Waymo raises first external investment round
blog.waymo.com
blog.waymo.com
1) With this move, Alphabet is basically saying they a) don't want to continue funding the autonomous moonshot on their own, and b) want some partners to come on board for various reasons
2) $2.25B is a big round, and speaks to the level of confidence in Waymo as well as the massive cost to get to market
3) Magna is effectively an outsourced automotive production company. You can give them a vehicle design spec and they will spin up a production line to make it for you. This points to the possibility of Waymo stepping outside the "buy from an OEM and retrofit" plan, or of outsourcing the retrofit entirely to Magna for scale at some point
4) AutoNation is also an interesting investor here given that they are effectively an OEM-agnostic dealership network and they have a pretty strong fleet sales arm. This is another indicator that Waymo might be looking to sidestep the traditional OEM channels entirely.
They need external investors to provide validation to the business and its valuation. Those $2.25B would have been a piece of cake for Alphabet (sitting on > $100B in cash).
But if it is Alphabet that's funding Waymo, everyone else (and in particular Alphabet investors) are left to guess what a fair valuation for Waymo would be.
led by Silver Lake, Canada Pension Plan Investment Board, and Mubadala Investment Company. Additional investors in this initial $2.25 billion close include Magna International, Andreessen Horowitz, and AutoNation, as well as Alphabet.
Expected returns are the crucial factor here. Alphabet is sharing risks, waiting for better opportunities to deploy the cash.
There's a realization that beating services like Uber and Lyft on cost per ride (to undercut on price) will be hard and require significant capital without a clear path to sustained profitability. The economics aren't hard to understand:
You can either pay one person (out of a - growing- pool of tens of millions of willing drivers) ~$15 an hour (depending on geography) in a $20k car or you can pay very little per hour in a 250k for the car + a gigantic engineering team + compute infrastructure. It can make sense on a large scale, but it'll be hard to do.
Alphabet is sitting on a golden goose: their ad & search business (and the network they've built around that) is the perfect monopoly. Close to unbreakable and getting stronger over time (you won't be able to build a better search engine than Google unless you have as much data as Google). Why would they dilute their superb EBIT margins, rapid growth and extreme salability with the low-margin, ultra-high competition ride-sharing market?
Think of paying a driver as renting compute on a extremely capable vision processing, decision making, robotic driver that costs you very little. As unemployment (eventually) increases again, the market will be flooded with unbelievable amounts of idle human minds.
There's a general theme here: It's not enough to teach a computer to do something as good as a human, you have to undercut on price as well. For this reason, I believe that hair dressers have less to fear from automation than Radiologists.
The "we need to sell to a third party so that our shareholders can figure out the valuation of this division"-argument is mute because it isn't applied to the countless other parts of Alphabet (or any other company). E.g. Youtube and Google Cloud can be valued based on financial data given to the SEC, though I admit, sometimes spinoffs do unlock value.
I believe this $250K figure will end up being off by a multiple of 2. As an example, the cost of LIDAR (the most expensive piece of many SDC's) has dropped by an order of magnitude over the past couple years. (A quick google search for a source on this claim yields: https://qz.com/924212/what-it-really-costs-to-turn-a-car-int...)
The biggest questions around SDC's seems to really be around safety & feasibility. If these criteria are met, I can't imagine the overall cost per mile driven will be higher than manual labor.
And, even if autonomous driving doesn't undercut on price, they will beat human drivers on both quality & convenience. Most people don't enjoy having a human driver who sometimes smells bad and tries to talk to you (not to mention the uptick in assault reports). And, since the cost of under-utilization will be much lower for SDC's, you can bet the average wait time for SDC's will be lower than Uber.
>> There's a general theme here: It's not enough to teach a computer to do something as good as a human, you have to undercut on price as well.
I think the more apt statement is: Consumers care about price, quality, safety, and convenience. A winning solution has to be significantly better in at least one of these categories (price being only one possibility).
Uber doesn't pay for the downtime, its the drivers that take all the losses.
I find the security question interesting: Would you rather have a human in the car to potentially protect you from outside attackers, or is the general fear that the driver him/herself with assault you? I think with cameras and identity checks the risk from the driver can be reduced.
Regarding your last point:
Yes, do the same for less or something better for the same, both are possible paths to winning in the marketplace.
god forbid another human being trying to make smalltalk.
I'm not trained in any sort of finance, and not that this invalidates your point, but I believe it's not literal cash cash. It's just low-risk, liquid investments.
