Autonomous Vehicles

[sesevans]

@jpaul/@bOrn2sk8

Really interesting discussion and you both make good points.

I saw this article in the Wall St Journal today which observes: "The biggest companies in every field are pulling away from their peers faster than ever, sucking up the lion’s share of revenue, profits and productivity gains.

Economists have proposed many possible explanations: top managers flocking to top firms, automation creating an imbalance in productivity, merger-and-acquisition mania, lack of antitrust regulation and more.

But new data suggests that the secret of the success of the Amazons, Googles and Facebook s of the world—not to mention the Walmart s, CVSes and UPSes before them—is how much they invest in their own technology."

In essence they argue that the IT spending by the likes of say Amazon, Google, etc that is for their own internal use and not offered to customers sets them apart from standard IT spend which is bought in, and which gives them a unique competitive advantage.

This argument the author makes in the Journal about this "IT instensity" is similar to the point I was making earlier about a scenario in the future AV world of "winner take most." The moat that Google/Waymo has created may not seem obvious by the amount of public info available but over time I believe it will be what sets it apart from other efforts. That is not to say for example that GM buying Cruise Automation (which if memory serves has a few ex-Google/Waymo employees in key roles) cannot compete. But it is a difficult case to make that apart from the advantage that GM has over a tech company in building cars offers it the "IT intensity" advantage that Google/Waymo possesses. Buying companies at the margin like Google does to fill in a niche they are missing differs from buying Cruise, which allows GM to be in the self driving vehicle race. The embedded advantage that Waymo has over Cruise cannot, in my view, be overstated.

I appreciate this view is open to argument as it seems so early in the AV "race" but it is my sense that ultimately the ability to collect, manage, assimilate, learn and extrapolate from the massive amounts of data that the AV generates will distinguish the winner. Who can argue that Google is the world leader, if not perhaps number 2 or 3, in AI and Machine Learning--for its own internal use. Ironically it also offers its service to third parties. For example, there are 3 or 4 massive operators in "cloud/infrastructure as a service"---Amazon, Microsoft, Google and perhaps IBM. Google has built its own hardware and software over many years. It was the only customer of its own massive cloud infrastructure for many years until it decided to compete with the others IAAS companies. GM does not have this infrastructure and yes, it can buy it in from a third party, but as the Wall St Journal author argues in terms of the massive IT intensity advantage that a Google has, it will not catch up.

My sense if that a number of companies will be able to offer an AV product and yes there will be hiccups and delays in a large scale roll-out by Waymo, but the inherent advantage Google has is worth considering. Waymo's commercial offering of its ride hailing service in Phoenix within the next few months ("by year end 2018") is the tip of the iceberg.

https://www.wsj.com/articles/why-do...-bigger-its-how-they-spend-on-tech-1532610001

 

[jpaul]

I had a look for feed-back on the waymo early rider program - ok, no bad news, but equally no 3rd party interviews from the participants on their sentiments,
this would be an ideal opportunity for publicity, an opportunity missed - why ?
just saw this https://medium.com/waymo/waymos-early-rider-program-one-year-in-3a788f995a9c
great opportunity for dash-cam coverage of the cars doing their stuff and the people inside ... this would be gold-dust on a live web-cam.

they have some very curated stuff https://www.youtube.com/watch?v=Ei5tCVlFVlA https://www.youtube.com/watch?v=6hbd8N3j7bg
(you may need a recepticle beside you , its a close call between this and the fb apology adds)

When the public service starts, this has got to be the first thing people start posting.

 

[sesevans]

I had a look for feed-back on the waymo early rider program - ok, no bad news, but equally no 3rd party interviews from the participants on their sentiments,
this would be an ideal opportunity for publicity, an opportunity missed - why ?
just saw this https://medium.com/waymo/waymos-early-rider-program-one-year-in-3a788f995a9c
great opportunity for dash-cam coverage of the cars doing their stuff and the people inside ... this would be gold-dust on a live web-cam.

they have some very curated stuff https://www.youtube.com/watch?v=Ei5tCVlFVlA https://www.youtube.com/watch?v=6hbd8N3j7bg
(you may need a recepticle beside you , its a close call between this and the fb apology adds)

When the public service starts, this has got to be the first thing people start posting.

Excellent links, esp the Medium link which shows the 10 most popular use cases of the 400 Early Riders which clearly informed Waymo's announcement earlier this week regarding its partnership expansion with Walmart, Autonation, Avis etc to address some of these popular uses and to assist their partners in satisfying their client needs.

