Uber is in reportedly in negotiations to sell of minority stakes in its Advanced Technologies Group unit, which is developing self-driving cars technology, ahead of its impending IPO. While the unit is considered key to Uber’s long term prospects, in the short term it is capital intensive, with research, development and testing burning through significant sums of cash. It is estimated to have cost Uber around $1 billion to date.
Uber is said to be negotiating the sale of minority stakes in the unit with existing investors Soft Bank’s Vision Fund and Toyota, as well as Denso, the auto parts maker which also hails from Japan. A unit valuation of $7.25 billion is said to be being targeted, against a cash raise of $1 billion. That would infer a total minority stake of around 13.8% being sold to the three potential investors.
If the deal goes ahead, which it still might not with negotiations ongoing, it would be expected to help boost the attraction of the full Uber IPO, the investor roadshow for which is expected to kick off within the next week. The company has told existing investors it expects the IPO to value it at between $90 billion and $100 billion.
Setting and achieving a concrete $7 billion plus valuation for the Advanced Technologies Group unit would help Uber justify an ambitious $100 billion overall market capitalisation. Separating out and funding the unit independently from the core ride-hailing business will also help improve Uber’s near term cash flow, at least on paper. It will provide a cleaner accounting distinction between the revenue earning part of operations and R&D investment focused on longer term returns.
The self-driving economy is forecast to be hugely valuable, with predictions ranging between a little under $1 trillion and $3 trillion by 2030, rising to as much as $8 trillion by 2050 between transport-as-a-service taxi fleets and logistics. Uber’s Advanced Technologies Group has been one of the new sectors leaders but has fallen behind competitors such as Alphabet’s Waymo.
Testing was paused for several months last year following a fatal accident involving a self-driving Uber test car. Subsequent investigations exonerated the self-driving technology from blame but the time lost while that process was carried out, as well as the PR fallout, was a blow to Uber. However, while it may not be the first to market with a commercially available autonomous system, Waymo is already beta testing a driverless taxi service in Arizona, Uber is still expected to be a leader in the sector. The combination with its market leading position in the ride-hailing app business offers a strong competitive advantage.