Malt Liquidity 42
Will we get a publicly traded Department of Transportation?
Full Self Doubt
It appears another challenger has exited the race:
Lyft Inc. is selling its self-driving division to a unit of Toyota Motor Corp. for $550 million, a move the ride-hailing giant said will help it turn a profit sooner than previously expected.
Certainly there is something to be said about tightening the belt buckle given forward interest rate projections, but it’s a bit concerning at how low the sale price is given how imminently ‘revolutionary’ self-driving technology has been touted to be, especially given the context of Uber’s sale a couple quarters ago:
Uber Technologies Inc. sold its self-driving-car unit to a Silicon Valley competitor, Aurora Innovation Inc., in the latest business exit by the ride-hailing company as it aims to deliver on a promise to shareholders to become profitable.
The two companies on Monday said that as part of the deal for the self-driving-car unit, known as Advanced Technologies Group, or ATG, Uber will make a $400 million cash investment in Aurora. Uber said it would hold a roughly 26% stake in Aurora on completion of the deal. Uber Chief Executive Dara Khosrowshahi also is joining the company’s board of directors.
Uber didn’t even get to cash out - rather, they outsourced their holdings.
What’s particularly troubling about Lyft’s sale is that they’re not Google, which has umpteen billions of money to waste on moonshot far-OTM calls in the form of futuristic products. Robotaxis and self-driving have been and still are a completely speculative opportunity with no real way to project an accurate timeline of when the tech itself, let alone the necessary revamping of insurance legislature, will enable a reasonable estimate of future cash flows. While Lyft and Uber claim to be focusing on short term profitability, this move essentially involves selling off an asset at fire-sale prices compared to what was probably invested into self driving by both of these firms. Combining this with Apple’s reluctance to officially announce the car that everyone knows they’ve been working on makes me wonder exactly how ludicrous mode the mania around self-driving is.
While inflated equity valuations allow cheap issuance of debt and fundraising through stock sales, the struggle to show profitability in the cheapest money era lends credence to the thesis that, when the dust settles, Uber (and perhaps Lyft) will essentially become quasi-governmental contractors. Though the pandemic obviously created atypical circumstances, the continued existence of emergency restrictions against surge pricing has led to serious shortages in the supply of drivers:
State data shows the number of active ride-hailing drivers across Nevada is less than half of what it was a year ago. As of March 30, there were 13,723 active ride-hailing drivers across the state, compared with the 36,482 reported by the state on March 13, 2020.
February’s number shows little changed month to month, as there were 13,759 active transportation network drivers reported by the state, with 7,751 Uber drivers and 6,068 Lyft operators. That is a 62 percent decline compared with February 2020’s active-driver total of 36,608.
Uber’s corporate history is filled with creative ways around regulation, but, as it became a standard part of the system, it will naturally get swallowed whole by bureaucracy. Already, there is pushback abroad against the contractor model Uber uses to reduce its employee cost significantly - to defeat similar legislation in the state where Uber itself was founded, they essentially had to pull out the nuclear option of threatening to leave California entirely. Given the legislative and fiscal realities looming over Lyft and Uber, their leverage comes in the form of being “too big to fail” given how ride-sharing taped over America’s lack of public transportation infrastructure and how many people use it to supplant income (which incentivizes government subsidization), and, given this “transportation put”, longshot bets with no real timeline are more worth taking.
Risk-taking behavior in general becomes asymmetric when you account for the fact that the government is incentivized to bail you out. While the Greenspan put is infamous, a large chunk of 2008 volatility was due to the fact that nobody really knew what Fed “liquidity provision” through direct QE really consisted of. If the lender of last resort hasn’t shown a precedent, what exactly can markets “price in?” However, if liquidity provision is successfully done, markets can quantify and account for this course of action going forward, thereby creating a feedback loop of continuous “last resort” scenarios where risky behavior is undergone and even incentivized as the Fed’s likelihood to provide liquidity (and preventing the true downside of a higher variance risk profile) is quantified and expected, evidenced by the fact that Powell is a broken record at this point. On a smaller scale, you saw this risk asymmetry present in pre-2008 trading roles: when you are trading the bank’s money, longshot risk-taking is incentivized. If you hit it big, you get a massive bonus, whereas if you blow up, you get fired (and might even win a wrongful termination suit!) and move to another firm. If Uber and Lyft continue to give up on these moonshots going forward, it’s almost a canary in the coal mine showing that the stock is unlikely to survive independent of the government in the long run.
On that note…