Alphabet’s self-driving business, Waymo, has built up considerable momentum over the last few years. The company recently said that it was delivering about 250,000 autonomous rides per week, up from less than 10,000 rides per week less than two years ago. Unlike many robo-taxi upstarts that have faded or shifted focus, Waymo is actually scaling. With the company set to scale up operations in multiple new cities and mainstream acceptance of robotaxis picking up, Waymo might be on its way to becoming a key contender in shaping the future of urban transportation. That said, there are risks due to the startup’s uncertain unit economics and the ongoing antitrust lawsuit against Alphabet. Waymo is losing money – a lot of money. Waymo’s cash burn makes any forced separation of Waymo from Google – a question of Waymo’s survival. As such, we look into the cash burn first.
Waymo Is Burning Through Cash
Now, almost seven years since its launch, Waymo remains unprofitable. While Google does not break down Waymo’s financials, its Other Bets segment, which includes the robotaxi startup, posted a $4.4 billion loss over the last fiscal year. The cost base is high. Waymo owns the vehicles it operates, a contrast to ride hailing players such as Uber. Then, there are the costs tied to vehicle retrofitting, mapping, and fleet management. This means that Waymo has yet to demonstrate a path to profitability, even at the relatively large scale it is currently operating at. Waymo still loses money on every ride it delivers. This has meant that Waymo is burning through cash and remains dependent on external funding. Check out how Alphabet’s Operating Cash Flows compare to peers. Waymo has raised over $10 billion in the unit since its inception, with its most recent $5.6 billion Series C coming last year, led by Alphabet, along with marquee investors such as a16z, Silver Lake, Tiger Global, and T. Rowe Price. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P and clocked >91% returns since inception.
DOJ: Split Waymo From Google?
As Waymo’s growth accelerates, a new challenge could be looming in the form of the U.S. Department of Justice’s ongoing antitrust lawsuit against Alphabet, which might result in the DOJ ordering a breakup of Alphabet’s sprawling portfolio. Granted, the DOJ’s antitrust lawsuit primarily targets Google’s dominant position in the search and advertising space. But on a core level, the department might be focusing on how Alphabet’s current organizational structure helps it cement its overall dominance. See how Google’s Revenues have been trending. That puts units like Waymo directly in regulators’ sights, given that it is a loss-making business that benefits from Google’s capital, shared intelligence and analytics, and Google’s deep trove of data. There are ways that Waymo drives Google’s long-term strategy as well – think real data collection, AI advancement. The money-losing rides might also be seen as costly R&D spending that generates valuable real-world data. This is why Google continues to fund the company despite mixed economics.
Waymo depends on Alphabet not just for funding but for technical resources, cloud computing, AI talent, and mapping data. Without Alphabet’s backing and ecosystem support, Waymo could face pressure to cut costs. The timing couldn’t be worse. EV and self-driving behemoth Tesla is set to ramp up deployments of its own robo-taxis shortly. Tesla has a massive installed base of vehicles on the road already, and it plans to allow owners of full-self-driving (FSD) Teslas to rent out their vehicles, when they aren’t being used, to its robo-taxi fleet. See – Buy or Sell Tesla stock. This could translate into better unit economics versus Waymo. If Waymo is forced to separate from Google as its business continues to gain commercial traction, it risks losing out on its hard-won lead.
Alphabet stock has declined by about 10% year-to-date, due to concerns about the economy, doubts about the growth of the company’s search business in the AI era, and the ongoing antitrust issues. See how Alphabet’s valuation ratios compare against historical levels and also versus peers.