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FRESH BAKES

Now equal in value, Uber and Daimler exchange jabs about future of motor industry

June 9, 2016

(Photo: YouTube)

New vs Old. Friday Night Drunk vs Desperate Housewives of Upper East Side

We were promised a showdown when it was announced that the CEOs of powerhouse German luxury car maker Daimler AG and ride-sharing firm Uber were to publicly meet on stage at Axel Springer NOAH, a venture capitalist and tech-company conference held in Berlin last Wednesday. On the left corner, embellished with the finest of Italian-silk suits and a sick Kaiser-mustache, the pride of the luxury-vehicle manufacturing industry, is Daimler’s Dieter Zetsche: the man whose flagship brand Mercedes-Benz reminds us every day that we are dirt-poor. On the right corner, representing the innovation, creativity and anti-corporate hoodies of detox-juice-sipping Silicon Valley, is Uber’s Travis Kalanick, the man who, by bringing stranded drunkards worldwide back to the safety of their homes, heads the world’s most valuable private company as of date.

 Daimler and Uber's car of choice, Trabi/Image: ksta.de

 

The two sides stylishly entered the arena by being chauffeured up to stage in a bright yellow Trabi, a vintage four-door sedan that was once the most popular vehicle in former East Germany. Much to our disappointment, the two industrial rivals weren’t necessarily going guns blazing nor were they flicking each other off and cussing out each other’s mothers. According to Reuters, the two CEOs sought to find common ground, while taking “good-natured jabs” at one another as inevitable competitors. 

 

Zetsche described Uber and Kalanick as a “frenemy”, and joked how in Germany the term was called marriage(at least it made his obsequious cronies roll on the floor). Zetsche also denied conjectures that Daimler was considering taking a stake in Uber by pointing out that they "only make strategic investments" it controls. Kalanick instantly shot back in a 'you can’t handle the truth' manner by saying that he too is uninterested in Daimler taking a “dominant” position in Uber. Throughout the conference, both sides ducked questions about whether the two companies will work together in the future.

 Dieter Zetsche and Travis Kalanick, moments before their showdown on Wednesday/Image: Bloomberg

 

Things got a little more heated when Zetsche asked Kalanick how to justify Uber’s lofty $62.5 billion valuation despite never having produced profit during its entire seven-year run. Kalanick responded by saying that though Uber is profitable in 200 cities it operates in, within developing markets such as China, “we are massively unprofitable.” But things were relatively civil for the most part, with Kalanick refusing to give in to entrepreneurial hubris, remarking that “cars are not going away soon and companies like Uber are not going to be making them”. Zetsche returned the favor by lauding Uber and the ride-sharing phenom while referencing the fall of Nokia(creators of the industrial pulverizer, the 3310) to express their desire “to be at the forefront…to create this change, rather than being changed.”

 

Why did we anticipate a clash between the two? Well the companies represent two very different sides of the same coin. The rise of Uber’s car-sharing platform is widely regarded as a game-changer in the formerly stagnant(given its low approachability - who can just "start" a car factory without inheriting one?) business structure of the motor industry. With an exponential growth of users relying on Uber to hitch a ride rather than to own a ride, the pressure is on car manufacturers to transform itself “from an automaker into a mobility provider”.

 Uber's soaring valuation, Dec. 2015/Image: Fobes

 

Every time Uber and other ride-sharing apps draw in monstrous amounts of funding($9 billion to date) despite the fact that 2016 is turning out to be a relatively frugal investment year for everyone else, car manufacturers are forced to face the reality that on the long term, a 'vehicle-per-head' is no longer a viable formula. As Uber threatens the long-term demands for new cars, Daimler has responded by investing in car-sharing and connected car businesses that potentially compete with Uber.

 

The rivalry is further fueled by the fact that Uber, with a valuation of $62.5 billion, is near equivalent to the market capitalization of Daimler’s $72.7 billion. Uber has surpassed BMW, GM and Honda in terms of market value and are closely trailing behind the likes of Daimler and Ford. Might I remind you that Uber was founded seven years-ago, owns not a single car nor driver and has never produced a profit. Nonetheless, with this month’s announcement of a $3.5 billion investment by a Saudi Arabian sovereign wealth fund(like I said countless times before, oil-rich is the best-rich) and a partnership deal with the world’s most valuable car maker, Toyota, which also included an investment stake for an undisclosed amount, Uber’s financial street-cred continues to soar.

 How'd Uber get so Uber-big? Uber-magic!Image: Reuters

 

Based on a March report by Germany’s Manager Magazin, Uber had apparently ordered 100,000 Mercedes S-Class cars from Daimler in an attempt to advance its interests in autonomous driving vehicles, a move that will cut out its most expensive cost, driver commissions, by 2020. We've heard reports that Daimler’s Mercedes-Benz, BMW and Audi, are also working on technologies for autonomous cars in an attempt to diversify their business and counteract some of Uber’s successes. Thus a report that Daimler may enjoy a 100% boost to its yearly S-Class limousine sales thanks to the new kid-on-the-block's “test project” on a technology that they too are trying(and utterly failing) to materialize, would naturally be a scratch on the German automakers’ centuries old reputation for industrial dominance.

 

 

The clarification of this deal was one of the reasons behind our anticipation for a heated exchange between Zetsche and Kalanick. Sadly, our hopes of receiving self-driving, rapper-status limos at the shake of our Uber app went out the door as both sides waved off the existence of such a deal ever transpiring. Kalanick denied all the rumors, saying: "I have not signed a $10 billion cheque to buy 100,000 S-Classes". The highly anticipated meeting between the CEOs of Uber and Kalanick closely resembled the ‘Fight of the Century’ between Mayweather and Pacquiao. A horribly anti-climactic showdown that featured two powerhouse sides nipping at each other’s heels, ultimately ending with no sense of closure.

 Call the S-Class Uber, sir?/Image: timeout.com.hk

 

We are living in the rise of IoT tech and wired interactivity and have thus had the privilege to witness how such changes are in turn reshaping the fabric of what seemed like timeless practices of companies. Though demographics, rate of change and range of services seem to be rapidly changing, the specific mannerisms involved with how business is conducted are yet to change. It’s all in the charts and valuations for the big guys, and to the rest of us, we shall continue to hail away on Uber, provided the surge charges stay soundly low.  

 

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