One of the largest opportunities in robotics today is autonomous vehicles – large robots that ply our roads carrying people, food, and freight. Rapid adoption will soon be driven by cost savings and safety. Autonomous taxis will cost consumers roughly half of the all-in cost car owners pay to drive today while reducing accident rates by 80%.
So sayeth ARK Invest who also believes autonomous taxi networks could have a market cap of roughly $4 trillion over the next five years. Even if the opportunity were a fraction of this number, investing in vehicle autonomy makes sense intuitively. One company that could realize tremendous benefits if drivers are replaced by algorithms is Uber $UBER
Uber’s Value Proposition
Creating an efficient taxi service in every country across this globe is an obvious need. The bane of every traveler is the taxi driver who never – EVER – carries change. Broken meters, the foreigner tax, taking “the scenic route,” and turbo buttons are all regular occurrences in taxis. Oftentimes, emerging market taxi collectives are run by organized criminals who also prop up costs through collusion. Then along comes Uber with an efficient and (mostly) honest transportation platform that hasn’t stopped growing except for the short-lived global pandemic that struck back in 2020.
The appeal of ride sharing services is obvious, but it’s not a very lucrative business. Margins on delivering humans, goods, and freight are generally weak because you need to pay human drivers. Various sources show Uber taking anywhere from 25 to 40 percent of a fare with the driver getting the remainder. But that doesn’t mean 60 to 75% goes to the driver’s pocket. From their profits, drivers are responsible for providing the vehicle and funding fuel, maintenance, and repairs. Nonetheless, autonomy means Uber no longer needs to pay a driver which implies significantly more profits in the major jurisdictions they operate in – like the United States where autonomy is rapidly being adopted.
Nearly two years we posed the question – Is Autonomy a Threat or an Opportunity for Uber? On one hand, autonomous vehicle operators can steal market share from Uber while offering cheaper rides. On the other hand, any autonomous vehicle provider looking for instant ride flow just needs to add their vehicles as an option on Uber’s app. And that’s exactly what’s happening.
Autonomous vehicle providers can scale almost immediately using Uber which is why you can now hail a Waymo autonomous car using Uber’s app. While Waymo has their own app, it’s predominantly used in a handful of markets they first debuted in. They’ve now embarked on a strategic partnership which shows Uber handling “fleet management services including vehicle cleaning, repair, and other general depot operations” while Waymo handles “roadside assistance and certain rider support functions.” Waymo is “fully transitioning to the Uber app.”
Uber has been announcing autonomous driving deals left and right as they try to appear relevant in the self-driving race, but it’s important to understand the actual impact of these partnerships. What sort of margin improvements will Uber expect to see from operating a fleet of robotaxis that someone else owns given they’re responsible for fleet management costs? Baidu also has a strategic partnership with Uber to deploy thousands of Baidu’s “Apollo Go” autonomous vehicles (AVs) on Uber’s platform outside the USA and mainland China, presumably under this same model.
Under these strategic partnerships, AV operators deploy vehicles in cities where Uber already operates which implies a cannibalization of human-driven rides. What’s actually happening – if Uber and Lyft $LYFT are to be believed – is that overall ride sharing demand increases when autonomous vehicles enter an existing market. The reasoning is that some people would not engage in ride sharing with humans but feel more comfortable with autonomous rides. They’re also willing to pay a premium because, so far, Waymos have been priced more expensively than traditional Ubers. Eventually, we’d expect to see Waymos being offered at price points well below human drivers which should be expected to erode human driver market share.
While Uber has a faucet of rides that can be turned on for any self-driving company, Tesla is not taking them up on the offer.
Tesla’s Exposure to Autonomy
Tesla believes they can cut out the middleman – Uber’s vast transport network – and operate their own Cybercab operation which they describe as “a cross between Uber and Airbnb.” Any Tesla owner could “allow” their Tesla car – or even purpose-built Cybercab – to ply the streets carrying customers for income.
So far that’s been little more than hopium for Tesla investors. Measuring progress in any technology always comes down to one important metric. Revenue growth shows us adoption progress and proves how economically viable a solution can be. While Tesla’s cybercab revenues may not be here yet, they’re currently realizing revenue from selling their own self-driving software which largely falls under a revenue segment labeled “Services and Other.” Below you can see that plotted alongside Tesla’s total revenues which have seemingly flatlined.
Tesla is currently using normal vehicles equipped with full self-driving (FSD) for their robotaxi offering, though plans are to build loads of Cybercabs which are purpose-built for autonomy – no steering wheels or pedals. Previous talk about robotic fleet management stations generated some excitement but progressing autonomy is probably less of a priority for now as Musk turns his focus to the SpaceX IPO, something that might be quite relevant to Tesla’s future. The reality is that Tesla has about 40 autonomous vehicles on the road in Texas.
The above chart also shows other companies trying to get a piece of the driverless opportunity pie. While Tesla slowly introduces Texans to autonomy, the leader in autonomous ride-hailing is already ten steps ahead of them, offering 500,000 rides per week across the USA with plans to double that by the end of the year.
