NAGOYA -- Toyota Motor has made a foray into the market for networked cars through a tie-up announced on Wednesday with U.S. ride-sharing service Uber Technologies.
"We're excited that Toyota, the largest auto manufacturer in the world, is making a strategic investment in Uber as part of a broader global partnership," said Emil Michael, Uber's senior vice president of business, in announcing the alliance.
Connected cars, which talk to each other and to drivers over the internet, are one of three key technology trends in the automotive sector, along with electric vehicles and self-driving vehicles.
Toyota is pouring cash into electric and autonomous vehicle technologies. The Japanese carmaker is now teaming up with Uber, the world's leading car-hailing service, to ensure its place in the evolving world of personal mobility. Toyota is investing an undisclosed amount in Uber and looking to lease its cars to Uber drivers in the U.S.
Wheels on demand
Toyota was slow to react to the ride-sharing trend. Late last year, a senior Toyota executive fretted that it could dent sales. After all, if people can order a ride wherever and whenever they want, they might not need their own cars. Just five months later, Toyota has decided the best way to deal with the wave is to catch it.
Founded in 2009, Uber attracted notice as a fast growing mobility startup after it launched a ride-hailing service in 2013 that lets customers order a ride through their smartphones. What sets Uber apart from a conventional taxi service is that it relies on freelance drivers, who use their own cars to ferry passengers around.
Ride-hailing services offer big benefits to consumers, in addition to convenience. Regular taxi fare from Uber's San Francisco headquarters to Stanford University in Palo Alto costs around $150 including tip. Passengers using Uber typically pay less than $100.
About 1.1 million people around the world work as Uber drivers four times or more per month. Toyota plans to offer leasing options for some of these drivers. That could be a moneymaker for Toyota. Uber requires its drivers to have relatively new, clean cars. That translates to periodic replacements.
A new leasing market is just one aspect of Toyota's partnership with Uber. In the past, automakers earned their money simply by making better cars. That business model can be threatened by startups and technology companies, mostly based in Silicon Valley. These companies include ride-sharing services like Uber, Google, which is working on autonomous driving and networking technology, and Tesla motors, a leader in electric cars. Toyota is eager to be a part of the convergence of the automotive and technology industries.
In January, the Japanese carmaker set up a laboratory in Silicon Valley to study artificial intelligence in hopes of finding applications for self-driving vehicles. But until its announcement with Uber, it had not done much in the area of networked cars. Connected cars bring together automotive engineering and internet technologies to create new value. Uber is connected to both drivers and users through smartphones. Uber provides customer information to drivers and vehicle availability information to riders.
This new way of getting around town faces regulatory challenges.
In February 2015, the Japanese transport ministry ordered the U.S. company to stop offering free rides in the southwestern city of Fukuoka. Uber tried to get around this roadblock by claiming it was collecting data on urban transportation. Under the pilot program, users got free rides. Drivers were paid directly by Uber in exchange for helping it collect data.
The ministry saw Uber's program as an unlicensed taxi service, which are banned under Japanese law. New business models may be incompatible with the existing rules. Toyota will be a powerful ally in helping Uber win over skeptical officials.
But it is not clear how well the strategic interests of the two companies mesh. Silicon Valley companies have their own --highly elastic -- rules for partnerships. Car companies are much more conservative. Toyota and Uber are traveling together for now, but they may have different destinations in mind.
Toyota is a global company operating in all corners of the world, and its presence in Silicon Valley has been growing. For such a company, some "background noise" is not a surprise. It will be a test of President Akio Toyoda's "challenge for the future."