Driverless: Waymo and the Robotaxi Race—Under the Hood
23:52 Share

Say this is your financial life. Over time, things can get more complex. With a personalized plan, Merrill can help you navigate it all. Learn more at ml.com slash bullish. Merrill, a Bank of America company. What would you like the power to do? Investing involves risk. Merrill Lynch, Pierce, Fenner & Smith, Inc., registered broker-dealer, registered investment advisor, member SIPC, a wholly owned subsidiary of Bank of America Corp.

Back in October, after years of pledging its self-driving technology was just around the corner, electric vehicle maker Tesla finally unveiled its first prototype driverless car.

Tesla CEO Elon Musk walked out to techno music alongside someone wearing a SpaceX spacesuit. Waving to the crowd, he stepped into the passenger side of a sleek, gull-winged two-seater vehicle, which drove off to the main stage. No driver behind the steering wheel. And actually, no steering wheel at all. As you can see, I just arrived in the robo-taxi, the cyber-cab.

Musk said these vehicles were designed to be entirely driverless. No steering wheels, no brake or accelerator pedals, no side view mirrors even. autonomous future is here and it feels great. It was a flashy and tightly choreographed event held on a set at Warner Brothers Studios in Burbank, California. But it was light on details about the business and the cars.

And that left some investors disappointed. The day after the event, Tesla shares fell almost 9% in one of its worst days in 2024. Meanwhile, out in the real world, just a short drive over the Hollywood Hills, members of the public can already hail a driverless car to get around Los Angeles.

owned, operated, and designed by the biggest name in the business. Waymo robo taxis are officially in service in LA. You can now order a ride across 63 square miles from downtown LA to Santa Monica without being forced to chit chat with the driver if that's not your thing. Streets only, no highway driving at this point. This is what we got to get used to. Again, the future is here.

Waymo's robo-taxi business is still way ahead of Tesla and other rivals, like Amazon's Zoox. As of October, Waymo says it's conducting 150,000 paid rides a week across the four cities it's operating in, while its competitors are still testing their technology. But even with the multibillion-dollar bet Google's parent company Alphabet is making on Waymo and its expansion into new markets, how can it maintain its lead in the robo-taxi race?

And how might the industry change as the efforts to build and popularize driverless car technology continue? I'm Danny Lewis, and this is Driverless, Waymo and the Robotaxi Race, a series from the Wall Street Journal's Future of Everything. We're looking at what it would take for Waymo to stay at the top of the growing industry, with its rivals snapping at its heels. Today, episode two, Under the Hood. That's after the break.

You want a straightforward path to your goals, but at Merrill, we know things may get in the way.

Or if new opportunities can put you at a crossroads, with the bull at your back, you get a personalized plan and a clear path forward. Go to ml.com slash bullish to learn more. Merrill, a Bank of America company. What would you like the power to do? Investing involves risk. Merrill Lynch Pierce Fenner & Smith Incorporated. Registered broker-dealer. Registered investment advisor. Member SIPC. A wholly owned subsidiary of Bank of America Corp.

In our last episode, we talked about how Waymo went from a slow and steady approach to developing driverless cars to first place and continuing to accelerate. But the company is facing some challenges on this next lap of the race. And it's also a crucial time for the industry as a whole. So let's start with some of Waymo's competition, namely Tesla.

As we just heard, Elon Musk's electric vehicle company is making a very high-profile pivot to driverless cars. We saw Elon's vision for how he wants to roll out this technology. WSJ tech reporter Myles Krupa. We got a small sedan that...

He wants to be carrying passengers as a robotaxi, and we got a larger van that he thinks will be able to shuttle upwards of a dozen people at a time. From the outside, the robotaxi, or cybercab, looks similar to the Teslas already on the roads. The van, though, is a retro-futuristic-looking vehicle, all rounded edges and sharp lines, very Art Deco. But there are other ways that Tesla is an outlier in the driverless car industry.

There's been this divide in the self-driving car industry for a long time about whether you need LIDAR or not to achieve fully autonomous driving. Those are the laser-based sensors that let a driverless car detect what's around it in real time. If you've ever seen a Waymo and wondered what the spinning cylinders mounted on its sides are, those are LIDAR sensors. Waymo and Zoox have taken the approach that you need LIDAR.