From the Alphabet Investor Relations page (https://abc.xyz/investor/), you can find a link to their 2019 Form 10-K (https://www.sec.gov/Archives/edgar/data/1652044/000165204420...).
P. 50 of that has a balance sheet, where you can see that at the end of 2019, they had $18.5 billion in "Cash and cash equivalents" and $101.2 billion in "Marketable securities". So about 15% of it is cash, and the other 85% is some kind of investment.
Then, on p. 56, they give a little more detail what these categories mean:
> Cash equivalents and marketable securities consist primarily of time deposits, money market and other funds, highly liquid debt instruments of the U.S. government and its agencies, debt instruments issued by foreign governments, debt instruments issued by municipalities in the U.S., corporate debt securities, mortgage-backed securities, and asset-backed securities.
Anyway, they are probably getting a real return better than -2%. Maybe even slightly positive.
https://www.treasury.gov/resource-center/data-chart-center/i...
I doubt that they're investing in any kind of aggressive higher yielding or longer duration bonds or Asset backed securities.
So maybe the real yield is closer to -1% ? Studying the income and cash flow statement, we should be able to calculate their return on their "cash" position.
1. Suppose a vehicle operates in revenue service for 8 hours per day, 365 days per year, that's a labor cost of $44k. If the hardware lasts five years, you break even if the hardware/upkeep costs of the self driving part are less than $220k, which seems very doable.
2. I think that Alphabet's golden goose is more vulnerable than ever. Google's search results have become so ad-infested that the mere willingness to dial down the number of ads is enough. What good are great organic search results if the user never sees them because there are only one or two on the entire first page?
While it’s true that I don’t see anyone beating Google at search, Facebook and Amazon can deliver better targeted ads and they are harder to block.
No one beat MS on the desktop - the desktop became less relevant.
Google actually lost market share of search last year, mostly to Amazon (lots of people just do their product-related searches on Amazon now).
I could also see it working for 1 or 2 hour drives (like a weekend in the north cascades).
I wanted attack the "intuitive" point a lot of people make about AI: "The simpler your job, the more easily it will be replaced by a computer". I think this position only focuses on what is technologically feasible, not about the realities of the labor market. There are many people who work for so little, it won't be feasible to try to undercut them on price for a long time. So radiologists are so extremely expensive by comparison that they're a better target for automation solutions.
To whom does Alphabet need to validate Waymo to? It's too small relative to the ad business to move the needle.
What Alphabet does need is (a) strategic alliances and (b) the pressure of outside investors.
I have a great bridge to sell you. You’ll have exclusive rights to toll travelers and you’ll make a fortune off it. Just don’t read the fine print. Deal?
What happened to the old fashioned way of validating a business and its valuation by selling products or services profitably?
It's a lot of money, but self-driving cars are notoriously overhyped. As someone who used to work in the industry and has worked at more than one of the "top" companies (Waymo, Zoox, Cruise, Argo, Nuro, etcetera), you don't have to talk to many engineers to realize there is a looooong way to go before a meaningful product is ready for market.
I'm not saying it'll never happen, but it's not going to happen before my kid is old enough to drive - and I don't have a kid yet. Before people bring up "we overestimate 1 year out and underestimate 10 years out," I was actually working on self-driving cars over a decade ago.
Sure, it'll be at least a decade (if ever) before they can do everything a human driver can do, but a "meaningful product" they pretty much already have.
They don't have to support driving in blizzards or on unmapped roads to be a meaningful product. Uber is useful even though it's only available in large Metro areas, Waymo can be a meaningful product even if it doesn't work in many places.
If they were confident they'd lift the NDA. I really can't say much more, other than I disagree.
> Sure, it'll be at least a decade (if ever) before they can do everything a human driver can do, but a "meaningful product" they pretty much already have.
As per the blizzards, I'm not talking about a driverless car that can do anything a person can do. I'm talking about a driverless car in any environment (let's say Phoenix) that can compete with Uber or Lyft and possibly maybe someday somehow make a profit.
Another question to ask yourself - why is turnover so high if things are going so well? Nobody wants to stick around to become filthy rich and work on an awesome product that can change the world? Or maybe reality is a little different from the blog posts you read every few months.
Please say the little more you can (and thank you for sharing what you have already!) - there's been something overhanging Waymo for nearly 2 years and no one seems to want to even hint at what it is
(also, if you feel comfy, I wonder when you were last privy to the internal narrative there)
> why is turnover so high if things are going so well?
