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Uber's tricky vision aims to tempt Indians from car ownership
Financial Times, 26 Aug '15
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Uber likes to make bold predictions - as perhaps befits a six-year-old company with a valuation of more than US$ 50 billion. Travis Kalanick, co-founder and chief executive, says his ride-hailing service can become sufficiently ubiquitous in the west not only to kill-off old-fashioned taxis, but even to tempt some hardcore motorists to stop driving altogether.

In emerging markets, the company makes an even more eye-catching claim. Mumbai's battered old red buses are carrying adverts bearing the slogan: "The freedom to own a car, without ever buying one". These imply that Uber could become so widespread that millions of people might decide never to get behind the wheel at all.

At first, this sounds absurd. Some transport experts do claim that countries such as the US and the UK have reached a stage dubbed "peak car", whereby total vehicles use is starting to dip. But Indian car ownership remains tiny, at about 2%, according to research companies. This is far lower than in developed markets, where more than half of people tend to be drivers, as well as countries such as China.

Consequently, almost everyone agrees this level will rise dramatically. Analysts predict 4% of Indians will have cars by 2020. This in turn explains why General Motors unveiled plans to sink another US$ 1 billion into its loss making Indian operation last month, joining a host of global automakers gearing up for a future boom in car sales.

Yet Uber recently unveiled plans to invest US$ 1 billion into India, as well. This was partly to keep pace with Ola, its larger Bangalore-based rival. However, the splurge was also underpinned by a long-term bet, which Mr Kalanick outlined in a recent speech.

He argued that pollution and congestion leave cities in India and China facing an "existential" crisis. "We're offering a real alternative to a world that looks like a parking lot and moves like a traffic jam,' he said.

Tempting people away from cars is tricky. Vehicle ownership remains a powerful status symbol in emerging markets. That said it is not always a pleasant experience. Interest rates are high, making vehicle financing expensive. India's roads are bumpy and hectic. Parking is a nightmare. There is a reason why so many wealthy Indians employ drivers.

Uber's hopes of becoming chauffeur to the country's rising middle classes therefore rest on building a service that is both more convenient and cheaper than driving. It has a long way to go. Even in big cities like Mumbai or Bangalore, its service can be patchy, with much longer wait times than in New York or London.

Fixing that is mostly a question of supply. Uber has 150,000 drivers in India, but the idea that it could come close to 1 million over the next few years is not outlandish.

Ola predicts it will cross the million mark by 2017. The fact that only 2.4 million cars were sold in India last year gives a sense of the scale of the two companies' ambitions. This big potential increase in Uber's driver network was behind last week's tie-up with Tata, India's largest business group.

Tata invested US$ 100 million in the US Company. In exchange, it hopes its motoring and finance arm will provide vehicles, financing and insurance to all those first-time cabbies.

Different types of services can also help. In San Francisco, Uber offers a cheap carpool option, in which multiple riders hop in and out of the same vehicle. A comparable service is some way off in India, but could eventually find favour in a country where customers are thrifty, and shared taxis are already relatively common.

Take all of this together, and the idea that taxi aggregators might prise some of India's coming generation away from car ownership does not seem quite so ridiculous.

"Young Indian people living in big cities used to buy a small car," said Paul Blokland, of Segment Y Automotive Intelligence, an India-based research group. "But now they might well decide to save that money, given it is expensive, and they can't find anywhere to park it anyway."

This does not mean Uber's path will be easy, particularly given India's treacherous regulatory environment. But if even a small portion of future car buyers decide to rely on cabs, it could help car ownership levels settle well below the levels typically seen in mature industrial economies. And if Uber wins even a portion of this business, it will go a good way to justifying its US$ 50 billion valuation too.