Waymo has to get back out front.
- Waymo has raised $2.25bn from outside sources as I think it needs to accelerate its progress as evidence that many of its rivals are hotter on its heels than it anticipated.
- Waymo is raining $2.25bn from Silverlake, the Canada Pension Plan Investment Board and UAE-based Mubadala.
- Conspicuously absent from this raise is SoftBank which has backed many of Waymo’s rivals but is clearly licking its wounds before it plots its way forward.
- There is no word on valuation, but I suspect that it is around $20bn which would give the new investors around 10% between them.
- I base this on Cruise’s $19bn valuation in May 2019 combined with the fact that market sentiment has softened in this space meaning that any premium that Waymo would have been able to command will have come back somewhat.
- By my estimation, this is still pretty rich given that I valued the entire autonomous driving software industry at $16.7bn (see here).
- This figure looks very low but this is because the industry is unlikely to start generating revenues until 2028 the profits from which need to be reflected in today’s money at a commensurate level of risk.
- However, there is more to Waymo than just autonomous software and it is in these other activities that it will need to make up the valuation gap.
- Here there are two activities:
- First, Waymo One: This is Waymo’s robotaxi service which is currently operating with no one in the vehicle in Arizona.
- That sounds good but every vehicle still has a safety driver.
- This is achieved by having the driver not sitting in the driver seat but in a remote facility.
- Furthermore, Chandler Arizona is one of the easiest places to run an autonomous fleet which is why many players have chosen it for testing or early deployment.
- Tesla is extremely bullish on the profitability of this segment but I am far more sanguine given that there will be brutal competition which will quickly reduce it to a commodity.
- Second, Waymo Via: This is a division of Waymo aimed at producing autonomous Class 8 trucks (5 axles) for moving goods long distances.
- Although there is a lot of commonality between the driving of trucks and cars, things like braking and changing lanes are very different and this capability has to be added on top.
- Again, I suspect that this is an area that will commoditise quite quickly once it becomes commercially viable.
- The most recent data available suggests that the field of autonomous driving is tightening with very little to separate the quality of offerings of the top 4.
- If one also throws in the two dark horses, Yandex and Mobileye which look very promising but have yet to deliver any data, one can see how the field could become very quickly crowded leading to commoditisation.
- This would make it impossible for the huge valuations which have been paid to finance these companies to be justified leading to large write-downs and agony all round.
- The spectre of commoditisation across all of its offerings (software, robotaxis and trucking) means that Waymo needs first-mover advantage as a differentiator instead.
- This is what the $2.25bn can help Waymo to achieve which combined with further support from Google puts it in a good position to out invest most of its rivals and come to market first.
- This is not an enviable position to be in and given that there are already far too many players in this space several rounds of bloody consolidation are likely to ensue.
- Waymo is in the best position and arguably has the most financial support but I would be cautious getting involved as the valuations look far too high and the players way too numerous.