The Leader in Autonomous Driving
The most visible leader in autonomous driving today is an independent subsidiary of Alphabet $GOOG called Waymo, currently valued at $126 billion. They’re operating in 11 major U.S. cities now and have established brand visibility and volume through their partnership with Uber. Expanding revenues can happen as quickly as they can produce vehicles, provided Uber can provide fleet management infrastructure at the same release cadence. While today’s volume sounds like a lot – 500,000 rides a week – it’s not. Even at Waymo’s “million rides per year” target for 2026, Uber still completes more rides in a single morning than Waymo does over an entire year.
Investors might think they can get exposure to autonomous driving through adding shares of Alphabet, but they’re falling for the “invest in everything with Google” fallacy. Even if Waymo captured Uber’s entire global mobility segment – about $29 billion in revenues – that would still only constitute about 7% of the $402 billion in total revenues Alphabet realized for 2025. You’re not getting much exposure to Waymo by investing in GOOG, and you likely won’t for a very, very long time even under the absolute best-case scenario. Perhaps Alphabet will spin that division off in the future to “unlock value” when robotics has its day in the hot, hype sun.
Waymo may enjoy first mover advantage, but they’re unlikely to be alone at the top for long. The autonomy thesis is still in an emergent state, and it’s too early to start identifying winners. For now, there don’t appear to be many ways for retail investors to get exposure to autonomy aside from Tesla, Uber, and a bunch of driverless trucking SPACs that still aren’t realizing meaningful revenues.
Liking Tesla and Uber
Both Tesla and Uber are listed in “likes” in our catalog for that single reason – because they could provide a lot of exposure to the benefits of autonomy if they can successfully execute on their plans. After today’s analysis, will these classifications change?
Uber – A Focus on Growth and Profitability
Uber has clearly stated they plan to invest heavily in autonomy and capitalize on the opportunity. It’s only a matter of time, they say. While we wait for the autonomy benefits to hit their bottom line (or not), Uber offers good revenue growth (especially considering they’re working off a $50 billion base) at a reasonable valuation. With a simple valuation ratio (SVR) under three, Uber sits at less than half our catalog average of 6.5.
The market clearly doesn’t believe Uber stands to gain much from deploying other people’s autonomous vehicles. Perhaps a few more years are needed for Uber’s autonomous aspirations to become a reality, and then we’ll see “muh rerate.” Despite what management says, autonomy seems like it will cannibalize existing market share rather than grow it. This raises two very important independent questions.
- Can Uber continue to increase revenues across delivery, mobility, and freight? Is there enough TAM out there to be displaced, or competitors to be bolted on?
- Can Uber utilize autonomous driving technology to meaningfully improve margins across the company while revenue growth persists?
Ideally the answer is yes for both, but what if revenue growth flatlines? Even if Uber can successfully strengthen their margins over time using autonomy, then what? Start developing a superapp like Grab $GRAB?
For now, if Uber keeps growing we’ll keep them on as a “like.” They’re generating strong cash flows ($10 billion in 2025) and they plan to put those to work “across a multitude of opportunities, including positioning Uber to win in an AV future.” As long as they’re growing, that gives them time to get the autonomy piece right.
Tesla’s Questionable Future
While we’ve concluded that the SpaceX IPO is hyped beyond anything we would consider, the event may affect Tesla’s future. A piece by CNBC cites various sources who believe a merger between SpaceX and Tesla is imminent because of several key reasons:
- There are many obvious synergies between the companies that already supply one another with goods per the SpaceX IPO filing
- One large company allows Musk better access to cheaper capital than trying to raise funds across two companies
- Musk can easily approve the deal given his controlling ownership, and (wait for it) his performance package is specifically tied to market cap
Musk himself even dropped a hint last November.
While this merger would face intense regulatory scrutiny, it could explain why Tesla shares are trading at steadily increasing premiums (current SVR of 18) despite stalling revenue growth. Again, our reason for liking Tesla is not around the electric vehicle exposure, but on ARK’s thesis which is that autonomy is where the real value for Tesla lies. Their Optimus humanoid ambitions are simply a bonus (if they work out, that is). Were Tesla and SpaceX to merge, we’d then take a holistic look at what exact exposure we’re getting and in what amounts. When we revisit this autonomy thesis in a year, we’ll likely have more color on what Musk’s plans are for Tesla’s future. Until then, Tesla stays a “like” in our catalog.
Conclusion
Robotics – the physical manifestation of AI – is arguably “the next big thing.” Two trillion-dollar opportunities in this space are autonomous vehicles and humanoid robots. For autonomy, we’re seeing some leadership emerge from Waymo, but it’s still early days. Betting against Musk is foolish, but his autonomy aspirations seem to always be around the corner. Maybe he’s too busy working on SpaceX, a problem can be solved (at least perceptively) through a merger of these two giant companies. In any case, we’re still liking the opportunities for Uber and Tesla when it comes to autonomy and will check back in a year to see what progress has been made.
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