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How Toyota Is Winning Ride Hailing

This explains Toyota's repeated investment in massively unprofitable Uber.

With the Uber and Lyft IPOs coming up next year, there has been a lot of debate about how much these two increasingly ubiquitous but also money-losing companies should be worth. Though hailed as the future of mobility, ride-hailing companies have been unable to make their core operations profitable, subsidizing drivers and rides in hopes of reaching a level of scale where their unit economics start to work out. If success in ride-hailing does prove to come down to scale, Uber is winning right now. But if success involves making money, the company that’s “winning” ride-hailing might just be Toyota.

Any anecdotal exposure to Uber or Lyft suggests that Toyotas, particularly Toyota Hybrids, are some of the most popular choices for ride-hailing drivers. The Rideshare Guy’s 2018 survey of Uber and Lyft drivers confirms it: 22% of drivers say Toyota is their preferred vehicle brand—more than double the rate of the next highest brand (Ford, at 10.5%). At a time when sedan sales have been falling in the US, this strong demand for rideshare vehicles is doubtless helping prop up the sales of vehicles like Camry and Prius that have long been Toyota’s bread and butter.

This helps explain one of the bigger mysteries in the emerging mobility space: what do Toyota and Uber, two companies that couldn’t be more different, see in each other? People have puzzled over Toyota’s repeated investments in Uber, which at one time threatened that it would replace private car ownership. But it turns out that Uber is actually a marketing tool that helps car companies like Toyota sell more sedans than it would otherwise, making Uber’s anti-ownership prediction as off-base as its prediction that it would reduce congestion in cities.

This relationship has been becoming more and more obvious, culminating in the most recent news that Toyota is developing a “Total-care Service” for ride-hailing companies. Launching first in Singapore in partnership with the Asian ride-hailing giant Grab (in which Toyota has also invested a billion dollars), Toyota will equip Grab’s in-house vehicle rental fleet with onboard telematics and a “mobility services platform” for fleet management, insurance, and maintenance. Basically, Toyota is creating a turnkey fleet for ride-hailing company customers that hopes to lower insurance costs, optimize maintenance for reduced downtime, and provide unified data analytics for easier fleet management.

Not only does this development highlight how car companies like Toyota are looking to capitalize on ride-hailing and how new mobility technology companies and existing players can cooperate, it also illustrates a dynamic that may dramatically shape ride-hailing in the future. Every “gig economy” platform has gone through a process of professionalization, starting with individuals renting out a spare bedroom on AirBnB (for example) and eventually moving toward arrangements where small-scale landlords rent or manage a series of AirBnBs.

On a fundamental level, every business operates most efficiently when it spreads its fixed costs over scale, so one company hiring one full-time cleaner for ten apartments is more efficient than ten companies hiring ten part-time cleaners for each of their apartments. Similarly, dedicated fleet drivers will maximize their vehicle investments by driving full-time, and possibly even switching between Uber, Lyft, and delivery driving for companies like Postmates and Amazon. Given that Uber drivers spend only about 6 months driving for the company on average, and with the labor market tightening up, this process of professionalization should be affecting Uber more and more.

Now, with companies like Toyota offering turnkey fleet management tools that can further improve fleet efficiency, we may see even more professionalization of ride-hailing fleets. Who knows, we could even see the small taxi companies that Uber has threatened to put out of business becoming service contractors. It just goes to show that the future rarely turns out the way you initially expect.