Waymo moves fast, but where is it going?
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November 06, 2017 12:00 AM

Waymo moves fast, but where is it going?

Katie Burke
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    KATIE BURKE
    Waymo gave a self-driving demonstration in Atwater, Calif., last week.

    Editor's note: An earlier version of this story incorrectly described Waymo’s relationship with AutoNation. AutoNation will provide maintenance and repairs for Waymo vehicles.

    ATWATER, Calif. — Waymo, Google's self-driving vehicle unit, is on the verge of achieving a breakthrough level of autonomy, its CEO said, but the lack of a clear commercialization strategy suggests it's still a long way from bringing the technology to market on a large scale.

    Nearly a year after being spun off, Waymo has plenty of advancements to show in its vehicles. It gave reporters rides on a staged course with no driver at its Castle test facility here. The car completed its paces without a hitch, with an in-house sensor suite Waymo claims has an industry-topping range of 300 meters and a streamlined user interface for passengers.

    In contrast, progress toward making such rides available to the public appears to be advancing more slowly.

    "We're thinking about, since we've been Waymo for 10 months, how we're going to bring this technology to the world," Waymo CEO John Krafcik said at the media event. "A couple come to mind as super obvious, ride-sharing, ride-hailing; things like trucking, logistics, make a lot of sense for a company like Waymo. ... We're also considering working directly with cities to help those cities solve some really challenging last-mile transportation issues. There's also potential for using this technology in personal-use cars."

    Krafcik said Waymo won't remove safety drivers from test vehicles on public roads until it's convinced they're capable and reliable, but he added that the company is "really close" to Level 4 autonomy, meaning the car needs no human supervision in defined conditions.

    As big a milestone as that would be, it doesn't mean much until Waymo actually starts unleashing those vehicles onto the nation's roads.

    "At some point, they're going to have to make a big decision about what they're going to do," said Mike Ramsey, a technology analyst at Gartner Research. "Having four business models means they have none."

    Krafcik: Plenty of potential
    $70 billion

    In a note to investors following Waymo's partnership with ride-hailing company Lyft earlier this year, Morgan Stanley analyst Brian Nowak wrote that the Google subsidiary could be worth at least $70 billion, more than self-driving competitor Uber and U.S. automakers Ford Motor Co. and General Motors. The valuation is based on the prediction that Waymo vehicles will account for roughly 1 percent of global miles driven by 2030, with a fleet of 3 million cars driving about 65,000 miles a year.

    "More miles [per] year and revenue [per] mile could lead to an enterprise value of $140 billion," Nowak added.

    Without a manufacturing strategy, Waymo is a ways away from having millions of vehicles on the road, and it also hasn't given specific details of how its partnership with Lyft will operate. The company uses Chrysler Pacifica minivans supplied by Fiat Chrysler Automobiles, after attempts to work with Ford fell through in 2015 and talks with Honda Motor Co. have stalled.

    However, Waymo is getting significant mileage from the small fleet it's currently operating. The company has retrofitted about 100 Pacificas and is working on 500 more. The test vehicles drive about 10,000 miles a day on public roads and have performed 20,000 staged tests at the Atwater site. To get a viable business on the ground, Waymo may not need to mass produce right away, Ramsey said.

    "There are about 170,000 taxis, limousines and paratransit vehicles in the U.S., and a couple hundred thousand people regularly driving for Uber and Lyft," he said. "Those cars drive way more miles than you or I do. They don't need millions of vehicles."

    With the massive resources of Google behind it, Waymo also can choose to scale up to mass production if needed, Ramsey added.

    Public acceptance

    Waymo could be holding off on chasing a major payout until regulations and consumer acceptance of self-driving vehicles develop further, said Eric Kennedy, who heads the automotive practice group at business law firm Buchalter.

    "It's not a resources question; it's a question of perception and trust," Kennedy told Automotive News. "It's been a long time since we have had an industry introduce a new product that incorporates trust and perception as much as driverless cars do today."

    The paths to market that Waymo is exploring range from limited consumer interaction in logistics and public transportation partnerships to near-constant contact in ride-hailing and private ownership.

    Regulations under consideration by the California Department of Motor Vehicles would allow manufacturers to forgo a safety driver, potentially allowing Waymo to test vehicles on state public roads without human supervision within a year. The U.S. Senate is reviewing a bill that would allow manufacturers to deploy tens of thousands of self-driving vehicles a year without meeting existing safety standards.

    While the regulatory aspect of autonomous vehicle deployment has yet to be decided, Waymo has been actively addressing consumer acceptance, launching a public education campaign in October in partnership with a variety of consumer interest groups and publishing a safety assessment of its test vehicles. When asked if recent surveys showing about half of Americans were hesitant to use self-driving cars, Krafcik said, "We look at that and we say, 'Wow, that's so cool. Half of customers are already comfortable with this.'"

    Whatever strategy Waymo decides to pursue, the company likely will need to form more partnerships to ensure success, experts say. In addition to Lyft and FCA, the tech company has inked deals with AutoNation Inc. for vehicle maintenance and repair, and with Avis for oil changes, cleaning and other routine maintenance. 

    Yet, compared with other industry partnerships that involve as many as 50 companies working on automated driving platforms, Waymo will need way more help.

    "When you're dealing with consumer acceptance, the more synergies you create the better the product's going to be," Kennedy said.

    To grow its fleet, Waymo might need to find another automaker partner for body variety or bring together a group of suppliers to create its own vehicle — similar to the Deutsche Post electric delivery van the logistics company DHL built with Ford, Ramsey said.

    He added that working with Lyft may be the only option to pursue a ride-hailing model, given Waymo's trade secrets lawsuit against Uber, or it could attempt to build its own network, an undertaking that would eat up a significant amount of money and time.

    As competition heats up, Waymo doesn't have much time to decide which avenue to take in order to reach its full market potential.

    "If they want to maintain a technical lead, they're going to need to make a decision and make it pretty soon," Ramsey said. "It remains a science project unless you have a business plan for how you're going to make money off of it."

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