Uber buys self-driving truck startup Otto; teams with Volvo

By Bernie Woodall

(Reuters) - Ride service Uber Technologies Inc said on Thursday it acquired self-driving trucks startup Otto and formed a $300 million alliance with Volvo Car Group to develop self-driving cars.

Uber's moves reflect its eagerness to advance self-driving technology. If its ambitions are realized, these vehicles could over time reduce its biggest cost, paying drivers.

Uber would also be positioned to expand into the trucking industry, which had revenue of about $726.4 billion in the United States in 2015, according to trade data.

Carpooling firms have formed alliances with large automakers, such as General Motors Co (GM.N) and ride-hailing service Lyft, to accelerate those efforts, which depend on software and hardware working together to give a vehicle the right reflexes in traffic.

"Partnership is crucial to our self-driving strategy because Uber has no experience making cars," Uber Chief Executive Officer Travis Kalanick wrote in a blogpost.

"To do it well is incredibly hard, as I realized on my first visit to a car manufacturing plant several years ago."

Uber, which has a research centre in Pittsburgh, will by the end of this month begin a pilot programme in which trusted Uber customers will be able to use their phones to summon a self-driving car for use in a downtown Pittsburgh, according to a source with knowledge of Uber's plans.

It will be the first time members of the public will be able to use self-driving vehicles. A driver trained to handle the autonomous cars will be behind the wheel to step in if needed.

The purchase of Otto, a start-up company less than a year old with fewer than 100 employees, will be for 1 percent of Uber's valuation, if certain technical targets are met, said the source.

Recently, that valuation was about $68 billion, placing the value of the deal at about $680 million. Current Otto employees would get a fifth of profits Uber earns from a self-driving trucking business, if those targets are met, the source said.

Current Otto employees would get a fifth of profits Uber earns from a self-driving trucking business.

Anthony Levandowski, one of Otto's co-founders, will lead Uber's self-driving efforts in San Francisco, Palo Alto and Pittsburgh, Kalanick said on the company's website. (https://newsroom.uber.com/rethinking-transportation/)

That includes personal transportation such as ride-hailing services, as well as delivery services and trucking, Kalanick said.

Levandowski was one of four founders of Otto, each of whom worked at Alphabet Inc's Google (GOOGL.O) and its self-driving programme.

VOLVO DEAL FOCUSES ON SUV

The Uber-Volvo partnership will allow Uber to pool resources with the Swedish-based carmaker, owned by China's Geely , into initially developing the autonomous driving capabilities of Volvo's flagship XC90 SUV model. The investment will be shared roughly equally by the two companies..

There was no timeline given for the alliance, but the source said the goal is to develop a fully self-driving car by 2021, and that Uber, which does not plan to make its own vehicle, will align with other automakers over time.

Uber will buy Volvos and then install its own driverless control system. Some of the Volvos will join a handful of Ford Motor Co (F.N) Fusion sedans that will be used to start the pilot programme that combines self-driving and ride-hailing in downtown Pittsburgh.

So far Otto has tested self-driving trucks for highway use only.

Developers hope for productivity gains with the new technology that will enable trucks to drive around the clock, leaving humans to rest, do paperwork and take controls only while going on and off highways.

Over the long-term, Uber and rivals such as Lyft could cut the cost of paying drivers if they can gradually incorporate self-driving cars into their fleets. But at least for now, said the source familiar with the Uber-Otto agreement, Uber will expand its driver network, which now stands at 1.5 million globally in more than 450 cities.

A spokesman for U.S. safety regulator National Highway Traffic Safety Administration said it "continues to engage with all entities that are developing, testing and deploying automated technologies to ensure that they are advancing road safety."

Federal guidelines will be issued soon on development and testing of "highly automated vehicles," he said.

(This story corrects ninth paragraph to show Otto deal valued at about $680 million, or 1 percent of Uber valuation)

(Additional reporting by David Shepardson in Washington; Editing by David Gregorio and Cynthia Osterman)