While Tesla uses LiDAR for data gathering, Musk has said he thinks cameras are enough for self-driving cars. He talked about this at Tesla's Autonomy Day event back in April 2019. Anyone relying on LiDAR is doomed. Expensive sensors that are unnecessary. Tesla stopped installing LiDAR sensors in some of its cars in October 2022. Instead, its full self-driving and autopilot systems rely on cameras that are cheaper than LiDAR and artificial intelligence algorithms.

Then, what's called an end-to-end neural network takes in raw data and translates it into the vehicle's actions. The deal with end-to-end is to say, you know what? We're not going to write code. We're just going to show a ton of examples. Phil Kopman studies driverless cars and how to make them safe at Carnegie Mellon University.

Camera goes in one end, wheel spinning comes out the other end. It's all machine learning through and through, thus end-to-end machine learning. That means instead of Tesla programmers manually writing instructions for how future driverless cars should handle any given situation, the company can take data and video from all the Teslas out there on the road and feed it into an AI program. It's sort of like training a pet. If the pet does something you don't like, you say, bad dog.

And that's it. That's all it does. They're like, well, we try something else. And eventually he gets good dog. Kopman says if you have enough data, this method could actually make it a lot easier to get driverless cars to behave naturally in common situations.

Driving down the street, taking a corner in the way a human driver would take a corner. Here's what the human driver did. You should learn how to do the same thing. But Kopman says end-to-end machine learning is not good at knowing how to respond to rare situations. And that's where questions about safety come into play.

How do you train it when it's time to cross the double-yield line to avoid a crash? How do you train it to deal with fire trucks with the lights on if you haven't seen many? How do you train it not to drive into a covered road that might be floodwater? These are all issues that have cropped up with Tesla's current technology. Earlier this year, a Wall Street Journal investigation into data from over 200 crashes involving Tesla's autopilot found that cars using the system sometimes struggle to recognize objects or stay on the road.

We reached out to Tesla for this series, and the company did not respond to requests for comment. Another big difference between Tesla and the other players in the driverless car world? Musk's company doesn't have the required California state permits to test its vehicles without a driver present. A spokesperson for the California Department of Motor Vehicles said Tesla has had a permit to test self-driving cars with a safety driver since 2015, which is set to expire at the end of 2024.

They also said Tesla has not applied for a driverless testing or deployment permit. There's different levels of autonomous driving and you need different permits to do different levels of this driving. Megan Bobrowski is a tech reporter for the Journal. The levels generally used by the driverless car industry to measure autonomous capabilities are developed by the global standards organization SAE International.

They range from zero, purely support systems for a human driver, like automatic emergency braking or blind spot warnings, to five, which would be a car that can drive itself anywhere under all conditions. Waymo says its vehicles operate at level four because they only drive in areas the company has mapped out.

So they have all these permits and they've done what they're doing with LiDAR and cameras. Tesla, currently its cars operate at like level two. SAE International defines that as the highest level of driver support features, which still requires constant supervision and is not considered automated driving. Elon Musk has said that will change. And I think the next year is going to be really interesting.

interesting to follow. And in the next year, we'll see, can you do self-driving cars with just cameras? I think that's a big question mark. Especially since some of the other companies chasing Waymo's success, like Amazon's Zoox, also use LiDAR and radar as well as cameras. But while the sensors are similar, they're conducting more limited operations.

Zoox is still testing passenger rides in its driverless vehicles, which, like Tesla's CyberCab, lack steering wheels and brake and accelerator pedals. Zoox says those are on the roads in one neighborhood in San Francisco, the streets of a suburb just south of the city, and in Las Vegas, including on the Strip. But the cost of the technology is one reason why Musk is so keen on sticking with cameras and end-to-end AI. Cost is a challenge that everyone in the driverless car industry is facing.

because running a robo-taxi company is expensive, starting with the cars themselves. Let's just take Waymo as an example. Shweta Kajaria is an analyst with market research firm Wolf Research. She follows Waymo as part of her work. At a high level, the cost of a fully autonomous car as it stands today with Waymo includes the cost of the car. Waymo currently uses Jaguar I-Paces, electric SUVs. So approximately $50,000.

Then on top of that, there are different units of LiDAR. About four units of those cost about another $7,000 to $8,000. Plus there are cameras that cost about $2,000 to $3,000. And then on top of that, radar, another $2,000 to $3,000. Kajuria says altogether she estimates that each Waymo vehicle costs about $125,000. A Waymo spokesperson declined to comment.

