Prediction: Alphabet to lead Robotaxi, not Tesla

The robotaxi wars are heating up. After an initial delay, adze (TSLA 3.80%) has a robotaxi event planned for October, while General Motors‘ (GM 0.63%) Cruise recently struck a deal with Uber to offer autonomous vehicles on the ride-sharing company’s platform next year.

However, there is currently one company ahead of the pack and that is Waymo, owned by Alphabet (GOOG 1.05%) (GOOGL 0.99%). Let’s take a look at why I think Alphabet will be the robotaxi leader going forward.

First mover advantage

Right now, Waymo is way ahead of the pack with customers actually using its robotaxi services. The company recently announced that it provides 100,000 paid robotaxi rides per week, which is about 100,000 more than Tesla and Cruise combined currently provide.

That’s double the number of rides Waymo offered in May. The company currently operates in four US cities: San Francisco, Phoenix, Austin and Los Angeles. It plans to expand to other cities in the respective states. Currently, only California, Texas and Arizona allow self-driving taxi services.

Waymo also recently unveiled its sixth generation of self-driving technology, which will seek to lower vehicle costs. The new technology will reduce the number of cameras around the vehicles from 29 to 13 and the number of lidar sensors from five to four. Waymo is currently testing the next-generation technology on public roads with professional drivers on board. In addition to cost savings, the new technology has also been designed to handle more weather conditions.

With Waymo, the only robotaxi service currently operating in the US, the company has a nice homecoming advantage. Customers are already using its fleet without major incidents, which will increase confidence in its offering as it expands. Meanwhile, reducing the cost of its vehicles is also important as this will improve the economics for the service.

Earlier this year, Alphabet announced it would invest an additional $5 billion in Waymo to help the company continue to grow its business.

Image source: Getty Images.

Tesla has a history of over-promising and under-delivering

While Tesla has a big robotaxi event planned for October, so far the company hasn’t delivered any paid rides to customers. And yet, for years, Tesla has told everyone it will turn customers’ vehicles into fully autonomous cars with a software update.

In 2016, the company wrote a blog post that all of its cars were now produced with self-driving hardware. However, it’s been seven years and none of Tesla’s driving systems are fully autonomous; all must be supervised with a driver. Meanwhile, older hardware needed upgrading to run the latest “Full Self-Driving” (FSD) service at the customer’s expense, leading to lawsuits.

And in December 2023, Tesla had to recall more than 2 million vehicles to install new Autopilot protection devices. However, the National Highway Traffic Safety Administration (NHTSA) had to investigate the recall after 20 reported accidents followed the installation of the updated software. In the past few years, there have been approximately 1,000 reported car accidents involving Tesla’s Auto Pilot system.

Critics of Tesla’s robotaxi efforts abound. In July, Rolling Stone questioned whether Tesla even has the technology to build a robotaxi, citing a number of criticisms of the company. The publication followed in August with a test drive using the company’s self-driving technology. author Rolling Stone the article said they don’t feel safe and the technology almost caused an accident.

Rolling Stonehowever, it’s not the only news source questioning Tesla’s self-driving technology; InsideEVs reported that in a test drive, bad weather compromised the vehicle’s FSD system. He noted that the car stopped dangerously in the middle of a highway to let a car pass and also tried to drive off the road and into a furniture store. It was said that the lack of additional radar and lidar could be to blame.

While Tesla bulls like Ark Investment will say that Tesla trains its autonomous vehicles with more data and thus gives it an edge, so far its real-world applications appear to be lacking.

Cruise has had problems in the past

Meanwhile, GM’s cruise unit had its own problems. One of its robotaxes was involved in an incident where the vehicle dragged a pedestrian after the person was hit by another vehicle. California subsequently suspended its license last October and Cruise then decided to cease all operations.

The incident led to the dismissal of a number of the unit’s key leaders. Meanwhile, Cruise has been hemorrhaging money since GM acquired it in 2016.

While the deal with Uber is a good step, this safety issue leaves a bit of a cloud over the company. It is currently licensed to operate in three cities: Dallas, Houston and Phoenix.

Time to buy Alphabet stock

With Alphabet trading at a forward price-to-earnings (P/E) ratio of 19 next year’s analyst estimates, the stock looks cheap.

GOOGL PE Ratio data (1 year ago) by YCharts.

Right now, given Alphabet’s valuation, investors are basically getting a free call option on Waymo. If it becomes a big success, investors will win, but if it fails, it really won’t hurt them. That’s a big difference compared to Tesla, where much of the bullish talk around the stock centers around its upcoming robotaxi business as electric vehicle (EV) growth slows.