IMG: via Uber

Uber’s lower cost alternative, UberX, is losing money, according to Forbes.

UberX cut costs for customers by using a cheaper tier of cars, such as the Toyota Camry and Honda Accord, as opposed to Uber’s fancy black town car staple. UberX recently cut its rates by 25%, but the company is still giving drivers 80% of the original fare price. For example, if a $15 fare is cut down to $11.25, the drivers still make $12. That means Uber is paying more out of pocket, thus ensuring a loss of income.

The loss of profit isn’t stopping the company from keeping its prices low. Uber’s spokeswoman Eva Behrend says that the temporary price cuts (currently just planned for the summer) are going to stay, even if they are running the program at a loss. This is probably due to complaints from the many drivers who suffered financially from the previous price cuts, when their pay was based off the discount. This time around, they get to keep their pay, no matter what price Uber decides to dish out, and Uber gets to keep happy employees. The company sees this as a win-win.

But this also makes Uber fearless. The company’s business model has always been to raise prices as demand increases. You see it when the weather is bad or when some big event draws in thousands of tourists needing rides. Slashing prices during the summer (which is definitely a high demand season) means Uber isn’t afraid to veer off its normal course and take a chance. Lower prices mean happy customers, and happy customers usually bring in more customers.

It looks like Uber is hoping this usual chain of events occurs, and the extra riders will supplement the cost. It’s too early to tell if this strategy will work, but it’s certainly worth the effort if it gets customers riding.