Can Uber navigate the bumpy road ahead?

Prabhjeet Singh, president of Uber India and South Asia on one of his Uber rides. Uber has recovered from the pandemic faster than others in the cab business. On a monthly basis, the company is adding more drivers and riders than ever before, Singh said.
Prabhjeet Singh, president of Uber India and South Asia on one of his Uber rides. Uber has recovered from the pandemic faster than others in the cab business. On a monthly basis, the company is adding more drivers and riders than ever before, Singh said.

Summary

  • The ride hailing firm once again leads the cab segment in India but regulatory hurdles, new entrants pose challenges

NEW DELHI : New Delhi: In the sweltering heat of July, Prabhjeet Singh, a man normally used to spending his days in a plush office, was struggling to navigate the byzantine lanes of Shiv Durga Vihar, Faridabad. The president of Uber India and South Asia wanted to experience the business end of things and had turned taxi driver for the day. Singh, now in his ninth year at Uber, goes on such fact-finding trips every month to get to grips with the ground realities his driver-partners face and the expectations their passengers have.

On this occasion, the middle-aged lady who had booked his cab wanted to be picked up right outside her door, in a narrow alley. Somehow Singh managed to get to her through the maze of alleys but the delay had made her irate.

“I got a reality check—I got a 1-star rating for factors beyond my control and lost my coveted 5-star rating average that day," he rued during an interaction with Mint in his Bengaluru office.

On another trip, the rider cancelled his booking at the last moment as he had gotten a cab from a rival app. “That was my second lesson that day on ‘opportunity cost’. This rider habitually hailed cars from multiple apps and then cancels whichever takes longer. That is terrible economics for us as both cars have spent time and fuel driving towards him," Singh said.

The company now informs drivers of the destination beforehand and compensates them for the distance travelled to pick up the customer prior to the trip. At the same time, it has beefed up its feedback mechanism for customers, making it more interactive, safer and transparent. Anecdotally, service standards have improved and over a dozen riders and drivers that Mint spoke to in Delhi and Bengaluru said they preferred Uber over other players. “We have given the drivers a seat at the table. That has been key," said Singh.

It shows in the company’s performance in the post-pandemic phase, as well. While the industry, as a whole, has recovered, Uber has regained its lead over others (see chart) and built on it.

But Uber is not out of the woods yet. Profitability—a key aspiration—is still out of reach. New entrants are ever eager to disrupt and nibble into the gains made by incumbents, and the myriad regulatory challenges the industry faces can upend the business at any time.

Regulatory headwinds

 The cab aggregation business has always faced resistance from the traditional local taxi lobby. When incentives for drivers were cut, in 2018, thousands of drivers staged protests in Mumbai and Delhi.
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The cab aggregation business has always faced resistance from the traditional local taxi lobby. When incentives for drivers were cut, in 2018, thousands of drivers staged protests in Mumbai and Delhi. (PTI)

As the first movers in the ride-hailing business, Uber and Ola have had a number of run-ins with the authorities. Many of those run-ins have to do with tax litigation. One case that Uber is still fighting pertains to an investigation by the Director General of GST Intelligence (DGGI), wherein there is a goods and services tax (GST) liability of 800 crore on the company for driver incentives. Another case relates to an outstanding demand of 114 crore by the income tax department. Other disputes with the authorities include a notice by the Central Consumer Protection Authority in 2022 accusing Uber of violating consumer rights.

“We are a public company scrutinized by regulators across the world and have some of the highest standards of governance compliance across the board. So, we are pretty confident about all the fronts that may be open. None of them make me worry in any material sense," Singh said.

The open fronts may not be the end of it as more may open. The cab aggregation business has always faced resistance from the traditional local taxi lobby, with some local bodies having considerable clout with politicians. Innovations such as motorbike taxis have only aggravated matters. Under pressure from local autorickshaw unions for example, states such as Karnataka and Maharashtra have moved to curb this segment.

This is bad news for Uber, which is eager to expand from four-wheeled cabs to three- and two-wheelers.

Further, there are ongoing deliberations within the government on capping the extent to which platforms can use surge pricing, wherein platforms raise fares substantially in case there is a significant demand-supply mismatch. This is also a key component of the business that bolsters the bottom lines of these companies. Another proposed legislation refers to a cap of 20% that companies such as Uber can charge from drivers. Shared mobility is another flashpoint as it falls in a grey area from a policy perspective.

All of these can potentially alter the landscape for business and upset the math. Does it make Uber nervous?

“It is important for regulatory predictability for companies like us to make forward looking investments. We do seek that," Singh said.

(Graphic: Mint)
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(Graphic: Mint)

New challengers

Anmol Jaggi, cofounder of BluSmart. Some state governments have started insisting that cab aggregators have a percentage of their fleet as electric vehicles. This presents an opportunity for new entrants like BluSmart.
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Anmol Jaggi, cofounder of BluSmart. Some state governments have started insisting that cab aggregators have a percentage of their fleet as electric vehicles. This presents an opportunity for new entrants like BluSmart.

What makes things more complicated is that transport is a concurrent subject in the Constitution, which means both the centre and states get to formulate policies. So, rules and regulations can differ widely from one state to the next, making it harder for large companies like Uber to adapt.

