Waymo May Have Just Proven The Robotaxi Industry Isn't The Gold Mine We Thought It Was
Waymo May Have Just Proven The Robotaxi Industry Isn't The Gold Mine We Thought It Was
In fact, they may have just proven it can never be wildly profitable.
Waymo is the undisputed leader of the robotaxi industry. No one offers as many rides in as many cities as they do. What’s more, they cost about the same as an equivalent Uber. In fact, this August, the company announced it had reached an average of 100,000 paid rides a week! That is double the rides it was giving per week in May 2024. As such, Waymo is quickly becoming the dominant player in this industry. Yet, despite that, it has yet to reach profitability, and many doubt it can ever reach profitability. This, in turn, casts a vast shadow over the massive valuation of other robotaxi companies like Tesla. So, is the robotaxi industry a non-starter?
Well, firstly, let’s get a clear picture of Waymo’s financial situation. As it is pioneering new technology, its R&D costs are enormous, but these costs should reduce over time. So, can this explain Waymo’s current lack of profit? Well, no. Bank of America estimates Alphabet (Waymo’s parent company) spends $1.5 billion a year on Waymo, with all of this going on covering R&D costs. With the recent explosion of paid rides, Waymo’s 2024 revenues are set to reach $50–75 million. Yet despite that, the company is set to post an annual loss of $1.5 billion by the end of the year. In other words, even if Waymo didn’t have to spend all that money on R&D, they would only just reach a break-even point.
The fact that the largest and most mature robotaxi company wouldn’t make a profit even if you remove their R&D costs is utterly damning, especially when you realise that it’s almost impossible for them to reduce costs.
Waymo wants to reduce operational and fleet costs with their upcoming 6th gen vehicle. This van-like self-driving vehicle will be “optimised for cost.” But this doesn’t mean it will be cheaper than their current 5th-gen $100,000 + Jaguar-based vehicles. Instead, it can carry more passengers and, using its far more extensive suite of sensors, operate in a wider range of conditions and on more roads. As such, each 6th-gen vehicle can, in theory, make more money per day than a 5th-gen, hopefully enough to more than offset its higher production cost.
But, many experts question this approach. Just because a robotaxi can take more people doesn’t mean that is how people will use it. Moreover, it isn’t clear if this more extensive sensor suite can enable it to operate in dramatically more situations. AI doesn’t work like that.
As I covered in a previous article (read here), AI models experience diminishing returns as they get larger. As such, making self-driving AIs able to drive in even slightly more challenging conditions or operate properly on slightly more roads will now require an utterly colossal amount of training, as these AIs are already some of the largest in existence. AI training isn’t cheap; It requires giant, expensive computer infrastructure and an ungodly amount of energy. As such, it seems highly unlikely that the extra revenue this Gen-6 vehicle can produce from its broader operational window can offset the additional cost of developing this more capable AI.
But, just in terms of the wider automotive industry, reducing costs over time is almost impossible. Customers and regulators expect vehicles to get better and safer with each successive generation. As such, even though the cost of manufacturing has fallen thanks to automation, the cost of vehicles has actually risen. For example, a base spec VW Golf cost £4705 in 1983, or the equivalent of £19,914.34 in today’s money. But, a base spec VW Golf today will cost you over £27,000.
Waymo simply doesn’t have the ability to go against this trend. Why? It needs far more capable self-driving cars to reach its goals, and as such, its vehicles and AI are set to only get dramatically more expensive.
So, to reach profitability, they need to increase the revenue each vehicle can produce. They could dramatically increase the price, but then people would just turn to Uber. They could offer self-driving bus services or mass carpooling to increase the revenue from each trip, but then it wouldn’t be a robotaxi service, and people would turn to Uber for a more private and convenient service.
In short, it seems Waymo, and in turn, every other robotaxi company, doesn’t have a viable path towards profitability.
So why on Earth is the robotaxi industry being valued so highly?
The sector is predicted to grow from its current $488 million valuation to $45.7 billion by 2030. But some estimate it to be far more extensive. Cathie Woods of ARK Invest fame claims the self-driving industry will produce $10 trillion in revenue and be worth more than $220 trillion by 2030. Hilariously, she also estimates that Tesla will own 90% of the global self-driving industry, but that is a topic for another article.
How can an industry possibly grow by 450 times over in just six years if said industry has no viable route to profitability?
Simply put, it can’t.
This is a continuation of the horrific trend of institutional investors looking for growth before profit, which caused the dot com bubble and now the AI bubble. Institutional investors hunting for the next big thing and throwing basic business fundamentals out the window to do so. It’s a sign our entire economic world is based on falsehoods. As such, I wouldn’t be surprised if we see a similar bubble in the self-driving industry.
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Sources: Futurism, Money Talks, Waymo, Markets And Markets, CleanTechnica, CarWow, The Information