Quick Thoughts: GOOGL – Waymo Fly Than You

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Quick Thoughts: GOOGL – Waymo Fly Than You

–     GOOGL’s newly launched Waymo business unit has a flexible mandate to monetize autonomous vehicle technology however it makes sense – from OEM licensing to operating fleets of robo-taxis

–     Negative press reports ahead of the announcement that inaccurately suggested a retreat from full autonomy, and that afterward pointed to recent personnel departures, should NOT be taken as evidence that GOOGL is de-emphasizing the business in any way

–     We believe that the defections stem from the decision to launch Waymo as a commercial business now rather than later. We believe this decision, and the appointment of executive leadership with clear accountability for monetization will hasten the development of autonomous vehicles and is in the best interest of shareholders.

–     We have written at length about GOOGL’s clear leadership in self-driving technology (http://ssrllc.com/publication/autonomous-cars-self-driving-ambition/)

Yesterday, ahead of a scheduled press event with John Krafcik, the head of Alphabet’s Google X self-driving car project, The Information reported that the company would announce a retreat from previous plans to deliver fully autonomous “Level 5” autonomy in favor of a more incremental development path. That is not what happed. Rather, Krafcik announced the formation of Waymo, a new Alphabet business unit separate from the Google X moonshots organization that birthed it. Waymo will approach commercializing the company’s autonomous driving technology pragmatically, as Krafcik’s blog post put it:

“We can see our technology being useful in personal vehicles, ridesharing, logistics, or solving last mile problems for public transport. In the long term, self-driving technology could be useful in ways the world has yet to imagine, creating many new types of products, jobs, and services.”

In the press event, Krafcik talked of licensing the technology to automakers for personal use vehicles, to long-haul trucking concerns, and of using it in fleets of fully Level 5 robo-taxis. The only monetization avenue ruled out was Alphabet building the vehicles itself.

Krafcik, the former CEO of Hyundai America, was hired a little over a year ago to head up the self-driving car initiative, which had been running as a project within the Google X research division for nearly 8 years. Earlier this year, former AirBnB executive and hospitality industry veteran Shaun Stewart joined the team as Krafcik’s chief lieutenant. These two moves prompted several technical team members to leave, as reports of differences of opinion in the best path to monetization emerged. We believe that these conflicts are unavoidable, particularly in a business that had run as a technology fiefdom for many years, and see the move to consolidate to a commercial business unit headed by Krafcik as a clear positive for investors.

We strongly believe that Waymo’s self-driving technology assets – its extensive driving data, its sophisticated deep learning model, its industry-best maps, its extraordinary roster of AI talent, and its 8 years of experience – place it well ahead of rivals for autonomous vehicle supremacy. The move to establish Waymo as a quasi-independent subsidiary with executives held accountable for progress toward commercialization is an exciting step toward making fleets of autonomous vehicles ferrying passengers and making deliveries a reality. We have written at length on our view of this future – see (http://ssrllc.com/publication/autonomous-cars-self-driving-ambition/)

For our full research notes, please visit our published research site.

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