This has become particularly evident with the advent of electrification. State governments, like in Delhi, Karnataka and Maharashtra, want cab aggregators to shift to electric much faster. They also prefer bike taxis to be completely electric.

While this poses a challenge for existing players, it also presents an opportunity for new entrants. Which is where the likes of BluSmart, Envi, Evera, Shoffr, Lithium Urban Technologies and Snap E cabs have stepped in over the last few years.

The leader of this pack is BluSmart, which already has a fleet of over 5,000 cars and operates in Delhi-NCR and Bengaluru. Snap E is a relatively smaller player with 600 cars concentrated around Kolkata. It has plans to ramp up to 5,000 cars by 2025-26 and focus on underpenetrated tier II and III cities.

“Our cost of charging is between 1.75 and 2 per km whereas for a CNG vehicle it is 4.5 to 5 and diesel anywhere between 9 and 10 a km. Therefore, in the long run, we have a huge advantage in the running cost," says Mayank Bindal, founder and CEO, Snap E Cabs.

The business model of these companies is also different. Uber and its biggest rival in India, Ola, are aggregators who provide a platform to individual cab drivers and do not themselves own vehicles. The electric vehicle (EV) players own or lease the cars and employ drivers in shifts. This gives them an edge when it comes to managing service standards and driver behaviour but can also be risky as the residual value of an EV is uncertain, and remains on their books. The high capital cost of EVs also means scaling up is tougher.

“It’s going to be a long-haul gameplan for us. The idea of owning cars slows down our scalability in comparison to Ola and Uber," admitted Bindal.

Uber has its own plans for electric vehicles, with a vision to go fully carbon neutral by 2040. But overhauling the existing business will not be easy. Over the next three years, the company plans to induct 25,000 electric cars in its fleet. By then, BluSmart aims to have a fleet four times that size.

Auto, bike taxis rise

(Graphic: Mint)
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(Graphic: Mint)

In the company’s latest earnings call on 7 November, CEO Dara Khosrowshahi clubbed India along with the US, the UK and Canada as markets where Uber has strengthened its position. Since the end of the pandemic, Uber has recovered faster than others in the four-wheeler cab business, while it has doubled down on the three-wheeled autorickshaw and two-wheeled motorbike taxi segments which are growing at a faster pace.

Khosrowshahi said during the earnings call that the autorickshaw segment accounted for 40% of all trips in Q3 of 2023.

“Today we do more trips on two- and three-wheelers than on cars, our flagship product," Singh said. On the flip side though, these are also segments with lower margins and where the threat of regulatory disruptions is higher.

According to Redseer, a market research and consulting firm, the number of ride-hailing bookings in 2022, at 1.2 billion, topped the pre-covid 2019 level of 1.16 billion. But the industry that went into the pandemic isn’t the same as the one that emerged from it. In 2019, cabs accounted for 65% of rides, while autorickshaws and two-wheelers accounted for 23% and 12%, respectively. Last year, the share of cabs had shrunk to just 38% followed closely by autorickshaws at 36%, and motorbikes at 25%.

There are multiple reasons for the growth of bike taxis. The two-wheeler market is much bigger than cars, so availability is much higher, which is critical in smaller cities and towns. Also, they are at least four times more fuel efficient, so the fares are significantly lower.

The online ride hailing market reached approximately 1.3 times its pre-covid level in October in terms of gross booking value, said Saurav Chachan, associate partner, Redseer. “The industry has witnessed democratization with the increasing adoption of the 3-wheeler and 2-wheeler category post-covid, which is reflected in roughly two-three times growth for these categories compared to pre-covid levels," he added.

This is both good and bad news for Uber. Despite its relatively thinner spread—125 cities in India against Ola’s 200-plus cities, Redseer says Uber regained its lead over Ola in the first quarter of 2021 and has consolidated its position since then (see chart). In the cab segment, the gap has widened over the last four quarters. In the second quarter of 2021, Uber had a lead of about five million cab bookings over Ola. In the last quarter of 2022, even as both bounced back, Uber witnessed over 20 million more bookings than Ola.

Chasing profitability

(Graphic: Mint)
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(Graphic: Mint)

While the market may have recovered, the path to profitability is still hazy. Uber’s revenue from operations in India slumped during the pandemic to 370.5 crore in 2020-21 from 719.06 crore in 2019-20 (the numbers are not strictly comparable as fiscal year 2020 included revenue from Uber Eats, which was bought by Zomato in 2020). Uber incurred a loss of 333.9 crore in 2020-21.

The steps that Uber has taken to improve unit economics, such as reducing incentives to drivers and hiking fares, have had an impact on its bottom line. In fiscal year 2021-22, revenue grew to 397 crore while losses fell to 216 crore. Still, they are significant. Uber is yet to file earnings for 2022-23 with the Ministry of Corporate Affairs, but the numbers are expected to be better.

“We are on a steady path to profitability and feel good about the economics of our business today," said Singh. “There are parts of the business that are profitable, others where we are investing, and some where we are at an early stage of establishing a product market fit."

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