Just for context, we think maybe $25,000 to $30,000 for Tesla. During the unveiling event we heard earlier, Elon Musk said he expects the Tesla CyberCab to cost less than $30,000. But in addition to the cost of the cars, Kajuria says all the computing power and research and maintenance that goes into the robo-taxi business is likely costing Waymo and Alphabet billions of dollars per year. A Waymo spokesperson declined to comment. Alphabet did not respond to requests for comment.

The going consensus view is about three to five year lead that Waymo has over anyone else in the industry. What does Waymo need to do in order to keep that leadership? And to become profitable. We'll look at what's next for Waymo's future and the business of driverless cars after the break. Say this is your financial life. Over time, things can get more complex with a personalized plan.

Right now, members of the public can hail a Waymo in a handful of cities. San Francisco, of course, but also Los Angeles and Phoenix, Arizona. But that will soon change.

In September, Waymo announced that it's partnering with Uber to bring paid robo-taxi rides to Uber's platform in two new cities, Austin, Texas, and Atlanta, Georgia. This deal has some interesting details, first being that Uber will take over all vehicle maintenance and ride booking. WSJ tech reporter Miles Krupa.

Uber is bearing the cost of cleaning, repairing these vehicles, storage operations, a lot of the sort of nitty gritty of running these vehicles in these local markets. But there's a chance that Uber riders in Atlanta and Austin could get caught off guard when a hailed car shows up without a driver. Uber might automatically assign them a Waymo unless they intentionally opt out or decline the car within a certain time period.

You can see that easily driving more adoption of Waymo as long as enough people opt in. In exchange, the two companies will share the revenue from the Waymo rides. If you haven't been keeping up with all the ins and outs of this technology, you may not realize that Uber has a complicated relationship with driverless cars. At one point, it had its own research division focused on the technology. But in 2017, Waymo sued the ride-hailing company for allegedly stealing and using trade secrets.

Uber agreed to settle in February 2018. But then, the next month, one of its test vehicles driving in Tempe, Arizona struck and killed a pedestrian crossing a street, while the safety driver behind the wheel was distracted by watching TV on her phone. And in 2020, Uber got rid of its driverless car division entirely.

An Uber spokesperson said the company's current approach to autonomous driving is to partner with vehicle developers, fleet operators, and cities, including with Waymo for rides in Phoenix, though Waymo also operates its own app there. But Miles says this new deal is different. Uber has a huge base of people who have downloaded the app. And so by getting it in front of more people, it increases the likelihood that people will be calling their cars throughout the day.

The theory being that as more people ride in Waymos, the more comfortable they'll become with riding in Waymos or other driverless cars. But also because the amount of time a robo-taxi spends empty can have a big effect on how much money it makes the company. You're not making money when you're driving test miles. You're only making money when you have paying passengers in the car. WSJ tech reporter Megan Bobrowski looked at public data from Waymos operations in California.

I crunched some numbers and from September last year to May this year, nearly 40% of the miles that Waymo drove did not have passengers in them.

A Waymo spokesperson says the company is working to reduce the number of miles its cars drive without passengers. Some of that mileage may be from testing, but unlike a ride-hailing company where drivers are only paid when they have riders in the car, Waymo cars have extra costs associated with their technology, which makes getting the vehicles onto services that already have a lot of users, like Uber, really important. That reduces the amount of

miles that the cars are driving without paying passengers. And that kind of density of use is really important for Waymo to get to profitability, ultimately. So you can kind of see them thinking a bit more about how they're going to turn this into a real business. Waymo isn't giving up its own app yet, though. In early December, the company announced plans to bring its Waymo One robo-taxi service to Miami, Florida in 2026.

But Miles says this is still a big challenge that Waymo and its rivals are going to have to contend with as they try to make back their investments. On the flip side, they don't have to pay drivers. And so the calculation becomes...

For each car that you put on the road, how many miles can you get out of the car? And then of those miles, how many are paying passengers? And then for each ride with paying passengers, how does the revenue you're bringing in compare to the costs? Those are kind of the economics that the company and its investors are thinking about right now. A Waymo spokesperson said it only collects fares from paying passengers, but all miles driven provide meaningful experience to the automated driving system.

Shweta Kajuria, the Wolf Research Analyst, estimates it could take a while for Waymo to break even. Assuming that Waymo has invested about $15 to $20 billion in capital investment, even if you assume about 45 daily trips, which is three trips an hour, which is about where Uber is, and 20,000 vehicles, it would take them 10 years to even break even, which is a very long time.

