According to Goldman Sachs Research, the global robotaxi market is estimated to reach approximately $415 billion in 2035. Improving safety records and stronger customer demand are said to be fueling this surge, as per analyst Mark Delaney.
Two notable names in the robotaxi space increasingly making a mark are Alphabet Inc.’s (NASDAQ:GOOGL) Waymo and Tesla, Inc. (NASDAQ:TSLA). Despite taking on different approaches to autonomous driving, both are well-positioned to emerge as major players in the US robotaxi market.
TD Cowen analyst Itay Michaeli recently reiterated a Buy rating and $460.00 price target on Tesla (NASDAQ: TSLA). Hosting autonomous vehicle expert Alex Roy on its Internet Bus Tour, the discussion largely focused on AV rideshare scaling and potential licensing to automotive OEMs.
Waymo Has the Clear Lead Today
According to Roy, both Tesla and Waymo are well-positioned to scale in the US AV market. Waymo, in particular, is in a stronger position currently because of its rollout scale and overall safety.
As per a study by the Insurance Institute for Highway Safety (IIHS), driverless robotaxis by Waymo had 68% lower police-reportable crash involvement rate per mile than human drivers in four US cities. In Phoenix, the crash rates per mile were 75% lower, 71% lower in Los Angeles and 35% lower in San Francisco.
In recent news, the company also received the CPUC’s approval to expand its autonomous ride-hailing service across the SF Bay Area and LA, bringing its services to Sacramento and San Diego.
Waymo’s larger commercial footprint and stronger safety record makes it easier to win customer trust and regulatory approvals. However, the bear case for Waymo is that it needs to shrink the size of the lidar and camera apparatus if it wants to make it more appealing to consumers. This is important if Waymo wants to license its technology to major automakers in the future.
Tesla’s Path to Catching Up
While Tesla is currently focused on improving the safety profile of its software stack, Roy believes that it has the potential to catch up. Tesla’s game isn’t at par at Waymo right now, but Roy believes the two will converge at some point. This is particularly true if at some point, younger consumers may view Tesla’s safety levels as “good enough,” despite not being as safe as Waymo.
The bull case, therefore, is that Tesla doesn’t need to be as safe as Waymo. Tesla’s ability to become “good enough” while potentially benefiting from an AV architecture that is easier to deploy broadly could narrow Waymo’s lead in scale. This could in turn support a large ride-sharing structure for Tesla and even create a licensing opportunity.
However, since Tesla doesn’t disclose apples-to-apples safety data relative to Waymo, it is difficult to ascertain how close its system is to that threshold. Both Waymo and Tesla may also face future competition, with Zoox, Wayve, and the Lucid/Nuro partnership with Uber key names to watch.
Hedge Fund Sentiment and Bottom Line
As per Insider Monkey’s database, 123 hedge fund holders held stake in the stock at the end of the first quarter, down from 137 in the previous quarter.
For Waymo, Alphabet acts as the closest market-proxy. The stock was held by 265 hedge funds, down from 288 in the prior quarter. While boasting broader hedge fund ownership, Alphabet’s exposure is not just a reflection of Waymo’s robotaxi bet, but also its larger businesses including Search, Youtube, and Google Cloud. Meanwhile, Tesla trades at about 175 times forward earnings, while Alphabet trades at approximately 16.9 times.
Overall, Waymo remains ahead of Tesla in terms of safety and current robotaxi rollout. However, that lead is not guaranteed to persist as Tesla improves its autonomous technology and future competitors emerge. For Tesla, the case depends on making an autonomous driving system safe enough for future widespread customer adoption while preserving its hardware and software architecture.
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