Lyft Bails on Robot Cars, Following in Uber’s Footsteps

In a move reminiscent of Uber’s (NYSE: UBER) decision to sell its autonomous driving division in December, Lyft (NASDAQ: LYFT) is following suit in ditching its own unit, known as Level 5, that had been working to develop autonomous vehicles (AVs).

Lyft is selling Level 5 to a subsidiary of Toyota Motor (NYSE: TM), Woven Planet.

Here’s what ride-sharing investors need to know.

Bailing on robot cars for $550 million

Toyota has agreed to pay $550 million in cash for Level 5, which will consist of an upfront payment of $200 million and then the remaining $350 million spread out over the next five years. The Level 5 team will join Woven Planet, Toyota’s subsidiary focused on developed autonomous driving technology.

Lyft expects the deal to reduce $100 million in adjusted operating expenses, which will help it achieve profitability on an adjusted EBITDA basis in the third quarter — slightly earlier than previously expected. Late last year, the company reaffirmed its goal of achieving adjusted EBITDA profitability in the fourth quarter of 2021, a timeline it had initially laid out in late 2019.

As part of the deal, Lyft and Woven Planet have also entered into a multi-year non-exclusive commercial agreement to accelerate the development of self-driving cars while bolstering safety. This agreement could potentially generate revenue for Lyft in the future.

Lyft had a sudden change of heart on autonomous vehicles

The move is an about-face for Lyft. Just days after Uber had said it would sell its Advanced Technology Group (ATG) to Aurora Innovation, the self-driving car startup founded by former Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Tesla (NASDAQ: TSLA) execs, Lyft had proclaimed that it would deploy self-driving vehicles across numerous cities in the U.S. starting in 2023. That was less than six months ago.

Lyft created Level 5 in 2017 with the bold target of transitioning the “majority” of Lyft rides to a fully autonomous fleet of cars within five years. At the time, Lyft co-founder John Zimmer even predicted that private car ownership would be nearly eliminated by 2025.

Ride-sharing platforms have long viewed AVs as the key to sustainable profitability. Both Uber and Lyft have grappled with criticisms about how the companies treat and compensate the millions of drivers at the core of their respective platforms, including regulatory battles related to whether drivers should be classified as independent contractors or full-time employees. 

However, developing AVs is no easy task, with countless companies collectively investing billions of dollars over the years in pursuit of a self-driving car. Progress has been slow because of a variety of technical challenges combined with extremely high safety requirements and regulatory scrutiny.

It seems that the sheer level of investment required has proven too daunting for ride-sharing companies, and Uber and Lyft will now leave AV development to other players in the transportation sector.

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Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.

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