My sense is that Waymo is keeping third parties away from interviews about Rider sentiment. I would not be at all surprised if the 400 Early Riders entered into an agreement with Waymo limiting contact with third parties while Waymo clearly curates videos to their liking, at a time when the public perception is still in its formative stage. The risk of a third party interview with a critic of AVs in general or Waymo in particular going viral is of course real.

Once Waymo opens up the commercial ride hailing service, they want it to be running like clockwork with lots of happy riders and corporate clients. At that point there will be plenty of opportunity for the media and special interest groups to interview passengers and be passengers themselves.

I suppose Waymo has hosted many "focus groups" on the public perception giving them lots of data points to base their approach upon. Aligning early with partners seems a smart move to offer value to passengers who might see the Waymo service very useful and feel comfortable using it in a wider context.

Meanwhile we have some curated videos that appeal to only some people!

 

[sesevans]

Waymo coming to China?

http://autonews.gasgoo.com/china_news/70014951.html

 

[sesevans]

Still much work to be done in the US (and presumably elsewhere) to address consumer safety concerns with autonomous vehicles, according to the Washington Post:

1. "A Brookings Institution online survey found that 61 percent of Americans said they were not inclined to ride in self-driving cars."
2. "A poll done at the weekend by the Advocates for Highway and Auto Safety found that 69 percent of those surveyed said they were concerned about sharing the road with autonomous cars."
3. " The infrastructure think tank HNTB found in a poll this past month that 70 percent of people expect autonomous vehicles to arrive within the next 15 years — but 59 percent said they would be no safer than cars with human drivers."

"These findings come despite the often-cited figure that 94 percent of car crashes are caused by human error and the fact that most traffic fatalities in 2016 were caused by three factors that fully autonomous cars might eliminate — distracted driving, drunken driving and speeding."

Consumer groups have been fighting efforts in the Senate to advance autonomous vehicles, at the Federal Government level.

https://www.thegazette.com/subject/.../fear-of-driverless-cars-on-the-rise-20180726

 

[sesevans]

TechCrunch: "Uber's self-driving trucks business is dead. Long live Uber's self driving cars"

Uber's self-driving trucks business began with the Otto purchase for "multiple millions". Remember it in relation to the Google Waymo v Uber lawsuit and the ex Google employee Anthony Lewandowski?

Focus will now be on self driving cars only.

https://techcrunch.com/2018/07/30/u...ion-is-dead-long-live-uber-self-driving-cars/

 

[jpaul]

Still much work to be done in the US

I had read through similar recent surveys by American Auto Association, this was a survey of just 2000 people, so statisticallly questionable.
Are any of the surveys you reference a larger size. ? I discarded AAA as fake news, or mis/dis-information, as they are re-branding it in the UK (Trump stigma)

I think people are genuinely sceptical/NIMBY's but there seems little credible proof.



... somew interesting AV liability comments here I ref'd in another thread

...
So then, when these cars are purchasable, do you think there would be a chance that the manufacturer would have to cover the ticket rather than the owner? I'd imagine the owner would have to pay up if the manufacturer can prove either poor maintenance or manual driving, but I think its on the manufacturer if their systems messed up

 

[b0rn2sk8]

TechCrunch: "Uber's self-driving trucks business is dead. Long live Uber's self driving cars"

Uber's self-driving trucks business began with the Otto purchase for "multiple millions". Remember it in relation to the Google Waymo v Uber lawsuit and the ex Google employee Anthony Lewandowski?

Focus will now be on self driving cars only.

https://techcrunch.com/2018/07/30/u...ion-is-dead-long-live-uber-self-driving-cars/

Makes sense combine two teams working on something similar into one. They might get it to work this time.

In the grand scheme of things IF the underlying technology works there is nothing fundamentally different between a truck and a car. It would just need to be recalibrated for the different type of vehicle/route restrictions.

 

[sesevans]

I had read through similar recent surveys by American Auto Association, this was a survey of just 2000 people, so statisticallly questionable.
Are any of the surveys you reference a larger size. ? I discarded AAA as fake news, or mis/dis-information, as they are re-branding it in the UK (Trump stigma)

I think people are genuinely sceptical/NIMBY's but there seems little credible proof.

... somew interesting AV liability comments here I ref'd in another thread

The link above to the Gazette article did not mention sample sizes so cannot say for sure.

In the link you provide to Ars, is there a particular comment that you wanted to highlight or just the general gist of the comments? I did note the comment about ride hailing being more likely the first to be offered as opposed to an outright sale of an AV and my sense is that the "players" like Waymo, GM, Daimler, etc are following this path, with Tesla being the more likely to pursue outright sales being an extension of their existing strategy with AV technology being "bolted" on.

 

[sesevans]

Makes sense combine two teams working on something similar into one. They might get it to work this time.

