Execution Memo No. 003

The hidden AV trade

In this series I cover the trades I make and the thinking around them. Today was one of those days that turned out more interesting than expected. The morning started out pretty normal, nothing special. Then I went for a long lunch, and the topic turned to Lyft. The argument on the table was that Lyft might actually be a hidden gem. I wasn’t convinced. My reasoning was that in the long run, companies like Waymo or Tesla could dominate the autonomous driving market, and if that happens, Lyft could end up sidelined rather than benefiting.

Today’s news

Minutes after our Lyft lunch ended, the news dropped. Lyft and Waymo had partnered up to bring Waymo’s cars to Nashville next year. Very odd coincidence. Anyways, I think this really changes the story around Lyft. Before this, the company was kind of boring and half-dead, sitting in value territory. Now the stock will very likely continue to re-rate just on the perception that AV is here and Lyft is part of it.

Why does AV matter?

I think there are good odds that autonomous vehicles will make the ride-hailing sector explode. Here’s why. First, robotaxi services will likely increase the total miles traveled by a huge amount. Think about it like this: if you can turn your commute from driving into time spent working on your laptop, reading, or relaxing, a lot of people will be fine with living slightly further away. Second, robotaxis will make fares much cheaper because they take the human labor cost out of the picture. That means more and more people will choose to skip owning a car and just use robotaxis instead. This shift is already starting.

What that potentially means for Lyft and Uber is that they’ll be serving a drastically bigger market in the near future. More people using the service, more miles traveled. The main question is whether Lyft and Uber can take a cut of this new economy or not. Today’s partnership announcement is a strong sign that they will. Instead of robotaxi providers only relying on their own apps, Uber and Lyft could still be the front door for consumers. If they’re able to capture even a small fee from the entire robotaxi economy, these companies will become far more valuable. And between the two, Lyft is especially interesting because it’s priced much cheaper.