.

Want to send thoughts or suggestions to Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

Three’s company at home? Apple is developing multiple smart-home products designed to challenge market leaders Amazon and Google, Bloomberg reported Wednesday, citing sources familiar with the matter. The lineup of devices is expected to include an iPad-like tablet capable of remotely controlling home electronics and an updated television box that would supplant its current Apple TV device. The report came on the same day that Apple unveiled its latest HomePod speaker, which has lagged well behind sales of the Amazon Echo and Google Home smart speakers.

Tesla trial is underway. Jurors heard opening statements Wednesday in the market manipulation trial against Tesla and CEO Elon Musk stemming from tweets he sent in 2018, the Associated Press reported. Lawyers for the plaintiffs alleged that Musk lied when he posted tweets claiming he had lined up financing to take Tesla private, causing big swings in the company’s stock prices that led to multimillion-dollar losses for some shareholders. Musk’s lawyers said the Tesla chief made a “split-second decision” to send the tweets after holding conversations with Saudi Arabia’s Public Investment Fund about taking Tesla private.

Talk about good timing. Founders Fund, the venture capital firm co-founded by Peter Thiel, liquidated nearly all of its cryptocurrency investments by early 2022, producing about $1.8 billion in returns just before the sector began to crash, the Financial Times reported Wednesday. The previously undisclosed move ended an eight-year investment in the future of crypto by Founders Fund. Thiel has been one of the crypto sector’s highest-profile proponents, speaking often about the potential for digital assets to upend traditional finance systems.

Netflix and chilling. Wall Street analysts are optimistic that Netflix hit its fourth-quarter subscriber growth targets ahead of Thursday’s after-the-bell earnings report release, the Hollywood Reporter reported. A strong slate of holiday-quarter content and a modest bump from the debut of an ad-supported tier are expected to bring Netflix’s global subscriber count to roughly 228 million, up 4.5 million from the prior quarter. Netflix shares have jumped 41% since tanking in April 2022 on the release of weak subscriber growth figures.

FOOD FOR THOUGHT

Outsourcing to Africa. It’s been nothing but sunshine and rainbows for OpenAI in recent months, but something was bound to rain on the company’s parade. Time reported Wednesday that the Silicon Valley darling outsourced the grim job of weeding out toxic content from the datasets powering its widely hailed chatbot to workers in Kenya who were paid less than $2 per hour. The practice of outsourcing content moderation isn’t necessarily new—social media platforms have done this for years—but some advocacy groups have criticized tech firms for providing minimal pay and support to workers trolling through racist, sexist, and other deplorable material. For OpenAI, contractors in Kenya sifted through texts detailing murder, suicide, and child sexual abuse, among other objectionable content.

From the article:

To build that safety system, OpenAI took a leaf out of the playbook of social media companies like Facebook, who had already shown it was possible to build AIs that could detect toxic language like hate speech to help remove it from their platforms. 

The premise was simple: feed an AI with labeled examples of violence, hate speech, and sexual abuse, and that tool could learn to detect those forms of toxicity in the wild. That detector would be built into ChatGPT to check whether it was echoing the toxicity of its training data, and filter it out before it ever reached the user. It could also help scrub toxic text from the training datasets of future AI models.

IN CASE YOU MISSED IT

The latest victim of Amazon’s cost-cutting spree is the company’s charity donations program, by Chris Morris

Palantir’s CEO has a simple message for Silicon Valley workers uneasy with military contracts: ‘Don’t work here’, by Nicholas Gordon

Genesis may file for bankruptcy this week as trading firm struggles to raise new funds, by Marco Quiroz-Gutierrez

A business owner had ChatGPT apply for a job at his company. The bot ended up in the top 20% of candidates, by Tristan Bove

Police raided a gym after Apple’s Siri misheard a personal trainer’s words, by Christiaan Hetzner

Musk’s new Twitter verification system has put ‘rocket boosters’ on climate change lies and disinformation, by David Klepper and the Associated Press

Is America overreacting to TikTok with all of its new bans at high schools and colleges? Probably not, by Nir Kshetri and the Conversation

BEFORE YOU GO

AR is a buyer’s best friend. Shopping at Cartier is getting even more luxurious. Wired reported Thursday that the high-end jeweler is piloting augmented reality technology that aims to “convincingly simulate” a ring sitting on customers’ hands. The program, dubbed the “Looking Glass,” is available at a few stores across the world and features 13 rings ranging in actual value from roughly $3,000 to $200,000. Unlike some other retailers’ augmented reality offerings available on phones, Cartier’s version is in-person only. Wired writer Boone Ashworth, who tested out the technology, said Looking Glass produced a “super-sharp 4K resolution, with barely any perceptible lag between my movements and the hand on the screen.” Cartier is still deciding whether to roll out the technology across more stores.

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