There's _so_ little external information other than Urmson saying this is far away, Cruise is pumping near-production status, Waymo (confusingly) is in production yet if they were, then they wouldn't been doing what they're doing now. Yet all the ride reviews in the latest PR round sounded awesome!
Having self driving cars plying from airport to nearby transportation hubs alone could be pretty useful.
I also see the potential for building infra that is specifically for automated vehicles (private roads and such).
Waymo can still be 10 years away from a good autonomous vehicle and still deliver value to consumers.
Unless the NDA is to keep customers from talking about when the remote safety monitor takes over.
> they're confident of their behaviour
pick one
That's not entirely correct. It's just that, as techniques become mainstream, they tend to fall out of what's considered to be "AI". As an example, speech recognition used to be firmly in the AI camp. Now that it is commonplace, it is only ever mentioned in the AI context if it is paired with ML. Regardless, there are lots of useful products using that technology. Same goes for many others.
So how about this: wanna bet?
Blow the whistle? There's nothing unethical here - I'm just saying it won't make money. It's not like children are being exploited for slavery and it's my moral duty to raise awareness to this issue. Why would I, or anyone, open myself to getting sued into bankruptcy over this?
There's a big difference between making some vague comments about how I know this won't work, and releasing trade secrets. I don't have to release any more data than I am comfortable with (not to mention it would be illegal), and you don't have to take me seriously if you don't want to. But if you think I'm full of shit, you have the opportunity to make a bet with me and make some money.
Staging demos where the cars perform better than average isn't illegal, it's just misleading. Likewise, making projections about revenue isn't illegal, it's just not grounded in reality.
I'm not accusing Waymo of fraud. I'm saying their technology isn't going to be ready anytime soon, and they aren't making any legally binding statements to refute that - so why would it be fraud?
fraud, n., wrongful or criminal deception intended to result in financial or personal gain.
When Dmitri Dolgov said that Waymo's cars are safe enough to drive his children, I think that he committed fraud. Maybe not in the legal sense, but it's wrongful and deceptive and results in financial and personal gain.
Just came out. Is the data correct or are companies underreporting disengagements? Cruise is at 20,000 miles per disengagement. 4 years ago they were only at 50 miles.
https://www.bloomberg.com/opinion/articles/2018-02-02/safety...
It's just a post by an anon person on a public forum, nothing more.
Definitely the obvious partner for a Google branded car.
Over 15 years ago, I had an entry in the DARPA Grand Challenge. I never dreamed that 15 year later, after all parties had spent about $18 billion, the self-driving industry would be at zero revenue.
https://www.latimes.com/business/story/2020-02-17/self-drivi...
I think if you said "zero profit" you'd undoubtedly be correct
I am fairly confident that revenue will still be a rounding error in the next 3-5 years.
Investors are betting on a really long game here. This is another indicator of capital being really cheap in the current environment.
If it has a "safety driver", it's not self-driving. No cost advantage.
> It partnered with Innoviz Technologies to produce solid-state lidar for autonomous vehicles for BMW Group.
Also an interesting note cited from 2018 on their Wikipedia page:
> it introduced an Icon radar system to help automakers reach Level 5 autonomy as well as automatic emergency braking systems.
Shuttered: - Google glass - Google fiber(mostly shut down) - Google Express
Given this its not surprising that a majority of their workforce is contractors.
Self-driving is really hard and not going to be here anytime soon. A.I. is a hype bubble. Google now believe those two points and need greater fools to pare back their losses on this one and to avoid a lone P.R. disaster. "We were only starting the project and it's free to stand on it's own separate from us."
Computational Statistical Inference is amazing. Calling it Machine Learning was a mistake that led to this ridiculous A.I. nonsense because machine learning sure sounds like A.I. if you don't know any better. And it has been a tremendous hype opportunity that has been vigorously exploited. If you did, or if you intend to, consider repositioning your pitch. Doubling down may well be a reasonable option once you've thought it through.
1) If billions are spent on something and it didn’t already happen, that means it won’t likely happen soon, and
2) If people predict something will happen, and it doesn’t, that means no prediction of that thing can ever be credible.
But those don’t seem like logically sound inferences to me.
But this... is not driving a car. Not even close! And it's not AGI. Not even close!
Hm, then what exactly are Waymo cars doing on public roads? Seemed pretty close to self-driving to me.
I take this as a bad sign. If Alphabet felt the project was going well, they wouldn't want to give equity away unless the price was very, very high. It might be, I haven't looked.
