It’s no secret that the end-game for ride-hailing firms like Uber, Lyft and Didi Chuxing is to replace tens of thousands of human drivers with autonomous vehicles. In the past year, Uber has launched its own autonomous vehicle development program, Lyft has partnered with GM and Didi received a $1 billion investment from Apple AAPL +0.24%. In the wake of this week’s Ford autonomous vehicle announcement, Volvo has now stepped up and announced that it will partner with Uber to develop and produce autonomous vehicles.
The Silicon Valley upstart and Swedish-based automaker will put in a combined $300 million for the development program that is expected to have prototype cars on the road by the end of 2016. Volvo will use the Scalable Product Architecture (SPA) platform as the basis for the new vehicles. The SPA platform already underpins the brand’s latest XC90 SUV and S90 sedan and will be used for additional models going forward.
Uber established its autonomous development center in Pittsburgh, Penn. in 2015, virtually next door to the Carnegie Mellon University lab that has been working on this technology for many years. Many of the chief researchers from the CMU lab subsequently moved over to work with Uber on its project and prototypes based on the Ford Fusion have been spotted driving around Pittsburgh.
While engineers from the two companies will collaborate on development of the autonomous systems, Volvo will ultimately be responsible for producing the vehicles in its factory. Uber will purchase the vehicles from Volvo to use in its fleet.
The shift to autonomous vehicles marks a major change for companies like Uber and Lyft. Until now, these companies have had no substantial capital investment beyond the servers that run their hailing software. Uber in particular has been adamant in multiple lawsuits that drivers are not even employees, but independent contractors and all that Uber does is provide the platform that connects drivers and passengers. The vehicles used until now have been owned by drivers that are responsible for their purchase, maintenance, insurance and fuel.
However, investing what will ultimately be billions of dollars in actual vehicles will enable Uber and its competitors to take more control. An important part of the ride-hailing model revolves around supply and demand management. When demand for rides is outstripping the supply of drivers on the road, premium pricing goes into effect in the hopes of enticing more drivers to hit the road. However, this doesn’t always work, leaving passengers frustrated as they wait and angry at paying higher prices.
Uber and its competitors have also had to pay out huge sums to entice drivers to get started and get themselves established in new markets. This has resulted in enormous losses for all ride-hailing companies. The presumption is that once the investment has been made in autonomous vehicles, the companies will be be able to deploy them at will without having to rely on drivers that might not want to go out, especially during peak periods.