This is an excerpt from a story delivered exclusively to Business Insider Intelligence Transportation & Logistics Briefing subscribers. To receive the full story plus other insights each morning, click here.
Waymo, Alphabet’s autonomous vehicle (AV) technology spinoff, is seeking outside investors for the first time, according to TechCrunch.
Business Insider Intelligence
The company is reportedly looking to secure an investment from German auto giant Volkswagen (VW) and is aiming for any cash injection to value it at "well north of $15 billion," the most recent valuation of Cruise, GM’s AV business unit. Any stake that Waymo sells to another investor would be less than 20% of the company.
Waymo follows other AV companies in considering investments from third parties to alleviate the massive costs required to build AV technologies. Uber’s self-driving project got an injection of $500 million in cash from Toyota last year, while Softbank poured $2.25 billion into Cruise.
Still, AV companies are racking up significant losses without the promise of any near-term revenues: GM’s Cruise unit lost $728 million last year, 19% more than it shed in 2017, while Uber’s AV unit loses between $125 and $200 million a quarter and is responsible for 15-30% of Uber’s quarterly losses. For its part, Waymo spends at least $1 billion a year, despite slashing by 90% its LiDAR production costs — likely the lowest of any leading AV firm.
The combination of AV production’s high costs and a maturing ride-hailing market raises the question of whether Waymo can ever achieve profitability. Though Alphabet is laser-focused on building up its ride-hailing service — which could offer a significant revenue opportunity — it’s not yet clear that its costs will go down as it scales its service.
Even once the firm cuts out drivers, Waymo will need to pay for a slew of services and technologies like AV maintenance and 5G connectivity. Given that Lyft’s losses are growing, it’s unclear that Waymo can generate a profit. And beyond profitability, there are serious competitive concerns: Uber and Lyft, the two entrenched players in the US ride-hailing space, already boast established brands and are themselves working on AVs.
Moreover, in Lyft’s recent IPO filing, the company said that "it is uncertain to what extent market acceptance will continue to grow, if at all." Given that Lyft continues to gain market share even as its revenue growth slows down, it’s possible the ride-hailing market is maturing, which spells trouble for Waymo.
Though Alphabet remains in the pole position in the self-driving race, it faces a long road to profitability, especially if it remains focused on ride-hailing. Relying on outside investment won’t be enough to propel Waymo across the finish line.
Interested in getting the full story? Here are two ways to get access:
1. Sign up for the Transportation & Logistics Briefing to get it delivered to your inbox 4x a week. >> Get Started
2. Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to the Transportation & Logistics Briefing, plus more than 250 other expertly researched reports. As an added bonus, you’ll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> Learn More Now
- XPO Logistics is expanding its digital platform to Europe
- Waymo is selling its sensors — but not to autos
- German automakers will spend $45 billion on electric vehicles over the next three years