After years of positive feelings about the future of autonomous vehicles and nearly unlimited access to money from Kool-Aid-drunk venture capitalists, the AV industry is facing some hard truths. The first is that it will take much longer for autonomous vehicles to become widespread than previously thought. The second is that it will also become a lot more expensive. And the third hard truth: Going alone is no longer a viable option.
Last week, Lyft sold its self-driving car division to a Toyota subsidiary for $ 550 million. Cruise bought Voyage. Aurora merged with Uber’s autonomous vehicle unit. Delivery robot startup Nuro has taken over the self-driving truck equipment Ike. There have been so many mergers, joint ventures and various collaborations lately that it can be difficult to keep them all straight.
Where that remains is a bit unclear. Money continues to flow into these companies, and almost all executives, engineers, and software developers working on the technology remain optimistic about the future. But there is a growing feeling among experts and investors that the heady days when someone could launch a startup with a few test vehicles, a little LIDAR, and a vision for the future are over. And there will certainly be more shrinkage.
“The consolidation had to wait a long time,” said Raj Rajkumar, professor of robotics at Carnegie Mellon University. “For too long the AV industry has promised too much and delivered too little.”
There are other signs of general unease in the AV world. Last month, John Krafcik announced that he was stepping down as CEO of Waymo after running the company since 2015. Krafcik oversaw the transformation of Google’s self-driving car division from “Project Chauffeur” to its own standalone company. During his time, Waymo entered into partnerships with several car manufacturers, initiated a limited-ride pilot with fully self-driving vehicles in Arizona, and expanded its commercial ambitions to include freight and last-mile delivery.
As a former car director with years of experience at Hyundai and Ford, Krafcik was seen as someone who could bring self-driving cars to the mainstream. But his decision to step aside at a time of heightened uncertainty highlights the tough road for self-driving cars – especially since many of those early predictions have not come true.
Krafcik has not been able to market an autonomous vehicle that can drive on any road and under any conditions without years of rigorous testing. Aside from a small area outside of Phoenix, Waymo’s cars require backup drivers to monitor the vehicle’s activities and take control if something goes wrong.
Waymo still has a leading edge in autonomous vehicles, but diminished expectations about the future of self-driving cars are impacting his business in other ways as well. In 2018, Morgan Stanley published a research note values the company at $ 175 billion based on its perceived leadership in space and the potential for massive amounts of revenue from its autonomous vehicles.
A year later, the bank lowered Waymo’s valuation to $ 105 billion, still an extraordinary amount for a business with no income. But last year, when Waymo announced its first $ 2.25 billion round of external financing, the company declined to discuss what valuation that investment was based on. Later on, the Financial times reported it’s going to be $ 30 billion – down nearly 85 percent from 2018.
Ratings aren’t the only indicator of what things stand with autonomous vehicles. But they do point to investor sentiment. And right now, investors are less confident in the prediction that autonomous vehicles will soon become the dominant mode of transportation.
For years, Missy Cummings, director of the Humans and Autonomy Lab at Duke University, has criticized rosy predictions about our driverless future. She is consistently warned that the technology is much further away and harder to get than anyone in the industry is willing to admit.
The recent trend in consolidation justifies her position, she says.
“It’s a bit like the elephant in the room,” she said of the shrinking AV world. “People will state that and then they will keep themselves from making the Socratic connection with what this means about the viability of this industry.”
But Cummings doesn’t think people in the industry can ignore the truth for much longer. “There is an embarrassingly large sum of money invested in it, so people feel like they should keep going down that road because all these people who have invested all this money certainly can’t be wrong,” she says.
“Not everyone is delusional,” she added. “Just most people in this business.”
That said, Toyota and Aurora were not delusional when they decided to buy Lyft and Uber’s automated teams, respectively. They likely saw the value in the code produced by those teams, as well as the talent built by the ride-hailing companies over the years. If you can’t hire the people you want to staff for your own projects, then you should take them over, the hallmark Silicon Valley practice of buying a smaller company for the express purpose of acquiring their team of software engineers. Also, Uber and Lyft were highly motivated to sell as recently public companies under pressure to stop the bleeding and become profitable.
Another recent acquisition was when Apple bought the bankrupt self-driving startup Drive.ai in 2019. Apple had just fired more than 200 technicians of his mysterious Project Titan, his own floundering self-propelled operation. The Drive.ai team, made up of several graduates from Stanford’s AI lab, had already had modest success with a ride-hailing pilot in Texas. Unhappy with its own team, Apple just fired them and bought a new one.
“Buying these companies represents companies that can buy skills that they otherwise wouldn’t be able to recruit,” Cummings said. “And I think that’s very valuable.”
The recent reorganization of the self-driving car industry may also point to a new set of priorities. Namely, robot taxis are out, and logistics and industrial applications are in.
Four years ago, the industry saw that many startups were emerging from the doldrums and promised to do everything: they started making hardware and software; they started to build their own vehicle; they were going to do robotaxis and delivery and freight transport. And of course they would change the world in the process. “It was a bit like the decathlete business model,” he said Reilly Brennan, general partner at venture capital firm Trucks. “We’re getting really good at 10 different things.”
Now most investors are interested in more “structured” applications of automated driving technology, such as construction, mining, medium-haul delivery and agriculture. “So instead of being a decathlete, you had to choose a spear-thrower,” he said.
That’s not to say robot taxis are completely dead – far from it, with big players like Waymo, Cruise, Argo and Baidu, as well as smaller startups like Pony.ai, May Mobility and Optimus Ride still relying on the proliferation of autonomous driving- upcoming vehicles by the middle of this decade. But Brennan says the robot taxi craze has certainly cooled in recent years.
“To be honest, we stopped seeing robot taxi startups in late 2017,” Brennan said. “Here we are in 2021 and there are very few ongoing robot taxi startups that are not, you know, Cruise, Waymo or Argo.”
Brennan thinks the concept of autonomous vehicles that can drive anywhere in all conditions is still possible, but much further away than initially thought. They will require massive financial investment – “11 figures” by Brennan’s estimates – and a willingness to tolerate zero cash flow until the technology is mature and safe enough to launch. There are only a limited number of companies with enough pockets to take on that challenge: big car companies like Ford, GM and Volkswagen or tech giants like Apple, Alphabet and Intel. Everyone else will probably not long for this world for much longer.
The mid-level engineers always knew this was true, Brennan said. It was the CEOs who made the wrong predictions about the availability of self-driving taxis by 2020. “I think the CEOs of those companies knew they would be playing golf by 2020,” he said.