I think situation like this test the limits of conglomerates, and are an interesting case study in corporate governance. Waymo is too big to fail -- even if it's not working, too many peoples' names and careers are on the line, such that they'll do everything they can to keep it going, even if doing so isn't in the shareholders interests. So Alphabet's board has to put some controls in place to ensure ongoing investment into this is, in fact, sound. I wouldn't be surprised if there's some requirement internally that a certain % of Alphabet capital be matched with external investment - that seems to get some of the disciplining effects of the market, but still lets Alphabet keep most/all of the ownership.
We don't know the price, meaning how much was actually raised. All we know is that the capital raised divided by % of new shares issued is equal to $2.25B.
Mubadala owns Globalfoundries and around 7% of AMD. It is the technology investment arm of the UAE government (more specifically, Abu Dhabi).
Now the random sighting ("why is that guy polishing a Waymo Jaguar on a Saturday morning in SF?") makes much more sense.
For comparison (because I was curious how this ranks amongst other big funding rounds): Uber raised $7.7b from secondary funding in 2017. Airbnb series E was $1.5b. WeWork series G was $4.4b. And in 2018 Ant Financial raised a whopping $14.4b series C!
Is it a new class of Alphabet stock? Was this a corporate bond?
^ wrinkles might include different share classes of Waymo, rather than Alphabet stock, debt-like provisions that make the investment less like common stock ownership
Theoretically, raising a round should not be a net negative for existing investors.
No. If it's stock it's gonna be Waymo stock.
> Was this a corporate bond?
We don't know the details. If bonds are involved, they're probably convertible bonds [e.g. convertible to stock].
So in a normal case, Waymo itself wouldn't have a separate filing for incorporation, or tax status etc... which means it's wouldn't have it's own stock.
Hence the question
I don't know how it works, but it does. I have friends who worked at Waymo and got Waymo stock (well, options that can be exercised for stock). I suppose that would make it not a wholly owned subsidiary, considering that some of the employees own some of it?
No, that’s not a good thing.
Xerox PARC existed with relatively little pressure to ship. They gave us many of the components of the modern tech industry. Their contributions were greater than perhaps any other epicenter for the computer revolution.
Xerox didn't benefit massively from the creations at PARC (a tiny fraction of what others did), and I'm entirely ok with that. I do not particularly care about the existence of the Xerox Corporation. Just as I'm ok with Google vaporizing $10 billion on Waymo and failing, if it helps push this technology forward in the process. Worst case scenario, over time Waymo will spin out hundreds of experienced employees that will go on to plant other technology seeds all over the place.
Google has $120 billion in cash, $35b in operating income, $160 billion in sales, a monopoly or two, and I do not care if they get punched in the face to the tune of $10 billion in losses on autonomous driving. The only thing that matters is that their expenditures move the ball forward. Maybe some start-up that doesn't exist yet, formed by ex Waymo employees two years from now, will be the company that builds a better Waymo. That'll be great.
I'd also rather that $10 billion go into engineer pockets and get deployed into the economy rather than sit in Google's monopoly money vault yielding jack squat interest, de facto being hoarded. Google has little idea what to do with their money, they're a trillion dollar corporation with not much imagination. I'm glad they're burning cash on something interesting.
That's a strange example to back up your thesis, considering that Xerox PARC got its lunch eaten by someone who had the same product but did ship.
For self-driving tech, where people's lives are at stake, it's critical to get things right by exceeding the safety record of human drivers. Increased pressure to ship doesn't seem like the right strategy for that to happen.
I think this is a very optimistic description of the state of the art. As far as I'm aware most of their 'driverless' rides have safety drivers in the car who intervene, and the few fully autonomous rides were given to journalists or selected testers on predetermined routes (in areas that are basically tailored to self driving).
It's not really about 'polishing off' at this point. Autonomous cars still can't drive reliably in most areas.
I think the actual question was whether or not you should drive into a wall instead of hitting a pedestrian, not drive off a cliff. But hitting a pedestrian was definitely not the right answer.
Luckily I've never been faced with this choice, and if I did have a fraction of a second to decide I have no idea what would happen. Doesn't stop me from driving though.
The idea is to add an element of randomness to the decision making. I don't mean to pick random decisions, but when there are decisions that weight approximately the same it should pick the decision based on personality/mood. This would enable the algorithm to adapt and be flexible, instead of a deterministic algorithm that could cause chain unoptimal behavior.
By introducing variance and enabling the system to adapt, the edge cases would be, in a way, self correcting and more resilient.
There's really that much involved with driving a car.