In the grand scheme of things IF the underlying technology works there is nothing fundamentally different between a truck and a car. It would just need to be recalibrated for the different type of vehicle/route restrictions.

Agree. I did read some comment recently by Waymo that 95% of the AV hardware from the passenger vehicle is similar to what is required by their AV trucks.

 

[sesevans]

I don't disagree with your arguments but being first to market doesn't mean you will be the biggest or the best long term. For example, Symbian, Palm, Windows Phone and Blackberry.

I could list 10+ extremely well funded companies that are doing the same thing as Waymo and ultimately there isn't anything stopping them making a product good enough to work on the road.

All of them say the biggest bottleneck is regulatory and not actually the software its self. It will be a few years before they are actually allowed on the roads without significant restrictions. That might as well be a lifetime in the software world. I also expect that other efforts are actually more advanced than is known because their efforts are just not widely followed or scrutinised anything like the extent that Tesla and Waymo are.

As the regulators don't actually allow AV's on the roads in any meaningful capacity there really isn't any reason to have product close to market and it's much more efficient to just have it bubbling away in the background until the time is right. Waymo are ultimately going to get to a point where they have a product that is ready to go but nowhere to actually sell it outside of a few niche markets because the regulators don't allow them to. Meanwhile everyone else is playing the quiet long game and there is nothing fundamental stopping them progress (like patents etc.).

I don't see anything in #5 being a significant barrier, in fact almost non of them really have any tie in's with AV's. The actual barriers to entry will greatly reduce over time as hardware gets better, cheaper and expertise in the field gets diversified as people move around the industry (which is extremely common).

Having $100 billion in the bank is great but they will not be able to burn through it to try and build a dominant market position without clear signs of profit. Google's shareholders expect profit, they are well beyond the silicon valley startup bubble these days. Just look at Facebook's share price, dropped 20% ($76 billion wiped of their value) in one day after they issued a profit warning below investors expectations.

AV's are not like mobile phones or computers where it is actually beneficial to the consumer to just have a couple of platforms as it creates a better user experience. The auto industry can get away with being very fragmented with lots of players in the game because there is no need 3rd party integration. In the unlikely event that Waymo are the only company to succeed then regulators like the EU will simply not allow Waymo to gain a monopoly they will force some kind of pseudo competition or simply put a price cap on it and essentially regulate the profit to a 'normal' margin. You also shouldn't underestimate a well represented unionised work force, just look how well the tube drivers do and their job is far easier to automate and the technology had been available for a decade....

Ultimately economics will win this war, the cheapest and not the best product will be the driving factor in the market. Even if only 5 of those companies actually make it, there is enough competition to drive profits to a fairly low margin. Companies like GM with their cruise software will be significantly more vertically integrated than Waymo which will greatly increase their competitiveness. Waymo need to license or partner with an automaker who also want their own piece of the pie. Waymo will ultimately have a place in the market, I just don't see them becoming the dominant player long term (in say 10 to 15 years), just in the same way I don't ever see Tesla out selling VW in EV's long term but both will have their place in the market.

Excellent post. Thanks for sharing your thoughts. I have a couple of additional comments to consider:

1. First, your comment on "regulatory" roadblocks seems spot on. You could also add resistance from insurance companies providing vehicle insurance who do not wish to lose their lucrative profit margins on insuring human driven vehicles, believing that over time AVs will reduce road traffic accidents and deaths and hence their ability to raise or maintain premium income.

Clearly the roadblocks are fewer in the US (esp some States like Nevada, California, Texas, etc) than in Europe. It seems that the European "players" are aware of this and appear to have more testing going on in the US than in Europe. One of the biggest European roadblocks is the United Nations Economic Commission for Europe which sets standards across Europe. There are approx 60 countries that participate in this entity and there is no general agreement among them concerning the rollout of AVs, with this entity preferring more gradual innovations (ie, Level 2 thinking).

Also, most of Europe is governed by the UN's Vienna Covention on Road Traffic. This restricts AVs to no more than testing on non-public roads so that becoming legal seems years away.

These restrictions mean that many European "players" may be late to market and fight over "scraps". The US and China do not have their laws aligned with UNECE regulations. Again I believe in "winner take most", much like Google Search. Compare the European regulatory environment to Waymo's ability to accumulate more than 7 million miles of testing on public roads.

2. Waymo/Google's cash reserves/valuation

I fully accept that GM will be a player and that it has a comparative advantage in being vertically integrated. However I maintain that there is a direct correlation, all else equal, between data and safety. And add to the 7 million plus miles of actual AV road testing and 5 billion miles of virtual testing (which some argue is more rigorous than actual road testing) and Waymo's access to the leader (or perhaps very near leader) in AI and machine learning and cloud and I suggest that GM faces a longer road to success than you might think. Why? Because catching up with Waymo seems to me to be a huge ask.

