Mobility Market - Shifting Gears

The rise of robotaxis signals a transformative shift in the structure of the rideshare market.

Robotaxi services are poised to reshape the rideshare industry, raising important questions about the future of market leaders like Uber. The crux of this transformation lies in the shift of the industry's competitive moat and primary source of industry profitability from two-sided marketplaces that connect drivers and riders to the technology enablers that develop and control autonomous vehicle systems.

As autonomous transportation advances, the gradual displacement of personal vehicle ownership presents both opportunities and risks for companies like Uber and Lyft. The future market structure will hinge on two key factors: the number of companies that overcome the immense challenges of developing a fully autonomous vehicle system and whether the resulting supply of robotaxi services is a concentrated or fragmented market structure.

While autonomous transportation promises to be the ultimate AI “killer app,” it remains an extraordinarily complex open-domain problem, characterized by an infinite long tail of difficulties and countless unknown scenarios. While many assume numerous companies will successfully develop autonomous vehicles, the current trajectory suggests otherwise. The significant technological gap between a well-performing advanced driver-assistance system and a truly unsupervised, driverless system is frequently underestimated.

This suggests that only a limited number of players are likely to succeed in developing a truly unsupervised, driverless system in the near term. As a result, the robotaxi market will likely feature a more concentrated supply structure, granting greater economic leverage to technology enablers and shifting the industry's profit pool in their favor.

In the foreseeable future, the U.S. robotaxi market appears to be evolving toward an industry dominated by three or four key technology enablers, with Waymo and Tesla leading the way. High technological and capital barriers to entry will likely hinder the emergence of most new competitors. The scaling back of operations and the exits of companies like Cruise, Motional, and Argo from the autonomous vehicle race further highlight the significant challenges involved in developing a viable autonomous vehicle system capable of supporting a scalable robotaxi service.

A more concentrated robotaxi market structure presents a significant challenge for Uber, as leading operators like Waymo can offer direct-to-consumer services, effectively bypassing third-party platforms like Uber. Waymo's operations in San Francisco exemplify this trend, allowing riders to book rides directly through the Waymo app.

With a service that surpasses Uber’s in many ways, Waymo sets a new, higher standard for user experience. For now, robotaxi services are likely to remain supply-constrained, reducing the utility of third-party marketplaces. Over time, this indicates that an increasing share of total rideshare services could migrate to apps operated directly by robotaxi providers.

Waymo’s partnership with Uber in Austin and Atlanta serves as a way to accelerate Waymo’s go-to-market strategy while outsourcing fleet management to a third party. The specific financial terms of the arrangement have not been disclosed. While this collaboration makes Uber relevant in the robotaxi space, the exclusive use of Uber’s app in these cities may function more as a form of compensation to Uber than a necessity for Waymo to be on its platform. Additionally, this is not an exclusive nationwide relationship, as Waymo has partnered with Moove for fleet management in Phoenix and Miami, demonstrating its strategy of working with multiple partners to support its operations across different markets.

In the long term, if a larger number of companies succeed in developing viable autonomous vehicle systems, the robotaxi market would become more competitive, with numerous players entering the space. Such a fragmented market structure would favor Uber and Lyft, as the high fixed costs of operating a robotaxi network would incentivize service providers to seek customers both directly and through two-sided marketplaces like Uber. This dynamic could significantly expand the addressable market for Uber and Lyft. However, while this scenario remains a plausible long-term outcome, Uber’s stock is likely to face ongoing narrative headwinds as investors continue to evaluate the competitive shifts brought on by the rise of robotaxis.

Internationally, the structure of the robotaxi market may vary. In countries like China, national security concerns are likely to limit robotaxi operations to domestic players, creating a fragmented landscape on a regional basis.

Uber’s Stock - The Debate Continues

In my post Uber - Stuck in Traffic, the underlying premise was not a prediction of Uber’s imminent demise. The company’s platform maintains a significant moat in the driver-based rideshare market and generates strong free cash flow.

Instead, the note highlighted that well-owned stocks undergoing a reassessment of their longer term growth trajectory are at risk of a contraction in their implied terminal value. This dynamic is illustrated by the evolving narrative surrounding the competitive impact of robotaxi services, particularly Waymo’s accelerated rollout into new cities and the threat it poses to Uber’s market share in regions like San Francisco, where Waymo is already operational. This persistent concern means that even slight disappointments in forecasted bookings weigh heavily on sentiment, as investors remain cautious about a potential slowdown in the growth of core mobility bookings.

