Daybreak - How many cars does it take to change Uber’s driver model? 10,000

Episode Date: June 12, 2023

In the last few years post-pandemic, fleet-management companies like Everest have become the silent battalion in Uber's army of cabs. In fact, 90% of Everest's fleet is with Uber.This, of course, has helped Everest grow its revenues by 150X. Both seem to have found their relationship to be mutually beneficial. Everest gets to run its assets on a high demand platform. And for Uber, it become so much easier to manage its cars. No need to deal with hiring and training drivers.Now, Uber is deepening its ties with Everest, especially since it wants to roll out EVs. But as Uber gives more control to the fleet management company, the basics of the ride hailing business could change forever.Recommended reading: Blusmart wants ride-hailing glory by saying no to Uber, Ola’s scaleDaybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcast, you've probably heard me. My interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first studio. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Seven years ago, there was a family-owned company called Everest. It was in the business of manufacturing essential oils and menthol.

And why am I telling you about it today? Because now, the same company happens to be the largest cab fleet operator in India and also the largest fleet manager for Uber. Hold on, wait a second. Uber uses fleet management companies? Turns out it does because managing thousands and thousands of drivers individually can be quite a pain. Also, the pandemic was quite a blow. Cab drivers from lower socioeconomic backgrounds had no option but to return to their homes

in smaller towns and villages. And they had to leave behind their cabs. Many of them even defaulted on the loans that they had taken to buy these cars. So the banks impounded these cabs, which in turn drastically decreased the number of cabs after the pandemic. This obviously affected cab aggregators like Ola and Uber. So Everest used this as an opportunity. It slowly began increasing the size of its fleet.

From a little over 700 cabs in 2020 to more than 10,000. now. In the last four years, its revenue has grown by over 150 times. And over 90% of its cabs are exclusively used by Uber in seven metro cities across the country. Clearly, Uber and Everest have found a mutually beneficial relationship. Everest gets to run its assets on a high demand platform, and as for Uber, it becomes so much easier for it to manage its cars. And what's even better. Costs are under control. So it makes sense why Uber is deepening its ties with Everest, especially now because it wants to roll out electric vehicles. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Das Sharma, and I Don't Chase the News Cycle.

Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today, is Monday the 12th of June. Let's start by looking at how Everest, a company that was making essential oils, got into the cab business. It was in 2016 when cab aggregators like Ola and Uber were offering exorbitant incentives. Everest thought this was a great time to enter the business. And so it did with just two cabs in its fleet.

By 2019, its fleet had grown to a modest 100. And just as it stepped on growth to reach nearly 800 cabs in the next six months, the pandemic struck in March 2020. Siddharth Ladsarya, the founder of Everest, told Shashutakundu Chodhuri, a reporter with the ken, that when the demand for cabs bounced back post-pandemic, the company had over 1,000 waitlisted drivers. These drivers had already paid a security deposit for the car. Ladd Saria said that 40% of Everest's driver recruitment is through driver referrals. Now, as I told you, Everest already has more than 10,000 cabs in its fleet. But guess what? Everest may be servicing only 3% of the overall demand, which only seems to be rising.

Coming up next, we try to understand why cab aggregators are looking at fleet management companies. Uber can have thousands of cabs running on its platform and generate revenue consistently just by tapping on one fleet operator. Also, it becomes less of a hassle, no need to bother with recruiting, training and retaining drivers. Prabjit Singh, the president of Uber India and South Asia, told Shashatoh that the arrangement with large fleet partners is quite similar to Uber's deal with individual drivers. There isn't a dramatic difference. Mostly, fleet partners get terms which a high-quality driver partner would get.

This arrangement benefits both the parties involved. For the fleet management companies, it is great because their cabs are getting used on a heavy demand platform. And for the cab aggregator, it is a great way to keep costs under control. And they can also exercise more control over the fleet partners. For example, they can demand that a lot of the fleet partners. certain number of vehicles or hours have to be logged in. It also avoids unionization and collective bargaining that individual drivers can team up to do, which obviously does not help the cab aggregators.

But there is more to it. As more fleet players enter the market, yes, it will solve the supply challenge for the likes of Uber and Ola, but it can also change the basics of the ride hailing business. Because think about it, if fleet management companies increasingly control the supply of cabs, they may also eventually get to dictate the prices. And that affects you and I, the customers. How exactly? I will tell you in the next segment. SOMCAPUR, a partner and mobility leader at Ernst & Young,

explained to us how the advent of fleet management companies could affect riders. Before the pandemic, the aggregators, in this case Uber, would pass on a certain percentage of their revenue back to the customer to reduce the cost of the ride. But now that does not happen and the customer pays a higher price. And instead, it is possible that some part of it is actually provided to the fleet management company. Uber, however, has clarified that nothing changes for the rider in terms of pricing. Uber maintains that the largest part of its business is still driven by independent drivers and small-scale owners with two or three cars running on the platform. Uber also did not respond to our questions regarding details of their fleet size in the seven cities that Everest operates in. Ola too declined to comment on a detailed questionnaire that we sent to them.

So we asked Siddharth Power, a mobility expert and the former CEO of Meru Cabs, if, these fleet management companies can dictate prices. He told us that they will definitely demand certain commitments in the form of revenue, cash flow, safety of assets from the aggregators, which of course is reasonable. And he also pointed to surge pricing, which we know is a function of demand and supply. So imagine if one fleet removes 1,000 cabs from the supply pool

during peak hours, the algorithm of Uber or Ola automatically increases the fare. But all of this is great news for fleet operators, because they are in the best position to meet Uber's future supply requirements. And what are these requirements, you asked? Electric vehicles. Stay tuned because I'm going to tell you more about this. Uber Singh told again that as the electrification of cabs happens, Uber is expecting at least a part of its EV business to be led by fleet management companies.

And that is because there is a fundamental challenge of creating infrastructure like charging and making bulk commitments to original equipment manufacturers, which can be handled better by fleet management companies. Everest, of course, knew about this. So to meet this anticipated demand for EV cabs, it signed an agreement with Tata Motors in December last year. It is going to take on 5,000 of Tata's electric sedan express tea. Anand Cheda, the co-founder of Everest Fleet, told us that they have bought more than 950

EVs. Half of these are already running with Uber. He also said that Everest plans to add at least 10,000 EVs to its fleet in the next three years itself. All this ride-haling action is creating a new mountain of operations. opportunities and Everest clearly wants to be the one that scales it. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings.

A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps, and podcast extras. Head to the Ken.com and click on the red support. button on the top of the website. I am Sinida Sharma your host and today's episode was edited by Melroy Fernandis.