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(Bloomberg) -- Lyft Inc. has agreed to sell its self-driving division to a subsidiary of Toyota Motor Corp., joining Uber Technologies Inc. in stepping back from the costly driverless vehicle research once thought to be on the verge of revolutionizing ride-hailing.
The deal is worth $550 million and will allow Lyft to turn an adjusted profit in the third quarter of this year, the company said Monday. Previously, Lyft was targeting profitability by the end of the year. The company estimates that selling the division will save it $100 million in operating expenses annually.
Lyft shares gained about 2% in extended trading after closing at $63.06 in New York. The stock has jumped 28% this year.
“Assuming the transaction closes within the expected timeframe and the Covid recovery continues, we are confident that we can achieve Adjusted EBITDA profitability in the third quarter of this year,” Lyft Co-Founder and President John Zimmer said in a prepared statement announcing the deal, which is expected to close during the third quarter.
Lyft will sell the unit, called Level 5, to Woven Planet Holdings Inc., an extension of Toyota’s research division with a mandate to advance self-driving car technology. The deal is structured to start with a $200 million payout followed by $350 million in additional payments over five years.
Lyft fielded interest from “a number” of autonomous vehicle companies before selecting Toyota’s Woven Planet, Zimmer told analysts during a call. A key element in the decision to sell the unit, Zimmer said, was recognizing that Lyft no longer needed to develop its own autonomous vehicle technology. Instead, he said, multiple partnerships with other companies working on the technology would deliver the highest value to the Lyft platform.
“It’s important, at this point, not to get into an exclusive relationship,” Zimmer said.
In an interview with Bloomberg Television, Zimmer said the deal represented Lyft “doubling down” on the autonomous driving part of its strategy. “This allows us to work with multiple partners, to bring the best and safest technology to the platform for our customers and to focus on the customer experience and the marketplace technology,” he said.
The sale comes as Lyft’s ride-hailing demand is rebounding after the pandemic slammed revenue by keeping would-be riders homebound. The lockdowns were particularly hard on Lyft, which operates only in North America and, unlike its larger rival Uber, does not have businesses like food delivery to off-set ride-hailing losses.
But even as the ride-hailing industry shows signs of recovery, expectations for self-driving car development have been humbled. Long hailed as a technology that would be soon be ready to commercialize broadly and cheaply, its development is costing more and taking longer to safely deploy than initially expected.