A June 4 letter to the editor of The Mercury News alerted me to a recent study by the Union of Concerned Scientists (UCS) that looked at the effect of ride-hailing services such as Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) on the environment. Their solution could be just what the doctor ordered for Uber stock.
Here’s why.
Ride-Hailing Isn’t Really Green
I have to confess: This sub-heading isn’t my original thought. I ripped it off from a February article from CityLab, a Bloomberg publication dedicated to important issues like the environment and transportation.
The author, Laura Bliss, covered the significant findings of the report published by UCS. The scientists, not surprisingly, concluded that ride-hailing is a problem for the climate.
First, I just want to say I’d never heard of UCS, but now that I have, I’ll be paying closer attention to what they have to say. The same goes for CityLab, which I’ve run across before, but haven’t taken a closer look. I definitely will.
But I’m getting off track.
The letter to the editor suggested that ride-hailing services should be required to operate electric vehicles. The author reminded readers that the trucking industry has been financing the purchase of electric trucks for years, so any cost issues related to drivers having to own electric vehicles isn’t a legitimate concern.
By phasing in the requirement of electric vehicles over five years, the ride-hailing services would be doing the world a big favor. And in the end, that would be very good for Uber stock.
Who Are We Kidding?
For every scientist that’s providing legitimate data about why climate change is hurting the planet, there’s a person like Donald Trump who’s ignorant to the truth. So, to think that the U.S. government is going to work with the states and municipalities to make electric vehicles mandatory for ride-hailing services is pure poppycock. But it’s a nice thought.
What I loved about CityLab’s headline is that it assumes there’s a wide swath of people out there who pride themselves on taking Uber as a way to save the world. Those people ought to get together with the people who think drinking Corona beer will give you the novel coronavirus.
“Whatever the reason, leaving your car at home — or not owning one in the first place — can offer a lot of benefits. But according to a groundbreaking UCS analysis, it also comes with a cost,” stated the UCS article discussing the report.
The scientists concluded that “the average ride-hailing trip produces an estimated 69 percent more emissions than the trips it replaces.”
I won’t get into the reasons why that is. Read the report if you’re interested. Public transit or walking are the two best ways to get somewhere and help the environment.
However, failing this, scientists believe electric is the best remedy.
“Electrifying ride-hailing vehicles would dramatically improve the climate emissions of ride-hailing trips. An electric ride-hailing trip would cut emissions by about 50 percent compared to a private vehicle trip; a pooled, electric ride-hailing trip would lower emissions by nearly 70 percent compared to a private vehicle trip (or about 79 percent compared with a non-pooled ride-hailing trip),” UCS found.
Unfortunately, I just don’t see the powers that be forcing this upon businesses such as Uber.
Voluntarily Complying Would Boost Uber Stock
Uber stock is up 24% year-to-date through June 3. Shareholders might argue that it doesn’t need a boost given its performance in 2020. That might be true, but it’s still trading 18% below its May 2019 initial public offering price of $45.
A big part of Uber’s stock price failing to launch is the unbelievable losses it keeps racking up. In the first quarter, Uber lost $2.9 billion, almost double the analyst estimate. Since it reported earnings May 7, Uber is up 32%. Go figure.
In April, I said that Uber was a buy for aggressive investors. However, I also suggested that it could trade in the teens at some point in the next two to three months. Since that article, it’s up 42%, and not cooperating.
Investors are betting that Uber’s pathway to profitability will come sooner rather than later.
So, why should the company voluntarily electrify its drivers? Especially when that will immediately reduce its fleet of available cars.
Because Uber could wrangle regulatory concessions out of the government in return for a five-year, phased-in implementation. Get enough incentives for Uber drivers to switch to electric, and the company might find concerns about being an employee or an independent contractor could magically disappear. Not to mention, it’s the right thing to do.
I realize it won’t happen. And that’s too bad for Uber stock.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