Despite objectively strong recent earnings results, Uber missed booking guidance expectations by nearly 2%, triggering a 7.5% drop in its share price on the day of the earnings release. During the earnings call, analysts were heavily focused on the competitive threat posed by robotaxis, with four out of six questions centering on autonomy and robotaxi services. This share price reaction underscores investor concerns about the disruptive potential of robotaxis and their impact on Uber’s future market position.

Recent Events

Since publishing my post on Uber, three developments have influenced Uber’s share price, with both positive and negative effects.

Lyft’s Robotaxi Partnership Underscores the Shift in Economic Leverage

Most recently in a post on X, Lyft CEO David Risher announced that Lyft will launch a robotaxi service on its platform, featuring driverless vehicles powered by Mobileye’s technology and owned by Japanese auto and fleet financing company Marubeni. The service is expected to debut in Dallas as early as 2026. This announcement follows a partnership between Lyft and Mobileye announced last November.

Beyond Tesla and Waymo, Mobileye’s autonomous vehicle development program is arguably the only initiative outside of China that is both well-advanced and clearly positioned to become one of the select few autonomous vehicle technology vendors and a leading third-party supplier of autonomous vehicle systems.

While Mobileye’s partnership with Lyft could help reduce the future concentration of supply in the robotaxi market, it also underscores the shift in economic leverage introduced by autonomous services. In Uber and Lyft’s traditional rideshare marketplaces, value accrues from the platforms’ ability to efficiently match demand with a highly fragmented supply base. Individual Uber and Lyft drivers, operating as independent contractors, hold little economic leverage.

In contrast, the robotaxi market is fundamentally different. The few companies capable of solving the complex technological challenges of autonomy are positioned to accrue above-average economic rent due to the significant technology barriers to entry. Additionally, capital providers play a crucial role in overcoming the second major barrier to entry—the substantial investment required to deploy autonomous fleets. These two barriers will result in a more concentrated supply structure compared to the current driver-based rideshare model.

As a result, the value proposition of Uber and Lyft’s platforms—historically centered on aggregating supply to meet demand—diminishes in this evolving industry landscape. In a market where demand for robotaxi services currently exceeds supply, economic leverage increasingly shifts toward the technology providers and capital investors rather than the marketplace platforms.

Waymo’s Expansion

Waymo announced plans to expand testing to 10 additional cities in 2025, further cementing its leadership in autonomous mobility. Additionally, Waymo has begun testing autonomous vehicles on Los Angeles freeways, signaling its ability to handle complex and high-speed environments—a critical milestone in its pursuit of operational scalability.

Pershing Square’s Investment

Uber’s stock rallied following news of a notable investment by Pershing Square. High-profile investors like Bill Ackman can generate a temporary boost in a stock’s performance, but this initial impact is likely to wane. The underlying concerns about the long-term competitive risks posed by robotaxis predate this investment and remain unresolved.

It's true that Uber currently operates a strong franchise, but companies in industries undergoing technological disruption often experience a compression of their terminal valuation multiples, reflecting the market's anticipation of potential risks to longer-term fundamentals. This is the case with Uber.

Robotaxi Pricing and Market Share

The future proliferation of robotaxi services is likely to exert downward pressure on rideshare pricing. Positive price elasticity—the potential for lower prices to stimulate greater demand—will be essential for driving long-term growth in autonomous mobility. As the cost per mile of travel decreases, a critical factor will be whether increased ride volumes can sufficiently offset the impact of reduced pricing. This dynamic could present a challenge for Uber’s financial outlook if pricing declines faster than volumes grow, creating pressure on revenue and profitability.

However, in the early stages of Waymo’s robotaxi deployment in new cities, the service is likely to remain supply-constrained. As a result, it will likely price its rides at levels comparable to or higher than Uber and Lyft. In the initial absence of price elasticity to stimulate rideshare volume growth, this pricing strategy—combined with the novelty of a driverless ride—will likely drive a shift in market share at the expense of Uber and Lyft, as riders increasingly opt for robotaxi services.

Such developments will reinforce market concerns that Uber and Lyft could emerge as net market share losers in an autonomous future, further complicating the narrative surrounding their long-term growth potential.

Two Potential Market Structure Scenarios

The future of Uber and Lyft’s mobility businesses will ultimately depend on the structure of the emerging robotaxi industry. Two potential scenarios could unfold.

