The Long, Shared Road to Driverless Cars
The escalating cost of self-driving vehicle programs is catching up with Silicon Valley, as it did with Detroit and German
Driverless-car ventures are set to attract some eye-catching valuations over the coming months, but this isn’t a sign of technological maturity. The road to autonomous driving is actually getting longer.
Uber is looking for external investors, including SoftBank and an unnamed car maker, to take a stake in its self-driving vehicle unit, The Wall Street Journal reported last week, citing a valuation of between $5 and $10 billion. More surprisingly, so is Alphabet’s Waymo, according to a report in The Information, a Silicon Valley news service, that cited Volkswagen as a potential investor. VW said it wasn’t considering an investment in Waymo.
For Uber, attracting third-party capital makes a lot of sense. The company has plans for an initial public offering this year, and sharing the costs associated with its capital-hungry driverless program at a multibillion-dollar valuation would reassure investors that it is an asset rather than a money-pit. The business may also have a slightly tarnished reputation following its high-profile involvement in the first fatal driverless-car accident a year ago.
Waymo’s situation is different: It is usually considered the leader in driverless tech, mainly because regulatory data on miles driven autonomously on Californian roads show that Waymo cars travel much further than peers between “disengagements”—when human drivers have to take over. Unlike Uber, Waymo’s parent is also highly profitable, thanks to cash flows from advertising giant Google.
Any move by Waymo to share risks and rewards therefore looks like an admission that a driverless future isn’t just round the corner. And the fact that both Uber and Waymo seem to be courting car makers is a hint that the balance of power is shifting in favor of hardware builders.
Car makers are already betting on collaboration. General Motors last year got first SoftBank then Honda to invest in its driverless business, Cruise Automation, the latter at an implied valuation of almost $15 billion. BMW and Mercedes-maker Daimler, having decided to merge their car-sharing ventures, said last month they also would pool self-driving technology. Volkswagen is in talks to invest in Ford’s driverless unit, Argo AI.
To make cars driverless, the costs have grown “large enough that the benefits of sharing them outweigh the drawback of losing exclusivity,” says Andrew Bergbaum, managing director of management consulting firm AlixPartners.
The main reason for escalating costs is that the arrival date of profit-generating self-driving vehicles keeps getting pushed back. In December, Waymo launched an autonomous taxi service in Phoenix, Arizona, but at a very modest scale and with human drivers in cars for support. Daimler and BMW think automated driving on highways won’t be ready until the mid 2020s.
Self-driving technology will be a drain on the resources of tech companies and car makers alike for the foreseeable future. Mounting valuations are just a side effect of the pressing need to share mounting expenses.