On this occasion, the middle-aged lady who ordered her cab wanted to be picked up right outside her door, in a narrow alley. Somehow Singh managed to reach her through the maze of alleys but the delay made her angry.
“I got a reality check—I got a 1-star rating for factors beyond my control and lost my coveted 5-star average that day,” he said during an interaction with Mint in its Bengaluru office.
On another trip, the rider canceled his reservation at the last minute because he got a cab from a rival program. “That was my second lesson that day about ‘opportunity cost’. This rider usually hails cars from multiple programs and then cancels, whichever takes longer. That’s a terrible economy for us because both cars spent time and fuel driving to him,” Singh said.
The company now informs drivers of the destination in advance and compensates them for the distance traveled to pick up the customer before the trip. At the same time, it strengthened its feedback mechanism for customers, making it more interactive, more secure and transparent. Anecdotally, service standards have improved and more than a dozen riders and drivers Mint spoke to in Delhi and Bengaluru said they prefer Uber over other players. “We gave the drivers a seat at the table. That was key,” Singh said.
It also shows in the company’s performance in the post-pandemic phase. As the industry, as a whole, recovered, Uber regained its lead over others (see chart) and built on it.
But Uber isn’t out of the woods yet. Profit—an essential aspiration—is still out of reach. New entrants are always eager to disrupt and eat into the gains made by incumbents, and the myriad of regulatory challenges the industry faces can upend the business at any time.
Regular headwinds
As the first activists in the ride-hailing business, Uber and Ola had a few meetings with the authorities. Many of those runs are related to tax litigation. One case that Uber is still fighting is related to an investigation by the Directorate General of GST Intelligence (DGGI) in which there is a goods and services (GST) liability. ₹800 crore on the company for driver incentives. Another case relates to an outstanding demand of ₹114 crores from the income tax department. Other disputes with the authorities include a notice from the Central Consumer Protection Authority in 2022 accusing Uber of violating consumer rights.
“We’re a public company scrutinized by regulators around the world and have some of the highest standards of governance compliance across the board. So, we’re pretty confident on all the fronts that can be opened. None of them worry me in any material way. meaning,” Singh said.
The open fronts may not be the end of it, as more may open. The taxi aggregation business has always faced resistance from the traditional local taxi lobby, where some local bodies have considerable power with politicians. Innovations like motorcycle taxis only made matters worse. Under pressure from local autorickshaw unions for example, states such as Karnataka and Maharashtra have moved to restrict this segment.
This is bad news for Uber, which is eager to expand from four-wheeled taxis to three- and two-wheelers.
Further, there are ongoing discussions within the government about limiting the extent to which rigs can use surge pricing, where rigs raise rates substantially in the event that there is a significant demand-supply mismatch. This is also a key component of the business that strengthens the bottom lines of these companies. Another piece of proposed legislation relates to a 20% cap that companies like Uber can charge drivers. Shared mobility is another flashpoint because it falls in a gray area from a political perspective.
All of this can potentially change the landscape for business and upset the math. Does it make Uber nervous?
“It’s important for regulatory predictability for companies like us to make forward-looking investments. We’re looking for that,” Singh said.
New contenders
What makes it more complicated is that transport is a concurrent subject in the Constitution, which means that both the center and states have to formulate policies. So, rules and regulations can differ greatly from one state to another, making it difficult for large companies like Uber to adapt.
This became particularly evident with the advent of electrification. State governments, such as in Delhi, Karnataka and Maharashtra, want taxi aggregators to switch to electric much faster. They also prefer bicycle taxis to be completely electric.
While this presents 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 ratings have stepped in over the past 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 scale up to 5,000 cars by 2025-26 and focus on under-penetrated tier II and III cities.
“Our cost of freight is between ₹1.75 and ₹2 per km while for CNG vehicle it is ₹4.5 to ₹5 and diesel anywhere in between ₹9 and ₹10 to km. Hence, in the long run, we have a huge advantage in the running cost,” says Mayank Bindal, founder and CEO of Snap E Cabs.
The business model of these companies is also different. Uber and its biggest rival in India, Ola, are aggregators that provide a platform to individual taxi drivers and do not own vehicles themselves. The electric vehicle (EV) players own or lease the cars and hire drivers in shifts. This gives them an advantage when it comes to managing service standards and driver behavior 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 that scaling up is more difficult.
“It will be a long-range game plan for us. The idea of owning cars slows down our scalability compared to Ola and Uber,” admitted Bindal.
Uber has its own plans for electric vehicles, with a vision to become fully carbon neutral by 2040. But overhauling the existing business won’t be easy. Over the next three years, the company plans to introduce 25,000 electric cars in its fleet. By then, BluSmart aims to have a fleet four times that size.
Car, bike taxis rise
In the company’s latest earnings call on 7 November, CEO Dara Khosrowshahi clubbed India alongside the US, 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-wheeled taxi business, while doubling down on the faster-growing three-wheeled autorickshaw and two-wheeled motorcycle taxi segments.
Khosrowshahi said during the earnings call that the auto-rickshaw segment accounted for 40% of all trips in Q3 2023.
“Today we do more trips on two and three-wheelers than on cars, our main product,” Singh said. However, 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 reservations in 2022, at 1.2 billion, surpassed the pre-covid 2019 level of 1.16 billion. But the industry that entered the pandemic is not the same as the one that emerged from it. In 2019, taxis accounted for 65% of rides, while autorickshaws and two-wheelers accounted for 23% and 12% respectively. Last year, the share of taxis shrank to just 38%, followed closely by auto-rickshaws 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 towns and cities. Also, they are at least four times more fuel efficient, so the rates are significantly lower.
The online ride-hailing market reached about 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 post-covid category of 3-wheelers and 2-wheelers, which is reflected in approximately 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 versus Ola’s 200+ 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 around five million taxi bookings over Ola. In the last quarter of 2022, even as both returned, Uber witnessed more than 20 million bookings than Ola.
Chasing profitability
While the market may have recovered, the path to profitability is still unclear. Uber’s revenue from operations in India has declined 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 made a loss of ₹333.9 crore in 2020-21.
The steps Uber has taken to improve the unit economy, such as reducing driver incentives and migration rates, have had an impact on its bottom line. In fiscal year 2021-22, revenue grew to ₹397 crore while losses fell to ₹216 crores. However, they are significant. Uber has 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,” Singh said. “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 product market fit.”