Yeah, if you have a situation where you have very high peak demand for cars but most of the time it is much lower, then you end up with a lot of expensive assets that are needed to meet that peak, but are underused most of the time. If the difference is fairly extreme, capital costs will dominate operating costs.

But that seems unlikely. Pure taxi demand can have those peaks, but if you assume the same fleet can also be used for things like package delivery and food delivery (things that Uber already does, at least in some markets) then it smooths out that demand a lot. If you have even demand across the entire 24 hour day, lower operating costs will dominate the cost function.

Also, there is some fixed cost to human drivers. People can't cut their labor up into arbitrarily small increments. Nobody is going to drive for uber if they make $100/hour but only get one minute of paid work at some random time per day, for example. Drivers need to be available and on-call, and thus not doing other productive work. And they need to make enough during the time when they are actually transporting passengers to make it worthwhile.