As I mentioned in an earlier post, Waymo is actively exploring three emerging business models, armed with the leadership in AI and machine learning: ride sharing (which we have been discussing), logistics and licensing.

On ride sharing, Waymo is on track to launch its commercial ride hailing service in Phoenix later this year. Analysts are suggesting that this business alone is worth $ 80 billion to Waymo if it achieves an average fare of 90 cents per mile over the next 20 years (compare this to Uber charging an estimated average of $1.30 per mile in the US currently). They assume a 12% long term margin business which would allow Waymo to spend huge sums on continued investment.

On logistics, we have seen a glimpse now on what this business could be worth to Waymo in future. Partnerships with WalMart and Peterbilt have been recently announced. I suggest to you that Waymo is in the process of enabling a faster/cheaper last mile delivery for retailers, allowing them to compete more effectively against Amazon. As for trucking, there is a global shortage of truck drivers which Waymo technology can address, along with 30-50% lower trucking costs and higher utilisation, according to analysts. I have seen estimates of Waymo trucking revenues of more than $ 300 billion per annum by 2040.

On licensing, I see manufacturers like Fiat Chrysler and Jaguar being too small to develop their AVs themselves and more likely to pay a license fee to Waymo than say GM or Daimler. Other manufacturers could follow Fiat Chrysler and Jaguar and strike licensing deals with Waymo.

All three of these ventures by Waymo will help them create scale and with scale comes algorithms that continue to improve in safety and intelligence. This is the my thinking behind "winner take most", like search.

 

[jpaul]

or just the general gist of the comments?

as it says, who will be liable if the car transgresses, but, seems this will be, an albeit simpler, legal test-case.

generally I have not seen anything discussing insurance cost's if AV's are delivered into private hands,
but even waymo taxis causing a few deaths/maiming could have an impact on google bottom line - £30million per shot, 300 accidents would eat the $10bill google 'profits'.
A 60K$ tesla AV that requires a $10kp/a insurance cost would not be popular.

 

[sesevans]

as it says, who will be liable if the car transgresses, but, seems this will be, an albeit simpler, legal test-case.

generally I have not seen anything discussing insurance cost's if AV's are delivered into private hands,
but even waymo taxis causing a few deaths/maiming could have an impact on google bottom line - £30million per shot, 300 accidents would eat the $10bill google 'profits'.
A 60K$ tesla AV that requires a $10kp/a insurance cost would not be popular.

I recall reading that property and casualty insurance companies in the US have had to cite risks to their business in the SEC filings (10K, etc) to allow for significant reductions in premiums as a result of massive safety improvements possible with self driving vehicles. I assume at the moment that for any accident that a Waymo self driving vehicle causes to another vehicle or a person, the company is self insured. I did notice that Waymo did enter an agreement with an insurance company called Trov last year for a more specialised insurance, namely passenger insurance, specifically for things like lost property while riding in one of their vehicles or medical insurance as a result of a sickness that a ride could cause or if one gets sick while in the vehicle.

I assume that one of the benefits of having already "driven" 7 million miles in self driving mode on public roads would be of great assistance to Waymo when it does get around to moving from self insurance to third party property and casualty insurance. And this number of 7 million is already increasing by 1 million miles per month. Perhaps the 5 billion virtual miles would help them too.

 

[sesevans]

in contrast tesla data could be more exstensive, and potentially lucrative



The article reminded me, I have not seen one of these "Musk promised" safety briefings on the auto-pilot statistics yet ? too worried about other things ?

You raise the issue of Tesla and the value of its data at an interesting time. Last night, Tesla CEO announced that he is considering taking Tesla private and has the funding in place to do so. He cited the strains of being a public company and what is in the interests of Tesla employees and shareholders.

A few observations:
1. I believe Tesla has a window of opportunity to exploit in its discussions with shareholders as it does not have a significant EV competitor yet able to produce the same volume (perhaps up to 500,000 EVs per year soon)--creating a window for them to attract capital and to incur significantly more debt in a leveraged buyout the Street now assumes Tesla will arrange.
2. I would certainly like more clarification on the value that the market (and for that matter Tesla CEO) gives to Tesla Mobility, their autonomous ride sharing business). Previously I have seen estimates of up to $ 18 billion for this business, equal to perhaps $90-$ 100 per share (recall Tesla "take private" scheme involves $420 per share take out price). Is the market including the value of Tesla Mobility in its LBO assumptions?

