There’s an intense battle in the on-demand ride-sharing services. Market leader Uber is battling with Lyft which holds on its turn a strong position in the important Asian market. Car manufacturers seemed to wait on the sidelines or working quietly on their answer on the changing mobility environment. Now, General Motors (GM) takes a more pro-active stance and invests $500 million in Lyft. GM will also get a strong influence in the company due to a seat in Lyft’s Board of Directors for GM President Dan Ammann. The car maker sees the new alliance as a way to implement its vision on the future of personal mobility that is ‘connected, seamless and autonomous (self-driving)’.
The $500 million investment is part of a $1 billion funding round. Other investors are Janus Capital Management, e-commerce company Rakuten Inc. and Saudi Arabian Prince Alwaleed Bin Talal. But there are more famous names invested in the ride-sharing firm. Also Chinese mobility firm Didi Kuaidi, Tencent and Alibaba are on board, with hedge fund mogul Carl Icahn grabbing a stake in an earlier financing round. The current funding round will value Lyft at $5.5 billion, which is still less than one-tenth of Uber. Uber is valued at $64.6 billion in a latest $2.1 financing round. GM is currently valued at $51.5 billion. Fun fact: Lyft was founded in June 2012, Uber in March 2009, three months before the date when now 107-year-old GM filed for Chapter 11 Bankruptcy.
The mobility firms are battling with Alphabet and Apple who also take a shot at autonomous driving. GM thinks now is the time to enter in new ‘transportation experiences’. President John Zimmer of Lyft thinks the alliance offers both companies the opportunity to ‘redefine traditional car ownership’. In a call with the press, GM President Ammann said that in the next five years, the car industry will change more rapidly than the previous fifty years. Ammann noted that it’s no longer possible to stay neutral since a new level of integration and cooperation is required. One of the major changes could be autonomous driving. The Detroit-San Francisco alliance seeks to develop a network of on-demand autonomous vehicles. The network provides new ride-sharing services for Lyft and may use GM cars. Starting from now, GM becomes the preferred provider of short-term use vehicles to Lyft drivers through rental hubs across the United States.
The investment by GM could prove to be a smart move. Up to now, car makers are mostly trying to develop their own practices in autonomous driving. However, ride-sharing firms may have much better knowledge of on-demand driving, which is often a condition for the use of autonomous cars. Car manufactures are still looking at autonomous driving as an option on their cars, although we recently noted that potential Tesla-killer Faraday Future also seeks to offer on-demand driving. Since ride sharing firms have access to extensive data to and have experience of on-demand rides, these firms have a strong advantage compared to car makers. In addition, Lyft holds a strong position in the emerging Asian countries and that offers a nice bonus for GM.
But with current valuations, entering in Lyft, let alone Uber comes at a high price. The question is whether this will create shareholder value in the near term. Although the car industry or mobility sector may face substantial changes, there are still significant hurdles for on-demand mobility and autonomous driving. The latter is confronted with safety and regulatory issues. But the most important question is how to make money from the new mobility experiences. Lyft recorded only $46.7 million in revenues during the first six months of 2015. It reported a loss of $127 million, according to Bloomberg. Nevertheless, the San Francisco-based company claimed in November to have a gross revenue ‘run rate’ of $1 billion due to significant gains in market share.
It is important to realize that GM’s investment is long-term oriented. Uber-founder Travis Kalanick stated that it could take 5-15 years before autonomous cars are meaningfully deployed in any country. It is unlikely that GM will earn substantial income on the alliance with Lyft within the next few years, unless changes in the mobility sector are even more drastically than currently anticipated. Still, the newly formed alliance may indicate that traditional car makers are certainly not quietly waiting to turn into dinosaurs and more aggressive moves could occur in the foreseeable future.