A Waymo spokesperson declined to comment. Kajuria says a few things could shorten this timeline. First, rides have to be competitively priced. We did an experiment with 20 rides within San Francisco and 20 different ride requests within Phoenix, two of the biggest markets for Waymo. And across those 40 different rides, Waymo was consistently approximately 25 to 30 percent more expensive than an Uber ride.

She says rides that are cheaper, or at least similar to what riders will pay for a person to drive them in a taxi, will encourage more people to give Waymo a shot. Uber says riders who are matched with Waymos in Austin and Atlanta will pay the same rates as if the app had assigned them a human-driven car.

The more the usage, the more the price gap is going to narrow. And we are just not there just yet. But Kajuria says one reason the rides are so expensive is probably because the vehicles are so expensive. Like we said earlier, she estimates that each Waymo vehicle currently costs about $125,000 before getting into regular maintenance.

That is a huge amount of investment towards what it costs to insure the car, the hardware, the cost to serve that is managing these units, and then the research that goes behind making the autonomous technology better every day. But Kajuria says there's another option Waymo could take to become profitable.

Getting out of the day-to-day business of operating taxis entirely. We are more likely, in my view, to see a scenario in the next three to five years whereby Waymo technology is then integrated into Fords and Chryslers and Hyundais, Toyotas, etc. But Waymo gets a high margin licensing fee for that technology. Waymo's partnership with Uber presents a potential blueprint for establishing markets in new cities as it tries to accelerate its growth.

though new cities also mean new challenges for its technology. When these companies scale up, a lot of loose ends will become apparent because there are just more opportunities to have a problem. Carnegie Mellon University professor Phil Kopman. All these companies have pressure to make their investors happy. And the question is always, are the companies...

holding back the pressure well enough that they can expand their operations at a reasonable prudent pace, or are they succumbing to the pressure and ramping up faster than they should? Some of Waymo's funders have expressed support for its efforts to get the execution right. In October, Waymo closed its latest investment round, raising $5.6 billion from firms including Andreessen Horowitz, Silverlake, and Tiger Global.

In a statement at the time, Tiger Global founder Chase Coleman said Waymo had balanced ambitious goals with responsible execution. And Silver Lake co-CEO Egon Durbin said Waymo's driving technology leads in earning trust. A Waymo spokesperson said the company is not facing investor pressure to expand quickly, and its expansion plans are guided by a safety framework. Over the last two years, Waymo has gone from getting just 10,000 paid rides a week to 150,000 across all its markets.

And it announced plans to bring its driverless cars to three more major U.S. cities as the company tries to make the most out of its lead in the robo-taxi race. A lead which just got wider. A few days ago, one of Waymo's biggest competitors announced it is abandoning its robo-taxi efforts. General Motors will continue to work on self-driving, but it's scrapping Cruise's work on robo-taxis because of the time and costs needed to scale the business. GM invested upwards of $10 billion into Cruise.

As for what might happen to Waymo and the driverless car industry at large, WSJ reporter Megan Bobrowski says this is Waymo's moment to find out. Now is the time for them to do this. There's no other competitors in the market. And so if you can get the name recognition with people that associate self-driving cars with Waymo and you feel safe in a Waymo and so you're going to take a Waymo, building that brand loyalty right now might really pay off for Waymo once other competitors do head for the market.

The Future of Everything is a production of The Wall Street Journal. Stephanie Ilgenfritz is the editorial director of The Future of Everything. This episode was produced by me, Danny Lewis. Special thanks to Miles Krupa, Megan Bobrowski, and Becky Peterson. Our fact checker is Aparna Nathan. Michael LaValle and Jessica Fenton are our sound designers and wrote our theme music. Catherine Millsop is our supervising producer. We had help from section editor Dagmar Ahlund.

Aisha Al-Muslim is our development producer. Scott Salloway and Chris Zinsley are the deputy editors. And Falana Patterson is the head of news audio for The Wall Street Journal. Like the show? Tell your friends. And leave us a five-star review on your favorite platform. Thanks for listening. You want a straightforward path to your goals. But at Merrill, we know things may get in the way.

Or if new opportunities can put you at a crossroads, with the bull at your back, you get a personalized plan and a clear path forward. Go to ml.com slash bullish to learn more. Merrill, a Bank of America company. What would you like the power to do? Investing involves risk. Merrill Lynch Pierce Fenner & Smith Incorporated. Registered broker-dealer. Registered investment advisor. Member SIPC. A wholly owned subsidiary of Bank of America Corp.