In one scenario, the market evolves into an oligopoly, with a few dominant players controlling the space due to the immense technological and capital barriers to entry. Developing fully autonomous vertical systems presents significant challenges, as highlighted in my note The Ultimate Killer App. Even Tesla, one of the two industry leaders, pursuit of developing an end-to-end neural network system still faces inherent technical hurdles in achieving full autonomy.

Uber’s success to date has been built on a market structure characterized by highly fragmented supply, which enhances the value of its marketplace and provides significant economic leverage. However, in a robotaxi market dominated by a small number of tech players, and a relatively more concentrated supply of services, the utility of third-party platforms like Uber’s marketplace would be significantly diminished.

Following the initial launch of services in select cities, Tesla and Waymo are both likely to pursue a dual strategy: licensing their software and systems while also operating their own services. Tesla’s long-term strategy is to primarily provide unsupervised Full Self-Driving (FSD) technology to third parties, including individual users, fleet operators, and auto OEMs. Similarly, Waymo may in the future license its Waymo Driver system to third parties, expanding its reach beyond direct operations.

If autonomous technology were widely licensed, it could foster a more competitive market structure, potentially favoring Uber’s third-party marketplace. However, it’s more plausible that companies like Tesla and Waymo would structure licensing agreements to require that robotaxi services operate primarily on their own respective marketplaces. This strategy would allow them to generate dual revenue streams while maintaining a market structure that maximizes their profitability. Without such exclusivity, these companies risk creating a competitive "free-for-all" that could undermine the economics of all robotaxi operators, jeopardizing both their financial health and the ability of licensees to sustain payments.

As long as the robotaxi market remains supply-constrained, there will be limited utility or need for third-party rideshare marketplaces. Over time, whether the industry builds to average load capacity or peak capacity will determine if it evolves into a market with significant excess supply. While this scenario lies far in the future, such excess capacity might eventually create opportunities for third-party platforms, albeit with a diminished role compared to their prominence in the driver-based rideshare market.

The second scenario envisions a more fragmented market, enabled by the proliferation of multiple autonomous technology providers. In this scenario, a greater number of robotaxi operators in each city would lead to increased reliance on partnerships with third-party marketplaces. This structure would favor Uber and Lyft, expanding their addressable market to a scale potentially many times larger than the current rideshare industry.

Key players driving this fragmented market scenario include Nvidia, which acts as a technology enabler, and Mobileye, which is positioned as a potential third-party supplier of autonomous systems. Mobileye is expected to partner with fleet operators as well as empower individuals with Mobileye-enabled autonomous vehicles, enabling them to deploy these vehicles on third-party platforms like the recently announced partnership with Lyft and Marubeni.

Uber's Take on the Robotaxi Threat

Uber CEO Dara Khosrowshahi has consistently highlighted Uber’s long-term opportunities in the robotaxi space, emphasizing multiple partnerships with players in the autonomous ecosystem. However, among these collaborations, only Waymo appears to be a clear front-runner. Khosrowshahi has also stressed that it will take time for robotaxi services to become a meaningful portion of the rideshare market, citing the complexity and number of factors required for scaling this business. While this perspective has merit, each time Waymo, or Tesla in the future, enters a new city and captures even a mid-to-high single-digit market share, it reinforces the narrative of increasing robotaxi competition for Uber.

Conclusion

While the long-term robotaxi market could evolve into one of greater market fragmentation with numerous players, the near-term outlook is shaping up to favor a more concentrated market. While Uber’s partnerships with Waymo in Austin and Atlanta keep the company relevant in the robotaxi space, they seem to reflect more Waymo’s need for fleet and logistics support than a necessity to utilize Uber’s marketplace value. This dynamic is underscored by Waymo’s supply-constrained operations in San Francisco, where consumers book rides directly through its app.

The imminent launch of Waymo's service in Austin may offer a temporary reprieve for Uber by alleviating some immediate competitive concerns. However, the overhang from Waymo's consistent execution and Tesla's potential expansion into additional cities after its initial Austin launch will soon reemerge as a headwind for Uber's narrative. Even if Tesla’s timeline for scaling its robotaxi service slips, Waymo's steady entry into new markets will continue to challenge Uber's positioning.

In the years ahead, Uber's trajectory will remain closely tied to the evolving structure of the autonomous mobility industry. Most likely only a shift toward a more fragmented and competitive robotaxi market structure would provide what Uber needs to solidify its leadership position in the future of transportation.