Alphabet’s Waymo is making a major deal ahead of Tesla’s Robotaxi event. Which stock will be the real Robotaxi winner?

In a move that stole some thunder from the big robotaxi event that adze (TSLA -1.41%) scheduled Thursday evening, Alphabethis (GOOGL -1.53%) (GOOG -1.59%) The Waymo unit announced a major robotaxi deal with the South Korean automaker last week Hyundai.

While much of the recent news about Alphabet has focused on the company’s antitrust and anticompetitive probes, Waymo’s self-driving focus is quietly becoming a major potential asset for it. And despite the attention electric vehicle (EV) leader Tesla is getting for its robotaxi ambitions, Alphabet may be the real winner in the space. Here’s why.

The deal with Hyundai

Under their new multi-year strategic partnership, Hyundai will incorporate Waymo’s latest self-driving technology into a significant number of Ioniq 5 electric SUVs over the next few years — vehicles that are ultimately destined to become part of Waymo’s robotaxi fleet.

These vehicles will be assembled at Hyundai’s soon-to-open Georgia manufacturing plant. Waymo plans to begin on-road testing of electric vehicles in late 2025 and expects to deploy them as part of its robotaxi fleet in the coming years.

Hyundai happens to be the 2nd largest electric vehicle manufacturer in the US, with a market share of around 10% when you include the Hyundai, Kia and Genesis brands. Its $7.6 billion facility in Georgia is expected to help further increase EV market share.

At its highly-anticipated robotaxi event Thursday night, Tesla is expected to give the public a first look at its new robotaxi, provide an update on its progress toward truly autonomous (FSD) technology, and provide information on when which its robotaxi service could. launch. While some analysts’ expectations are quite low, Tesla could surprise and show more progress than analysts and investors expect. That said, Tesla is clearly behind Waymo at this point.

Waymo’s robotaxi service is the only one currently operating in the US, with a fleet of about 700 self-driving vehicles regularly transporting passengers in Phoenix, Los Angeles and San Fransisco. Meanwhile, it’s testing the service in Austin, Texas, with plans for a full rollout in the city soon.

Six months ago, Tesla had yet to apply for permits in states that regulate robotaxis, including Arizona, California and Nevada. Tesla has since received a permit to test autonomous vehicles in California through the Department of Motor Vehicles, but has yet to discuss obtaining a permit with the California Public Utilities Commission, which licenses hail-haul operations. When Waymo sought its own permit from California regulators to operate robotaxis for paying passengers in the state, the process from application to approval took eight months, so it will be some time before Tesla can begin operations in California.

Image source: Getty Images

Tesla does not yet have FSD technology approved – its current technology requires the presence of an attentive human driver. This technology has also received much criticism, and the NHTSA investigated 956 crashes involving Tesla’s Autopilot or FSD technology from January 2018 to August 2023. There have been a number of high-profile Tesla crashes, including one early this year in which a car under the control of the latest FSD technology crashed into a California Highway Patrol cruiser responding to an accident and another in which the technology failed to detect a moving train.

While Tesla has rejected both lidar and radar technology in the past, it now appears that it is trying to catch up on both the technology and real-world application fronts. Earlier this year lidar manufacturer Lighting Technologies reported that in the first quarter, Tesla was its largest customer. It probably came as a surprise to many onlookers, as Tesla CEO Elon Musk has previously said that companies that use lidar to support their self-driving technology are doomed. Tesla may change its approach to lidar, but currently none of its vehicles are equipped with the technology.

Waymo, a hidden gem in Alphabet

It’s hard to argue against the idea that Waymo is the leader in the robotaxi market — after all, it’s the only company that actually runs this kind of business in the US. Next, it will need to continue to reduce the costs of these vehicles, which are looking to deal with the latest self-driving technology, the Waymo Driver. Compared to its previous system, Waymo Driver reduces the number of cameras around vehicles from 29 to 13 and reduces the number of lidar sensors from five to four. They are still testing this new technology to determine if they can decrease the number of cameras and still have the same level of safety.

Until the costs come down, robotaxis will be more of a speculative bet than the foundation of a solid investment thesis. However, the great thing about an investment in Alphabet is that Waymo is getting the equivalent of a free lottery ticket to go with shares that are valued today based on current business. Meanwhile, many Tesla investors, including ARK Invest’s Cathie Wood, are focusing their investment thesis for the EV giant on its robotaxi ambitions.

Alphabet trades at a forward price-to-earnings ratio of 19 times next year’s earnings estimates for the world’s most dominant search company, a fast-growing cloud computing business and a leading video streaming platform. Right now, Waymo is largely an afterthought that doesn’t reflect much, if at all, in its valuation.

Given that, if Waymo can become a profitable and growing business, Alphabet investors could stand to gain big. If not, they don’t have much to lose. But right now, Waymo has a big lead in the robotaxi race. This should give investors another reason to consider buying Alphabet stock.