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How will Uber’s share price change as the company goes green?

Uber’s [UBER] share price has gained over 400% this year as the ride-hailing service continues to rehabilitate its image.

Accusations of a toxic work culture and spiralling costs had weighed on Uber’s share price, and concerns over passenger safety saw the company being denied operating licences in major cities, most notably London.

Helping steer Uber’s share price in the right direction is CEO Dara Khosrowshahi, who was brought in to replace founder Travis Kalanick in 2017. In contrast to Kalanick’s controversial management style, Khosrowshahi has tried to position Uber as a friend of the regulator.

The latest step in this rehabilitation work is the announcement that Uber is planning to go green over the next two decades. Will this see Uber’s share price continue to gain, or will legal proceedings in London cause it to skid?

 

 

Uber goes green

Uber’s share price reacted positively to the firm’s announcement last week that it wants 100% of its rides to be zero-emission in the US, Canada and Europe by 2030, with the rest of the world following in 2040. To get there Uber will charge customers an extra $1 to hail an electronic vehicle or hybrid ride. This will roll out initially in 15 US cities under the Uber Green banner, before expanding to 65 cities by the end of the year.

Drivers using a hybrid will get an extra $0.50 per ride, while those using an electric battery-powered vehicle will get an extra $1.50 per ride. Uber will also spend $800m to help drivers in North America and Europe make the switch to battery-powered electric vehicles by 2025.

“Uber is committing to become a fully zero-emission platform by 2040, with 100% of rides taking place in zero-emission vehicles, on public transit, or with micro-mobility. We’re also setting an earlier goal to have 100% of rides take place in electric vehicles (EVs) in US, Canadian, and European cities by 2030,” said Dara Khosrowshahi, CEO.

“Uber is committing to become a fully zero-emission platform by 2040, with 100% of rides taking place in zero-emission vehicles, on public transit, or with micro-mobility. We’re also setting an earlier goal to have 100% of rides take place in electric vehicles (EVs) in US, Canadian, and European cities by 2030” - Dara Khosrowshahi, Uber CEO

 

Yet as the Financial Times’ Alphaville column points out, 2030 is still a decade away, so for the time being Uber's largely petrol-based fleet will continue to chug along. In addition, as the paper also points out, it is estimated that the average Uber is driving around passenger-free between 40% and 60% of the time.

"It’s fair for Uber to want to go green but — like fast fashion — if it wanted to go the whole hog, it would probably be better for it to just stop. But, then again, such a strategy might not help it get added to any ESG portfolios. So what do we know?" wrote Jamie Powell in his Alphaville column.

Investors, at least, seem to think it's the right move, with Uber’s share price up over 12% since the announcement on 8 September.

 

Uber appeals London ban

A major headwind that continues to worry Uber’s share price, however, is the ongoing legal battles it is fighting. Just last week Uber was back in court appealing TFL’s 2019 decision to bar it from operating in London. At the time, TFL declined to renew Uber’s licence over what it called a “pattern of failures” regarding safety, including driver verification. TFL had previously denied Uber a licence in 2017 before a judge restored it. 

Uber claimed that it has made the necessary changes for it to continue to operate:

“We have worked hard to address TfL’s concerns over the last few months, rolled out real-time ID checks for drivers, and are committed to keeping people moving safely around the city,” said its Northern and Eastern Europe boss Jamie Heywood.

How the appeal plays out will have a big impact on Uber’s share price. London is by far its biggest market, with 3.5 million users but, while the appeal is ongoing, Uber’s 45,000 London-based drivers can continue to operate.

“We have worked hard to address TfL’s concerns over the last few months, rolled out real-time ID checks for drivers, and are committed to keeping people moving safely around the city” - Northern and Eastern Europe boss Jamie Heywood

 

 

Where next for Uber’s share price?

Uber’s decision to go-green shows that the company is thinking in the long-term — a good thing for both investors and the environment. Data released from California regulators indicates that the average ride-hailing car creates 50% more pollution per mile than the average trip in a standard car. If Uber can get ahead of the issue, then its stock could continue to gain.

Among the analysts tracking the stock on the Financial Times, Uber’s share price carries a $41 price target, which would see a 9% upside on the current price (as of 16 September’s close).  

 

Market Cap$67.9bn
Operating Margin (TTM)-34.79%
EPS (TTM)-4.05
Quarterly Revenue Growth (YoY)-29.2%

Uber share price vitals, Yahoo Finance, 17 September 2020

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