Uber and Lyft are losing money. At some point, we’ll pay for it.

https://www.washingtonpost.com/opinions/uber-and-lyft-are-losing-money-at-some-point-well-pay-for-it/2019/03/05/addd607c-3f95-11e9-a0d3-1210e58a94cf_story.html?noredirect=on&utm_term=.cd88d1e83576

By Megan McArdle
March 5, 2019

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In 2014, journalist Timothy B. Lee spent a week driving for Lyft. He drove for 50 hours but spent only 14 of those hours actually ferrying passengers. All that circling wears out the car and burns both gas and the driver’s valuable time.

Lee might have gotten better at optimizing his rides if he’d driven for longer, but still, those costs remain considerable. So how can Uber and Lyft, both of which are planning initial public offerings this year, be price-competitive with car ownership outside of places such as Manhattan?

Answer: heavy subsidies, from both the companies and the drivers themselves.

Uber and Lyft have long used investor money to subsidize operations. Lyft’s IPO documents, filed last week, indicate that in 2018 the company booked $8.1 billion in rides, collected $2.2 billion in revenue — and lost more than $900 million after expenses. Uber is also losing money, although perhaps not quite as much.

This despite the fact that many drivers seem to be underpricing their services. Whenever a driver arrives to pick you up in a massive truck or a luxury automobile, you’re either looking at a driver who took up driving as a form of charity work or one who doesn’t understand that ride-sharing income should be calculated after deducting gas and vehicle depreciation. Not every driver makes quite such a blatant error, but there’s considerable evidence that earnings are low after accounting for expenses, and drivers don’t necessarily realize that.

Thus, the ride-sharing market offers a real-life illustration of the old economist’s joke: “We’re losing money on every unit, but we’ll make it up in volume!” Unfortunately for us riders, there’s only so much cheap investment money, and only so many inexperienced drivers, out there. Once Uber and Lyft have burned through those, they’re going to have to charge us what the rides are actually worth. Customers will be in for a rude shock.

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