Uber Technologies Inc. (UBER) has been talking about flying cars since 2017, when it claimed it would bring a working air taxi to market by the end of 2020. While that timeline quickly proved to be more aspirational than viable, the company's Uber Elevate unit has made some visible progress. In January 2019, Uber unveiled a prototype electric vertical takeoff and landing (eVTOL) aircraft, which it planned to begin testing in 2020, with Uber Air service scheduled to open for business in 2023.
While Uber has repeatedly billed its eVTOL aircraft as the future of urban transportation, development challenges and financial pressures from its core ridesharing business have forced the company to rethink its priorities, which may include selling the entire Uber Elevate unit.
All things considered, such a sale may prove to be a good strategic move for the money-losing ridesharing business.
Finding a buyer fast
On Oct. 16, Axios reporter Dan Primack reported that Uber had begun the process of looking for a buyer for its air taxi division. According to Primack, this was a product of the company's ongoing internal strategic realignment efforts:
"This reflects Uber CEO Dara Khosrowshahi's obsession with achieving profitability, as evidenced by partial sales of Uber's money-losing freight and self-driving units. A company spokesman declined comment."
Uber has consistently struggled to make its ridesharing business profitable. In the third quarter, the company reported a staggering $1.1 billion net loss. With its principal business on the rocks, Uber appears to have determined that its investment of resources into expensive blue sky initiatives is no longer viable.
Primack followed up his initial story on Dec. 2 with a report that Uber was in "advanced talks" with Joby Aviation, an aviation startup with which Uber Elevate has previously partnered. Talks have evidently progressed rapidly, making a sale possible before the end of the year. Thus far, nothing has been confirmed and no insiders have disclosed the price of a potential deal.
Ditching a dubious program
As I discussed in a previous article for GuruFocus, Uber has faced a host of engineering challenges in its effort to develop a viable eVTOL air taxi. Indeed, the challenges have thwarted the best efforts of numerous aerospace engineering firms over the years. Many experts and industry players have even contended that the challenges are too great to be worth tackling in the first place. Others do not believe it is even physically possible.
The idea that Uber, which is essentially a software and logistics company, could build similar capabilities virtually from scratch was always going to be a tall order, but technical feasibility is not even the biggest issue facing flying cars in an urban environment.
The engineering challenge of designing a viable eVTOL air taxi is significant, but it pales beside the bigger concerns around safety. Urban aerial transports run the risk of not only crashing into each other, but also into buildings or humans on the ground. Car crashes happen all too frequently as it is, but they occur on a single vertical plane. Anytime a high-flying aerial taxi gets into trouble, it creates risk of catastrophic failure.
My verdict
In summary, it seems like it would probably a good move on Uber's part to abandon its flying car dream. The sheer scale of the technical, safety, cost and feasibility issues appear to be virtually insurmountable, especially for a cash-bleeding company with no other experience in aircraft design and development.
By selling Uber Elevate, the company could at least recover some of the investment capital it has already sunk into the program. In my assessment, that is as close to a win as Uber could have hoped for.
Disclosure: No positions.
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