Of note, compare the value of say $ 18 billion for Tesla Mobility to the new value ascribed by the Street to Waymo: $ 80 billion for its ride hailing business plus $ 95 billion to the value of its logistics/transport business and to its licensing business, totalling $ 175 billion. Clearly the Street believes that Tesla Mobility is worth perhaps 1/10th of the value of Waymo. Also note that Softbank recently valued GM's shared electric, autonomous unit (GM Cruise) at $ 11 billion, or 6% of the value of Waymo.

3. Tesla CEO talks about strategic investors. If Tesla goes private, how would Tesla's CEO allocate his time between Tesla and SpaceX and would some of the strategic investors in SpaceX join the Tesla private shareholder base? Musk currently controls less than 20% of the shares of Tesla. I note that Google is an investor in SpaceX. Any grounds for thinking that Google may have a role to play in the Tesla LBO?

An LBO traditionally has a structure of 70% debt and 30% equity. At $ 420 per share, that is a lot of debt and equity to raise and it will test the abilities of Tesla to raise this capital and manage its new huge debt.

Thoughts?

 

[Participant]

Why would Musk offer to pay such a premium for publicly available shares? Surely their price wont rise to that extent even if the buyout goes ahead?

 

[sesevans]

Why would Musk offer to pay such a premium for publicly available shares? Surely their price wont rise to that extent even if the buyout goes ahead?

Do you consider a 12%-13% premium from the current price high? I believe it is not a simple matter to take a public company private, esp one with such considerable volatility as Tesla shares.

There is also an unusual wrinkle here. In most LBOs, public shareholders simply tender their publicly traded shares to the new owner and receive cash. Here, Musk is asking public shareholders to back him in taking Tesla private with the suggestion that they could retain their stake in the private company. That requires a big leap of faith by most current investors. They would not have a publicly traded venue to buy and sell shares and the liquidity of their holding would be restricted. In a sense they would become a strategic buyer of shares, believing in the Musk vision and not look at their equity as easy to trade over the short term. That requires a different mindset.

A traditional LBO might be 70% debt and 30% equity but how does the current market value the amount of equity that will be raised from current shareholders, esp with no formal tender offer in place? Musk talked about the funding being "in place" so I assume that if there is a significant defection by shareholders unwilling to invest in a private company, he must have strategic buyers lined up? Who could they be? Yesterday we saw the first potential strategic buyer announce itself......the Saudi Government Wealth Fund. As I suggested earlier, could some of the privately held SpaceX investor group become Tesla private shareholders? Google is one of those SpaceX investors that might have a strategic interest in a partnership?

With all this uncertainty, a 12-13% premium seems justified. Mind you, some analysts have already commented that they see the premium needing to move higher as they value Tesla above $ 420 per share.

 

[Participant]

@sesevans ^ That's a great post and you obviously know an awful lot about corporate finance.

The bit I'm missing here, and this by contrast is probably showing my relative lack of knowledge on the subject, is why Tesla Plc doesn't first repurchase and cancel the publicly-available shares at the current price, if Musk believes that the current share price undervalues the company and is due to short selling Tesla bears.

 

[b0rn2sk8]

While this isn't a takeover you can compare it to one. If you look at any that have happened in the past a premium is almost always paid for shares to convince enough people to sell. 12-13% isnt that much, the stock will likely go up that amount in the next 2 years naturally. Take overs regularly get declined at 30-40% premium.

Also a factor of the share price is contingent on their actually being a market for the shares and their being some for sale, if no one is selling the price goes up. If you buy lots of the shares then the 'pool' to buy from goes down. Simple supply and demand economics will push the price up.

 

[jpaul]

Yesterday we saw the first potential strategic buyer announce itself......the Saudi Government Wealth Fund

Trump would put the brakes on this I would have thought, the UK defence industry might be croniee to the saudi's for their money, but is the USA as sychophantic;
other investors would be out of Tesla if they thought Saudi oil/petrol concerns might be biassing their investment decisions ?

I thougth a lot of the Tesla funding was also junk bonds, so do those 'investors' not have a say
Titans of Junk:

 

[233]

thing is autonomous vehicles are already here,

they've been running HGVs up and down the M8 in full autonomous mode for over a year now. granted its all motorway work and its RDC to RDC so fixed point to fixed point every day and theres a driver in the cab at all times but it works .

autonomous vehicles don't get tired, dont get distracted and don't make mistakes nearly as often as their human counterparts.

theres a nationwide shortage of hgv drivers, now I don't know if they would let them run fully autonomous or maybe allow a truck in autonomous mode to be driven longer by a driver between breaks who knows but their here and working.