Waymo – All guns blazing

Waymo is racing to market.

• Waymo has raised more money clearly indicating that Waymo’s technological edge has been eroded as the data suggests and that it is now a straight race to the finishing line in terms of the six leading contenders.
• Waymo has raised another $2.5bn at a valuation that was probably around $30bn which comes on top of the $2.25 it raised in March 2020 (see here).
• According to Linked-in, Waymo has around 2,400 employees and if most of these are extremely expensive, silicon valley-based engineers, then the cash burn rate in the absence of revenues could be well above $1bn per year.
• However, I don’t think that Waymo has run out of money as its parent Alphabet has over $100bn and would probably bail it out if it got into difficulty.
• Hence, I think it most likely that Waymo is feeling the pressure of its rivals breathing down its neck and intends to further accelerate its development in order to try and get to market first.
• The most recent data available suggests (see here) 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 could easily result in 6 solutions becoming available with very little to tell between them in terms of performance on the road.
• This is why I continue to think that the market for autonomous driving software and the robotaxi market will become commoditised and brutally competitive.
• RFM has estimated that the cost to operate a fully autonomous fleet of robotaxis is going to be something around $0.25 per mile.
• This compares very favourably to the $2 per mile that it costs for human-piloted ride-hailing today which is why I suspect it will take off in a big way when the technology is ready.
• However, because there will be a number of equally good offerings available, price competition will be brutal and the price for a robotaxi will not be the $1 per mile that Tesla thinks it will earn but something closer to $0.35.
• This outlook means that the winner will be the one that can win the greatest amount of market share and operate at scale.
• This in turn will confer the greatest advantage to the one that can get there first and grab the market before anyone else.
• I suspect that this is the main reason for this capital raise and that once closed, Waymo will go on a hiring or acquisition spree in order to accelerate its time to market.
• The spectre of commoditisation remains present across all of its offerings (software, robotaxis, and trucking) which means that Waymo needs first-mover advantage as a differentiator rather than technology.
• This is not an enviable position to be in and given that there are still far too many players in this space, several more 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 still look far too high and the players way too numerous.