Uber Will Soon Have Thousands of Self-Driving Volvos

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Swedish automaker Volvo Cars said on Monday that it has signed an agreement to sell "tens of thousands" of self-driving-capable Volvos to ride-hailing giant Uber Technologies. 

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It's a big step for Uber, which began working with Volvo last year to develop vehicles that can be retrofitted with Uber's proprietary self-driving system. And, of course, it's a plum for Volvo and its corporate parent, Chinese automaker Geely Automotive Holdings (NASDAQOTH: GELYF)

Here's what we know. 

What Volvo and Uber said

Volvo has agreed to deliver these vehicles to Uber between 2019 and 2021. These will be specially modified versions of vehicles built on Volvo's "Scalable Product Architecture," which includes Volvo's 90-series vehicles as as well as its midsize XC60 SUV.  

Volvo and Uber began working together last year. Volvo has already delivered a small number of XC90 SUVs to Uber, which have been fitted with Uber's self-driving system and added to its fleets in Pittsburgh and San Francisco

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The deal isn't an exclusive one, Volvo said. For starters, it's using the same base vehicles to develop its own autonomous-car system in partnership with giant auto-industry supplier Autoliv (NYSE: ALV). And it -- and Uber -- might well work with other partners over time. 

Still, Volvo Cars' CEO Håkan Samuelsson said this is a big deal:

The automotive industry is being disrupted by technology and Volvo Cars chooses to be an active part of that disruption. Our aim is to be the supplier of choice for AD ride-sharing service providers globally. Today's agreement with Uber is a primary example of that strategic direction.

Jeff Miller, who leads Uber's efforts to develop alliances with automakers, said, "This new agreement puts us on a path toward mass produced self-driving vehicles at scale."

How many vehicles are we talking?

Volvo said initially that it had agreed to deliver 24,000 vehicles to Uber between 2019 and 2021. But it later revised that number to a more vague "tens of thousands," after Uber said that the final number could end up being more or less than 24,000. 

So, to answer the question, it isn't clear. But 24,000 is probably in the general neighborhood. 

How much is Uber spending?

Again, we don't yet know for sure. It'll depend to some extent on the mix of Volvo models that make up the order, and of course on the total number of vehicles Uber ends up buying. 

But to get an idea of the general order of magnitude, let's consider this: The Volvo XC40 starts at $35,200 in the United States. 24,000 of those would cost $844.8 million. Given the special modifications Volvo is making for Uber -- and given that the mix of vehicles will apparently include Volvo's 90 series models, which are more expensive -- it seems safe to conclude that Uber will spend something in the neighborhood of a billion dollars on these vehicles.

And remember, that's not counting the cost of the hardware that Uber will install with its self-driving system. Even if it turns out that Volvo is installing that hardware as it builds the cars, it'll add to the cost. 

Isn't it a big change for Uber to own vehicles?

Right now, the vehicles in Uber's service are provided by their human drivers. It's not clear whether Uber plans to own these self-driving Volvos outright, assign ownership to a subsidiary, or make some other arrangement. 

It seems odd for a company that's preparing to go public, as Uber is said to be, to be adding a billion dollars' worth of cars to its balance sheet. But there may be more to the plan than what we know.

The upshot for Volvo Cars: A big sale and some intriguing exposure

It's a fairly big sale for Volvo Cars, which sold 534,332 vehicles worldwide in 2016. But probably more importantly, it'll boost the company's visibility and technology image by making self-driving Volvos very visible in the cities in which Uber operates. 

At least from here, that seems likely to be a good thing.

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John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends Autoliv. The Motley Fool has a disclosure policy.