Human cost of autonomous car development sinks ESG scores for Uber, Tesla

Blog March 28, 2018

With great potential profits come great risks:  In the world of investment it’s a truism that early-stage companies, markets, and technologies offer the potential for outsized gains and risks alike.

Huge returns are the hope for Investors in both Uber, the privately-owned ride-sharing startup, and Tesla, Elon Musk’s gambit on solar power on every roof and a self-driving electric car in every garage.    

The investment thesis for each company relies on them attaining profitability, along with a leading role in the transformational shift to self-driving cars, not necessarily in that order.  Former Uber CEO Travis Kalanick said: “in order for Uber to exist in the future, we will likely need to be a leader in the autonomous vehicle space.”

Now, the companies have another factor in common:  While experts say the two lag in the race to bring autonomous cars to market, they are responsible for two of the first autonomous car fatalities in the U.S.

Above you can see Insight360’s near real-time ESG Pulse Score drop for Uber after news of a pedestrian fatality in Arizona.   On the Insight360 platform, Pulse Scores give greater weight to near-term news than the longer-term Insight Score. In Uber’s case the sensitive Pulse Score dropped 20 point drops on a 100-point scale, a significant move.

Below is a chart for Tesla;  when California authorities open an investigation into a fatal crash involving a Tesla car with some self-driving capabilities, that event caused a sudden drop for Tesla’s Pulse Score.

Social impact of crashes is material for financial performance, per SASB

 

When company products are involved in the deaths of consumers or bystanders, it’s usually a recipe for bad headlines and public opinion.   

For Uber and Tesla, driver and pedestrian deaths also carry the risk that regulators will slow or halt their development of self-driving technology, which is a central part of their investment theses.  

If there was ever a case where “intangible” ESG risks, in this case, the “social” S factor mattered to company financial performance, this is it.

The fatal crash, reflected in Tesla’s dropping score in the chart above, is scored negatively in the category Product Quality & Safety.

That category is considered material for financial performance in the Automobiles Sector, according to the Sustainability Accounting Standards Board, known as SASB.

The events captured in the recent fatal Uber accident are also scored negatively in categories that SASB considers material to financial performance for Uber’s sector of Transportation.

That event got score negatively for Accident & Safety Management.

What does it all mean for investors?

While every company has a different risk profile, every investor has a different risk tolerance.  

Investment professionals will weight these events differently, but anyone who owns shares of Uber or Tesla must consider the intangible, Social risks of urgent development of autonomous technology.

This is a case where intangible factors matter to both company reputations and strategic success.

It’s also a reminder of how important automobile and transportation companies are; their work can be a matter of life and death.

At the end of the day, it’s not just a matter of great potential profits equaling great risk.

With great power, there must also come — great responsibility.