The ridesharing industry has been in a steady downtrend throughout the past several months, as recovery hopes are continually delayed by a combination of legal complications and a resurgence of COVID-19. Lyft and Uber remain embroiled in legal disputes with state governments about the classification of their workers, which could have serious implications for their timelines to profitability. Meanwhile, overseas ridesharing giant DiDi has been forced to shutter plans for a European expansion, worsening the prospects for a swift recovery after Chinese regulators sent the company’s stock tumbling earlier this year.
Industry headwinds, including a shortage of drivers, have already sent ride prices soaring, causing some consumers to opt for low-cost startups instead. The possibility of a full post-pandemic recovery for Uber, Lyft, and DiDi has likely been shifted out until next year.
Related Stocks: Uber Technologies, Inc. (UBER), Lyft, Inc. (LYFT), DiDi Global, Inc. (DIDI)
Legal Battles Heat Up in Ridesharing Space
After spending over $200 million dollars to ensure the passage of Proposition 22 last year, ridesharing industry leaders Uber and Lyft are dealing with some unexpected headwinds as state governments are now calling the law “unconstitutional”.
Per CBS News, Prop 22 was a law that shielded ridesharing and delivery companies, such as DoorDash, from labeling their drivers as employees. Instead, the law defines them as independent contractors, or gig workers, which means Uber and Lyft do not have to provide benefits or job protections such as paid sick leave and unemployment insurance.
Ride hailing companies campaigned throughout last year to get the bill passed, making it the most expensive ballot measure in California state’s history. 59% of state voters supported the bill, yet that bill is now in jeopardy of being reversed.
If it were to be overturned, Uber and Lyft would be forced to raise ride prices at a time when prices are already surging. Gad Allon, Professor at the University of Pennsylvania’s Wharton School of Business, recently told Bloomberg News that the price for a ride could increase as much as 10-20% if the ruling were overturned.
According to Barron’s, that price hike would compound riders already having to pay an average of 50% more for an Uber or Lyft in the month of July, compared to January 2020.
Uber and Lyft have each said they are confident the ruling will be upheld.
As Uber announced in a statement, cited by the Financial Times, overturning Prop 22 would “ignore the will of the overwhelming majority of California voters and defy both logic and law”. Uber also noted it would appeal such a ruling and expect to win, pointing out the fact overturning the law would put more people out of work.
Similarly, Lyft president John Zimmer recently told CNBC…
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