Tesla has always been in the habit of making large, dramatic moves as it continues to promote both EV and autonomous driving technologies. One possible decision some investors have speculated Tesla might make in the future is that of buying ridesharing giant Uber.

Is there a good argument for Tesla to buy Uber, and how likely is it that such an acquisition would actually happen?

Why Would Tesla Want to Buy Uber?

For several years, Tesla has been looking into the possibility of using autonomous driving technology to create its own line of robotic taxis. Earlier this year, the company took the next step in that effort with the announcement of its Cybercab, a concept for a fully autonomous taxi that the company envisions being on the road within the next several years.

If Tesla can make a success of the Cybercab, operating its own global taxi fleet would be a logical next step. The company could build and service taxis at cost and earn a substantial net income from fares that wouldn’t have to be split with drivers.

Under these circumstances, owning the largest and most trusted ridesharing company in the world could be a serious advantage for Tesla. By providing its autonomous taxis to those who already had the Uber app, it could instantly gain a large base of customers.

A Look at the Relationship Between Tesla and Uber

As two massive innovators in the transportation sector, Tesla and Uber already have a somewhat cooperative relationship. The two companies have partnered to increase the number of Teslas in Uber’s fleet by providing discounts on the cars to Uber drivers. Twice this year, the two companies have teamed up to provide a total of $2,000 in discounts to Uber drivers who buy Teslas.

With that said, the two would necessarily end up in direct competition if Tesla starts its own autonomous taxi service. Uber’s CEO admitted as much in his reaction to the Cybercab, though he also suggested the possibility of Cybercabs being hailed through Uber instead of only through Tesla’s own app.

Tesla also isn’t the only company hoping to develop fully autonomous taxis. Uber is currently partnered with Waymo in a very similar effort. In many ways, Waymo is out in front of Tesla in terms of real-world autonomous vehicle testing. Although Tesla can leverage enormous amounts of data from its existing vehicles to train autonomous ones, Waymo and Uber could be in a decent position to compete with the EV giant on an even footing.

Is Tesla Going to Buy Uber?

While Uber and Tesla have obviously developed a solid working relationship, the odds of Tesla actually buying Uber seem remote at best. The first and most obvious reason for this is the price tag. Uber’s market cap is currently $126.8 billion, and Tesla would likely have to offer a respectable premium on top of this to acquire the company. While Tesla is a far larger company at around $1.4 trillion, the cost of buying Uber could leave the company overextended and prevent it from investing in internal growth.

Tesla is currently delivering strong growth on its own, meaning that its money would likely be better deployed within its core business than in acquiring other large companies at a premium. In Q3, the company blew past Wall Street estimates to deliver $0.72 in earnings per share.

Analysts expect that deliveries could rise by 15 percent next year, though Elon Musk has suggested growth in the range of 20 to 30 percent. In either event, it seems fairly clear that Tesla can currently reinvest capital at high rates of return within its own business.

Secondly, buying Uber could force Tesla to wrestle with a variety of legal challenges that make little sense for it to take on if it doesn’t have to. Uber has been sued for everything from misclassifying workers to engaging in anti-competitive business practices over the years. While the company has survived its legal challenges, it’s still a lightning rod for controversy and could face future challenges to its contractor-based business model.

Speaking of legal problems, there’s a good chance that Tesla could invite antitrust suits if it acquired Uber. Earlier this year, the company was already the subject of an antitrust suit involving its policy of voiding warranties for any repairs done by a third party. If Tesla took on the role of making and operating the nation’s only functional robotaxi fleet without a potential competitor like Uber around, it’s very likely that it would eventually face scrutiny from regulators that could even result in a forced breakup.

The biggest problem for Tesla buying out Uber, though, is that the successful creation of an automated taxi service is still deeply uncertain. Elon Musk has been touting full autonomy for years, but Tesla’s autonomous driving is still notably dependent on recourse to human drivers taking the wheel.

Even with the Cybercab having been announced, it isn’t expected to be in full production until 2026 or 2027. Furthermore, the vehicle will have to get regulatory approval before it can be rolled out, as the Cybercab lacks any kind of human steering capability.

Taking the view of the landscape around a possible acquisition of Uber by Tesla, there simply seem to be too many drawbacks and not enough upsides to make it worth Tesla’s while. If Tesla buys Uber and can’t deliver on its lofty promises around robotic taxis for either technological or regulatory reasons, it could end up with a financial and legal liability on its hands. Meanwhile, the money that the decision to buy Uber would eat up couldn’t be deployed in Tesla’s core business.

Overall, the odds of Tesla buying Uber seem fairly slim. While the two companies may someday collaborate on autonomous taxi services, a full acquisition of Uber simply seems too costly and too uncertain for Tesla. Though owning Uber would certainly give Tesla the edge in maximizing its taxi service profits, it’s more likely that the company will simply choose to build a competitive platform to Uber instead of buying it.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.