Uber has entered an agreement to buy thousands of cars from Volvo to prepare a fleet of fully driverless on-demand vehicles, in a significant acceleration of the ride-hailing company’s ambitions in the area.
The US company already has about 200 Volvo sport utility vehicles fitted with its self-driving systems taking part in tests in Pittsburgh, San Francisco and Tempe, Arizona
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The new deal will see Uber purchase up to 24,000 XC90 vehicles between 2019 and 2021 in a deal worth potentially $1.4bn for the Chinese-owned carmaker, according to Financial Times calculations.
Uber will buy the specialised vehicles from Volvo, then add its own sensor array to the roof of the car and operate them — potentially without the need for a human behind the wheel — as part of the Uber network.
The announcement comes just two weeks after Waymo, the self-driving unit of Google’s parent Alphabet, declared it was launching fully driverless cars in a pilot in Phoenix, Arizona — a milestone no one else has passed in the industry.
Uber and Volvo committed last year to invest $300m to develop an autonomous ready vehicle, an agreement that included joint engineering work to develop the systems that would make Volvo’s cars ready for self-driving.
The flagship XC90 SUVs already being used for the technology group’s self-driving tests in the US cannot be driven without a human safety driver because they do not have redundant braking and steering systems, Uber said. The new vehicles will be designed with specialised back-up systems that will allow them to operate without a human.
“In a self-driving world there is no human, so you need redundant steering and braking and actuation systems, such that is there is an electrical or mechanical failure, the back-up system can kick in.” said Jeff Miller, Uber’s head of automotive partnerships.
He added that the figure of 24,000 was a “best guess” of how many cars Uber would need initially, with a “lot of variability” given regulations and the growth of Uber’s business.
A key question facing Uber is whether it would own and operate autonomous cars, which would mean high capital costs and upend its asset-light business model, or third parties would manage the autonomous cars through the Uber app.
The company is currently testing both business models, and has a partnership with Germany’s Daimler that will see autonomous cars owned by the automaker available through the Uber app.
The latest Volvo agreement opens a wholly new revenue stream for the carmaker as it positions itself to become a supplier to the robo ride-hailing industry as well as a traditional automaker.
“Our aim is to be the supplier of choice for autonomous drive, ride-sharing service providers globally.” said Håkan Samuelsson, Volvo Cars chief executive.
Several manufacturers have struck deals with ride-hailing services in the hopes of securing future business and working together to develop self-driving technology. General Motors and Jaguar Land Rover have both invested in Uber’s US rival Lyft, while Volkswagen has backed European rival Gett.
Uber’s agreement with Volvo is non-exclusive, meaning it is free to choose other carmakers to supply vehicles and Volvo is allowed to sell its vehicles to other ride-hailing providers.
At least one other deal is being pursued by the Swedish carmaker, according to one person familiar with the matter.