The robotaxi business of Alphabet is drawing in billions of dollars from Wall Street, but incidents that have occurred in Florida show a financial issue which may prove more difficult to resolve as its fleet grows.
On October 4 in Tampa, a Waymo robotaxi entered oncoming traffic outside Raymond James Stadium, causing its passengers, who were frightened, to leave the vehicle. The road had been temporarily changed to allow traffic to go only south after a Buccaneers game, but the self-driving car still went north. Just four days later Alphabet’s Waymo announced that it had obtained a $5 billion loan in order to expand its autonomous transportation business.
The situation is once again giving rise to well-known questions concerning public safety, but it also brings to light a less apparent financial issue. Since driverless taxis are supposed to get rid of one of the biggest costs in transportation, the need for a human driver, unusual traffic patterns, construction areas and unforeseeable road conditions can once again call for human intervention. Then what would become of the economics of autonomous transport if getting rid of the driver does not mean that the need for people is also eliminated?
As WFLA reported, the car in Tampa went into lanes which had traffic coming the opposite way before becoming stuck. At the same time, WKMG News 6 recorded another incident in Orlando in which a Waymo seemed to go through a red light near Universal Orlando. Waymo acknowledged the Tampa incident and stated that it was investigating both situations.
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On October 8 Steve Fieler, Waymo’s Chief Financial Officer, announced the company’s first $5 billion debt financing, the financing having been supported by a number of major institutional lenders such as Blackstone, PIMCO and Sixth Street. This loan comes after a $16 billion equity investment in February which put the value of Waymo at $126 billion. Alphabet still holds the majority ownership and thus provides the company with strong financial support as it moves into further markets.
Valuation and profitability are, however, completely different things. All driverless vehicles still need costly equipment, maintenance, insurance, charging, cleaning and operational support. Should unforeseen situations call for extra human intervention or stop the vehicles from finishing their trips, these expenses could offset some of the cost savings that automation is said to offer. The question that has not yet been answered is whether operating costs will decrease more rapidly than Waymo expands its fleet and increases its borrowing obligations.
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The company has admitted that human involvement is still an aspect of its autonomous operations. In February, it informed lawmakers that about 70 remote-assistance agents were working at the same time across four support centres, including facilities in the United States and the Philippines. Their role is to give advice rather than to drive the vehicles themselves, a key point even though it shows that automated transport still relies on human judgment.
The consequences go beyond Florida. A preliminary investigation by the National Transportation Safety Board discovered that a Waymo vehicle in Austin, Texas, raised the issue of a stopped school bus with remote assistance in January. Since the agent gave an incorrect answer to a question regarding the bus’s active signals, the vehicle drove past its extended stop arms. Although there was no collision, the event shows that human judgement can still be incorporated into an automated transportation system.
For investors, these exceptions result in a cost which is hard to measure. Waymo has not made publicly available enough detailed information about its operations to work out the total cost of remote assistance for each completed trip. Should the need for interventions decrease as the technology improves, the company could become more efficient. But if unusual situations call for a corresponding increase in staffing, vehicle recovery and operational supervision, expansion might end up being considerably more expensive than expected.
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There is a great deal of evidence in favour of the other side. In July the independent Insurance Institute for Highway Safety reported that Waymo vehicles had 68% fewer police-reportable crashes per mile than human drivers in four of the areas studied. Yet IIHS President David Harkey warned that the current reporting systems were not adequate for the continuous monitoring needed as the service expands. While the results are encouraging, they do not prove that an equivalent level of safety has been achieved in Orlando or Tampa.
Florida also has a regulatory environment that is easy to navigate. According to Florida Statute 316.85, fully automated vehicles may function without the need for a human driver, and local governments are usually not allowed to impose additional operating requirements. This applies to companies that are in competition with one another, not just to Waymo. However, the fact that Waymo benefits from both the state-wide regulatory access and Alphabet’s financial resources might enable it to achieve advantages that smaller competitors would find difficult to match.
The high financial risk could thus be concealed in the very idea of automation. Taking a driver out of a vehicle does not mean that the operational complexity of getting passengers through an unpredictable world is eliminated. Investors should keep a close eye on intervention frequency, operating costs per ride, service interruptions and insurance expenses as passenger numbers grow.
Waymo has shown that a car can be operated without a person at the wheel, and now it has to demonstrate that a business based on such cars can make a consistent profit without also having to maintain an expensive human safety component.
The financial prospects of driverless transport will in the end probably be more determined by the cost involved when the vehicles fail to operate correctly than by how frequently they do drive correctly.