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Alphabet's Waymo may be one of the closest autonomous-vehicle companies to commercialization.

Photo: Glenn Chapman/AFP via Getty Images
A Waymo self-driving car in California
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Waymo’s $2.25 billion could hint at the self-driving industry’s correction

On some fronts, the splashy investment actually highlights an industry struggling to match its own hype.

It's not often that you can consider an investment of $2.25 billion a warning. But Waymo's splashy funding news on Monday could be seen as just that — about internal attitudes to the company and the wider driverless car industry.

Waymo said that it raised $2.25 billion in a funding round led by Silver Lake, Canada Pension Plan Investment Board and Mubadala Investment Company. Additional cash came from Magna International, Andreessen Horowitz and AutoNation, as well as the autonomous vehicle outfit's parent company Alphabet.

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The grab for outside cash reflects both internal dynamics at Alphabet, which is sidelining projects without clear paths to profitability, and an overall slowdown in the race to create truly self-driving cars, according to Sam Abuelsamid, principal analyst at Navigant Research.

For a long time, Wall Street and Silicon Valley had a rosy view about the future of self-driving technology, but development hit technological and regulatory speed bumps over recent years.

"What we've seen is a significant slowdown in plans for when and where they're going to deploy autonomous vehicles while they work to figure out both the technological challenges and how to prove that they are in fact safe," Abuelsamid told Protocol.

Waymo did not reveal the total valuation for the round, but Abuelsamid guesses it was "no more than $50 billion." That would be a big step down from previous estimations: Morgan Stanley analysts valued Waymo at $175 billion in 2018, but latterly cut that by 40% last September to $105 billion.

Proponents of self-driving technology say the benefits could be huge, both to public safety and to profit margins: Dan Ammann, the head of GM's autonomous driving subsidiary Cruise, recently valued the industry potential at $8 trillion. But there are lots of people fighting for that market, from legacy automakers to challengers like Alphabet and Uber, and development of the technology is taking longer than many expected.

Waymo got an early start and is likely one of the closest players to commercialization, according to Mike Ramsey, senior research director for automotive and smart mobility sectors at Gartner.

"The Waymo Driver has driven more than 20 million miles on public roads across over 25 cities, and over 10 billion miles in simulation," Waymo said while announcing the new cash infusion. It also touted Waymo One, a public ride-hailing experiment in Phoenix that it says "has already provided thousands of fully driverless rides to our riders, in a high-speed mixed usage market area larger than San Francisco."

But the rides offered to the public still feature safety drivers. And the overall industry has suffered a number of public safety setbacks, including fatal crashes involving vehicles with assisted driving features from Uber and Tesla that have drawn the scrutiny of government safety watchdogs like the National Transportation Safety Board.

There have been other multibillion-dollar investments in the market — in fact, more than $250 billion in capital investments have been made in the market across more than 450 companies already, according to Pitchbook data.

"I expect you'll see a lot of consolidation over the next year and a half. Smaller companies will get acquired or fade away, and we're going to end up with a dozen or fewer companies that have a major stake — including Waymo," Ramsey said.

There have also been delays — like GM pushing back its expected launch of an autonomous commercial service, which was originally scheduled for 2019. And many automakers promised that 2021 would be the year that autonomous vehicles go mainstream, a prediction that now looks unimaginable.

And at Alphabet, the development of the market may not be moving fast enough for Ruth Porat, its chief financial officer. Since assuming that role in 2015, she has reined in Alphabet's "other bets" — the non-Google parts of Alphabet's business that lean toward the experimental.

Because Alphabet's financial statements lumps all those other bets, including Waymo, together, it's hard to get a good idea of the project's financial particulars. But pulling in outside funding is likely a sign that Waymo's costs caught Porat's eye, according to Abuelsamid.

"My guess is that she took a look at what's going on with the automated driving market and realized 'this will take many more years before we start to get to some significant scale, and Alphabet doesn't want to put many billions more into this,'" he said.

Some of the funders behind this new round, including AutoNation and Magna International, are already partners with Waymo. Bringing them in now could help strengthen relationships while building some independence within Alphabet as the sector nears commercialization, Ramsey said. That's something that Waymo's chief executive, John Krafcik, wants: He has said that becoming an independent company "has always been the evolutionary path."

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But the fact that Waymo went to existing business partners may also suggest that the company turned to them to maintain the project, according to Abuelsamid.

"My guess is that Porat basically told them if you want to keep going, you'll have to go elsewhere for money," he added.

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