Why Brad Gerstner is Wrong About Uber

Altimeter Capital dumps its entire $1 billion position in Uber

In a recent interview with CNBC’s Scott Wapner, Brad Gerstner, founder of Altimeter Capital, revealed that he has sold his entire 13.34 million-share position (15% of his $6.75B fund) in UBER 0.00%↑ and rotated the proceeds into TSLA 0.00%↑.

I was shocked when I saw the headline and then listened to the interview. Gerstner is by far my favorite investor to track because he excels in his analytical abilities and digs deep into the factors that make a stock work.

Beyond the initial shock, his decision also gave me pause. Uber has grown to represent more than 25% of the Sycamore portfolio over the past several weeks. The good news is that I don’t blindly follow famous investors—I do my own research and make my own decisions. Still, his move prompted me to re-underwrite my position in Uber.

And so, I did. And after some critical thinking, I went back into the market and bought more.

To be clear, Gerstner’s belief in the transformative potential of FSD technology isn’t misplaced as it really is remarkable. I test-drove it earlier this year to see it firsthand, and it’s impressive.

But while the tech is groundbreaking, there are two key reasons why I believe Gerstner will ultimately be on the wrong side of this trade—and why we’re continuing to build our position here.

1. The Marketplace

Uber is a marketplace—a demand network that connects riders and consumers with drivers. Whether it’s moving people or goods, Uber is the ultimate marketplace for all forms of mobility.

Today, 161 million people use an Uber product at least once per month. Additionally, Uber’s loyalty program, Uber One, boasts over 25 million paying members and is growing at a remarkable 70% year-over-year. It’s clear that Uber has built an extraordinary marketplace with significant scale and reach.

Building a marketplace like this isn’t easy. It takes time, money, and expertise. Tesla, for all its innovation in hardware and software, has obviously yet to prove it can replicate this kind of marketplace success.

As Uber’s CEO Dara Khosrowshahi has emphasized, building a great car and building a great marketplace are two very different challenges:

“Everything you have to build in terms of the matching stack, the pricing stack, all the things that can go wrong… In a lot of markets, people want to pay cash, accidents happen in a car, people get sick, people lose items. All of those considerations—we’ve had to learn how to build out a system that’s able to make everything work for both the rider and the driver with economics that work. It’s taken us 15 years, it’s taken us tens of billions of dollars in capital, and we can provide that instantly to a partner” (source). - Dara Khosrowshahi, CEO

Dara recently hinted at the economics of partnerships with autonomous vehicle (AV) suppliers, suggesting that an 80/20 revenue split between the AV supplier and Uber would make sense. If that’s the case, it’s an extremely favorable deal for AV partners, including Tesla, who can leverage Uber’s massive network without needing to build their own from scratch.

The Robotaxi Vision

In his recent podcast, Gerstner referenced the potential for enterprising individuals to own/lease Tesla vehicles and operate them as robotaxi fleets. I agree with him—my friends and I even drafted a business plan envisioning this exact scenario. Theoretically, this could work, and if it does, it plays right into Uber’s hands.

As Dara explained:

“If [Tesla] develops their own AV and decides to go direct only through the Tesla app, they would be a competitor. And if they decide to work with us, then we would be a partner as well. To some extent, both can be true. So, I don’t think it’s going to be an either/or. I think Elon’s vision is pretty compelling, especially since you might have these ‘cyber shepherds’ or owners of fleets, etc. Those owners, if they want to maximize earnings on those fleets, will want to put them on Uber” (source). - Dara Khosrowshahi, CEO

Tesla’s Challenge

For Tesla, the challenges are clear. The company is still years away from producing its Cybercab at scale—likely not before 2026 or 2027. Until then, the early days of Tesla’s robotaxi network will rely on existing Tesla owners opting to put their vehicles into the supply pool. And frankly, I don’t think that’s a viable model. And certainly not one that can meaningfully scale.

Peak demand times for rideshare often coincide with when people need their own vehicles. It’s also unclear how many Tesla owners would be willing to make their vehicles available for strangers. After all, I’d assume most Tesla owners aren’t needing to earn extra income by sharing their car.

The real power lies in fleet owners building out dedicated Cybercab fleets, but until Tesla can meaningfully produce these vehicles at scale, the conversation is largely hypothetical. Uber, on the other hand, stands ready with its infrastructure, demand, and expertise to seamlessly integrate Tesla’s supply when they’re ready.

2. Faster AV Regulation Actually Benefits Uber Most

Gerstner highlights the incoming Trump administration’s push for a national regulatory framework for self-driving cars. This contrasts with the current patchwork approach of state-by-state regulatory oversight. A unified framework would obviously make things simpler, cleaner, and easier for Tesla.

But it wouldn’t just help Tesla—it would benefit every autonomous vehicle player in the industry. And for the most part, those with real, operational products are already plugged into Uber. That’s the first advantage for Uber.

Now, here’s the real benefit to Uber that I don’t think Gerstner has fully considered: building a robust marketplace takes time and time is not on Tesla’s side. As mentioned, it has taken Uber 15 years to achieve its current scale and sophistication.

The acceleration of a robotaxi product to market (Gerstner is predicting a launch within six months) leaves Tesla even less time to build its own marketplace. This rapid timeline only makes Tesla more reliant on Uber. If Tesla were slower to market due to prolonged regulatory hurdles, they might have the opportunity to build more infrastructure around their own marketplace.

But with streamlined regulation and a significantly quicker go-to-market timeline, Tesla will need an established demand network to plug into more than ever. And Uber, with its unmatched infrastructure and expertise, stands ready to provide that connection.

Hybrid Scenario

The only other scenario I can envision is a Tesla robotaxi launch that is on such a small scale that it simply doesn’t move the needle—at least until Cybercabs are ready. Thus, I could see Tesla offering direct access through its app for individual owners making their vehicles available, and waiting to plug into Uber’s platform once fleet operators (“cyber shepherds”) come online. But I don’t see how this scenario is meaningfully negative to Uber.

Bottom Line

Gerstner suggested that the optics might look bad for Uber into and through 2025. I think the reality will prove to be the opposite. While there could be some very short-term pressure, I see that as a great opportunity. It won’t take long for the market to recognize that Tesla will need to partner, and by necessity of Uber’s scale, it will be the partner of choice. We’re already seeing this dynamic play out with Tesla’s AV competitors, Waymo and Cruise, with their exclusive partnerships with Uber launching in 2025.

If you can see through this momentary “gray” period, you can see a business valued at a 20x FCF multiple, growing its top line at over 20%, compounding free cash flow at a ~35% CAGR, and strongly positioned for the future.

So for all these reasons, this is why I believe Gerstner is wrong about Uber and why I’m making my concentrated bet here.

If you missed my more thorough thesis on Uber, you can find that here. It’s only ten days old:

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A Superlative Example | Sycamore Portfolio Update [October 2024]

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Disclosure: Sycamore Capital is not investment advice nor a recommendation to buy, sell, or hold securities. Sycamore Capital is not an investment advisor and does not manage client assets. Assets are my own. Opinions are my own. Do your own research.