Why Uber Wanted to Make a Deal With Toyota

By Markets Fool.com

A prototype self-driving Lexus underwent testing on a Tokyo highway last fall. Might Toyota agree to build a fleet of self-drivingLexuses for Uber? That's one question following the two companies' announcement of a new partnership. Image source: Toyota

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More details are emerging about the surprising deal between Toyota and Uber. The two companies announced a partnership on Tuesday that included a Toyota leasing program for Uber drivers and an investment by Toyota in the Silicon Valley ride-hailing giant.

The announcement was short on specifics, including the size of Toyota's investment. But new reports on Wednesday have shed more light on that question, as well as on Uber's motivations for seeking a partnership with a global automaker.

How much did Toyota invest in Uber?

Citing "a person knowledgable about the matter," The Wall Street Journal reported on Wednesday that Toyota's investment in Uber is less than $100 million. That's well below the $300 million that Volkswagen invested in European ride-hailing firm Gett, or the $500 million that General Motors invested in Uber's main U.S. rival, Lyft, not to mention the $1 billion thatAppleinvested in Uber's global arch-rival, Chinese ride-hailing giant Didi Chuxing.

What does Toyota get out of the deal?

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In the near term, Toyota gets to lease vehicles to Uber drivers under a new program that will be operated by the automaker's financial arm. The program will be offered in the U.S. and some overseas markets -- but not in Japan, according to the Journal report. It will launch sometime in the second half of 2016.

The leasing program will give Toyota added business in urban markets. Toyota is fairly strong in urban markets in the U.S. -- but GM isn't, and part of Toyota's motivation for making the deal may have been to block GM from taking on the business of leasing to Uber drivers. GM is setting up a similar program with Lyft, but Uber has many more drivers in U.S. cities.

Toyota also gets a foot in the door of the fast-growing ride-hailing industry. While it isn't expected to get a representative on Uber's board, nor any say in its management, the company is expected to use the partnership to learn more about the market for ride-hailing and the operational aspects of the service.

What does Uber get out of the deal?

Probably not as much as it wanted, at least right now.

A Recode report on Wednesday added some perspective on Uber's view of the deal. Over the last year, according to the article, Uber approached a number of automakers and self-driving technology companies about potential partnerships, including both GM and self-driving start-up Cruise Automation, which was recently acquired by GM.

It's well known that Uber CEO Travis Kalanick has long sought to develop self-driving cars in hopes of eventually automating much of Uber's service. The company has been developing its own self-driving system, and recently showed off its first self-driving test car.

Uber's first self-driving test car is a Ford Fusion. Will the next one be a Toyota? Don't bet against it. Image source: Uber

Uber has also been looking for a partner to help it advance its self-driving efforts for at least a year, holding talks with Ford , GM, and possibly other automakers. But according to the report, most potential partners weren't interested: Apparently, Kalanick was seeking a partner that would be willing to manufacture self-driving cars for Uber that carried its branding instead of the automaker's.

Kalanick's talks may have extended well outside of Detroit. In March, Germany's Manager Magazin reported that Uber had approached Daimler's Mercedes-Benz unit in hopes of ordering a huge fleet (a "six-digit number") of Mercedes-Benz S-Class sedans equipped with self-driving technology for delivery around 2020. Reuters subsequently reported that Uber had approached several automakers, not just Mercedes-Benz, about a potential order for a huge fleet of self-driving cars.

So will Toyota build Uber a fleet of self-driving taxis?

The press release announcing Uber's new partnership with Toyota made no mention of joining forces on self-driving research beyond a general statement about "sharing knowledge and accelerating their respective research efforts." It certainly didn't hint at any potential arrangements to produce an Uber-branded self-driving vehicle. Indeed, from what we know about it now, it's a very Toyota-style deal: a small investment in return for a learning opportunity.

It's possible that the partnership will expand later. It's also possible that Toyota, like its Detroit competitors, isn't interested in folding its latest self-driving technology into Uber-branded cars. If that's the case, Uber's quest for an automaking partner might not be over.

The article Why Uber Wanted to Make a Deal With Toyota originally appeared on Fool.com.

John Rosevear owns shares of Apple, Ford, and General Motors. The Motley Fool owns shares of and recommends Apple and Ford. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.