Tesla’s stock price hinges on its Robotaxi service, but you can get its biggest competitor practically for free.
Tesla (TSLA 0.20%) held an event showing off its robotaxi ambitions on Oct. 10. It unveiled the Cybercab and Robovan, two autonomous vehicles designed with a robotaxi service in mind. CEO Elon Musk said he expects the Model 3 and Model Y to support unsupervised full self-driving in certain states by the end of next year and the Cybercab to go into production by the end of 2026.
However, Musk was light on the details of how a robotaxi business would actually work. Will Tesla operate the network? Will it sell cars to a network operator? Can Cybercab owners put their cars into the fleet of vehicles to earn money while they sit at work or home?
Many investors believe Tesla’s potential robotaxi business will be worth more than the business of selling cars. But Musk has yet to show a clear path from where we are now to that future.
Investors looking to get in on the growing trend toward robotaxis and autonomous vehicles may be better off looking at a different company. Waymo has been working on self-driving technology for 15 years and already has a fully operational robotaxi business in three states. It’s well ahead of Tesla and its competition, but investors can get it for cheap as part of Alphabet (GOOG -0.91%) (GOOGL -0.93%).
Image source: Getty Images.
100,000 rides per week
Waymo currently operates its robotaxi service in four markets: Los Angeles, San Francisco, Phoenix, and Austin, Texas, where it recently launched. A few weeks ago, management shared that it’s now completing 100,000 paid rides per week. That’s double from management’s previous disclosure in June.
The operation is growing quickly. Not only is it now offering commercial fares in four major cities, it’s also partnering with several companies to grow faster. It struck a deal with Uber last month to add a fleet of its Jaguar I-Pace vehicles in Austin and Atlanta in early 2025. This month, it struck a partnership with Hyundai to integrate Waymo’s technology into the Ioniq 5 SUV, which Waymo will add to its own fleet in 2026.
Waymo’s also making efforts to improve its technology in order to bring costs down. It announced the latest iteration of its autonomous vehicle system in August, touting, “With 13 cameras, 4 lidar, 6 radar, and an array of external audio receivers (EARs), our new sensor suite is optimized for greater performance at a significantly reduced cost, without compromising safety.”
Driving costs down will be essential to making the business profitable. The equipment for the previous generation AV system cost as much as $100,000 when equipped on a Jaguar I-Pace. Those costs will come down as the technology improves and Waymo integrates and scales production through partnerships like the one with Hyundai.
In the meantime, Waymo’s parent company can generate billions in free cash flow as it gets its operation off the ground and scales the business. That’s enabled it to get a head start over the competition. And in a business where the network is extremely valuable, coming in as the first mover in a matter of years puts Waymo at a huge advantage for years to come.
Taking a ride on Waymo
While you can’t invest directly in Waymo, you can buy shares of its parent company Alphabet, which is also home to Google.
Google provides a thriving digital advertising business across its various internet properties, including Google Search and YouTube. It generated $64.6 billion in advertising revenue last quarter with $13.4 billion in traffic-acquisition costs. It also includes the Android platform and Google Play store. When combined with other services, it generated an additional $9.3 billion for Alphabet.
Alphabet currently faces an antitrust case from the Department of Justice, threatening to break up some of its operations or curb some practices, like paying to be the default search engine on third-party web browsers. The potential impact from the case could be a significant headwind, but the likeliest outcomes shouldn’t be much of a setback. Google is still the leader in search, and the Android mobile OS remains the most popular mobile platform in the world.
A big growth area for Alphabet is Google Cloud, which has seen strong growth over the last few years as developers look to take advantage of new artificial intelligence (AI) capabilities. Google Cloud revenue surpassed $10 billion in the second quarter, growing 29% year over year. Even more encouraging is the $1.2 billion in operating profits, up from $395 million last year.
Waymo falls under Alphabet’s “other bets” segment, which produced just $365 million in revenue last quarter. That’s practically nothing, compared to the billions generated from Google. But if the future involves millions of autonomous vehicles shuttling us around at the click of a button, Waymo could become a huge source of revenue. For reference, Uber generated $20.5 billion in gross bookings for its mobility business last quarter.
Investors can currently pick up shares of Alphabet for less than 19x analysts’ 2025 earnings estimates. At that price, you’re practically getting the leading robotaxi operator for free. By comparison, you’d have to pay 71x next year’s earnings for Tesla while making a big bet that Musk will be able to launch the robotaxi business as planned.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Tesla, and Uber Technologies. The Motley Fool has a disclosure policy.
Add Comment