Google’s driverless car project has finally graduated from Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) research lab to become a stand-alone company called Waymo. But while Google expects Waymo to become a revenue source soon, it’s been attacked for seemingly falling behind in the self-driving car race.
Waymo CEO John Krafcik, who by the way is an auto-industry veteran, made it clear that Waymo isn’t a car company.
He said Alphabet’s self-driving car business is into making better drivers. The Wall Street Journal paraphrased Krafcik as saying, “[Krafcik] saw opportunities in ride sharing, transportation logistics and trucking, as well as licensing technology to other auto makers.”
There were no definite statements on how the company intends to generate revenue, either. What is clear is that GOOGL is unlikely to make its own self-driving cars and investors should appreciate Alphabet’s approach. Here’s why.
Google Leads the Self-Driving Car Race
In recent months, Google’s been criticized for slacking off in the self-driving car race. However, its self-driving cars have not logged over 2 million miles over the past eight years for nothing.
Critics have pointing to moves by traditional automakers like General Motors Company’s (NYSE:GM) acquisition of Cruise Automation, and Tesla’s Autopilot, among others, as proof that GOOGL is now in the back seat. A report from earlier this year on how Toyota Motor Corp (ADR)(NYSE:TM) had the highest number of patents related to self-driving cars also helped them buttress their points.
After all, Toyota had over a thousand patents as of when the report was published, while GOOGL only had a few hundred patents. However, what’s not being said is that the patents Alphabet holds are mostly related to Vehicle-to-Vehicle (V2V) and Vehicle-Infrastructure (V2I) technologies.
For instance, GOOGL received a patent that could prevent autonomous car collision victims from being dragged under the car earlier this year.
Considering that Google was a pioneer and it doesn’t have the most patents, it seems the company has always known the route it would take, which wouldn’t be making cars. Obviously, other automakers will need these V2V and V2I technologies to make self-driving cars work well with the surrounding.
The idea goes, “Allow them to make the self-driving cars, they’ll pay us to help connect their cars to the surrounding.” Sidewalk and Nest are likely a big part of Waymo because of what they stand for.
GOOGL Stock Is Well-Positioned
Alphabet’s decision not to make its own cars is a good one, and GOOGL stock holders should applaud it. Traditional auto-manufacturing is already highly capital intensive. A futuristic auto manufacturing business is probably going to be even more capital intensive. The huge capital outlay that building its own car will require might not be worth it, as this is an unproven market.
Moreover, as Tesla is showing, it’s not easy to break even in the car-making business. So making its own cars wouldn’t have been the best route to profitability. However, the opportunities that Krafcik outlined are relatively less capital intensive. The translation is that it will be much easier for GOOGL to own a profitable self-driving business going this route.
Looking at it from the perspective of risk-taking, I believe Alphabet knows what it is doing. As stated above, this market is unproven. Therefore, by licensing its technologies, going into car sharing, etc., GOOGL stock is shielded from the worst-case scenario of self-driving cars failing.
But even if self-driving cars fail, its technologies can still be monetized because the auto industry will keep evolving technologically. For investors looking to take a relatively safe bet on self-driving cars, GOOGL stock presents one of your best options.
As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned securities.