Alphabet Challenging Uber With Self-Driving Car Rides For Hire

  • Alphabet's self-driving cars unit is scheduled to a become a stand-alone business under Alphabet next year.
  • According to plausible rumors, the new Alphabet company will offer self-driving car rides for hire, with a business model similar to that of Uber.
  • Alphabet's fleet of self-driving cars on-demand - Uber without drivers - could revolutionize transportation in cities.
  • The fusion of Alphabet's autonomous driving technology and Uber's winning business model is an excellent mid term investment opportunity.

Alphabet Inc's (NASDAQ:GOOGL) is leading the race toward self-driving cars. The Internet giant, committed to visionary, world-changing projects, set up its own auto company, Google Auto LLC, and hired John Krafcik, a 25-year car industry veteran who previously led Hyundai’s business in the US, to head its self-driving car project.

The autonomous car sector is becoming crowded, with the participation of more and more traditional car makers including Ford Motor (NYSE:F), Toyota Motor Corp (NYSE:TM), Daimler, and Hyundai, besides Alphabet, Apple (NASDAQ:AAPL) with its secret self-driving car project, and Tesla (NASDAQ:TSLA) with its accelerating development of luxury all-electric autonomous cars. All these companies predict commercial self-driving cars on the roads by the end of the decade.

Alphabet's self-driving cars unit is scheduled to become a stand-alone business under the Alphabet corporate umbrella next year, as reported by Bloomberg Business. A person briefed on the Alphabet’s strategy, who asked not to be identified, said that the new Alphabet company will offer rides for hire, with a business model similar to that of Uber and Lyft.

Bloomberg Business notes that "by challenging ride-sharing pioneers like Uber and Lyft Inc., as well as traditional taxis, Google is providing the clearest indication yet how it plans to make money from self-driving automotive technologies that it began testing in 2009." Sergey Brin, co-founder of Google and Alphabet, suggested in September that self-driving cars could first appear in the form of a service, saying it would let a lot of people try the technology and that having "the vehicle come back to us every day" meant Google could rapidly update the machines.

This development confirms Amigobulls' predictions for the self-driving car sector. All seems to indicate that the impact of autonomous driving, which is expected to become a commercial reality by the end of the decade, will be huge. Besides enhanced driving safety, self-driving cars could radically change cities by reducing the need for owning a car. In fact, fleets of self-driving cars on demand - autonomous Zipcar, or Uber without drivers - could pick up users in minutes at the tap of a phone app.

Uber has made social car sharing a reality by enabling freelance drivers to offer their services to people in need of transportation, a win-win deal. The company, which is seriously disrupting the taxi business, is often threatened with sanctions and bans by the authorities. But banning innovative and disruptive services that are wanted by the people is likely to be difficult, and Uber is here to stay.

A few months ago Uber closed a $1 billion financing round at a valuation of about $51 billion, with the participation of Microsoft (NASDAQ:MSFT) and Baidu (NASDAQ:BIDU), and all seems to indicate that Uber is heading for an IPO, perhaps in early 2016. However, the Alphabet cars will drive themselves, which will avoid many regulatory problems faced by Uber, which is often attacked by regulators for the unclear employment status of its drivers.

At the same time, Uber itself is rumored to be planning a fleet of self-driving autonomous cars. The rumors are supported by the strategic partnership with Carnegie Mellon University (CMU) to jointly develop technologies for self-driving cars at the Uber Advanced Technologies Center in Pittsburgh, near the CMU campus. Besides developing its own autonomous cars, Uber could buy its fleet from one of the other companies mentioned here. In fact, Uber CEO Travis Kalanick stated that if Tesla cars are autonomous by 2020, Uber wants to buy all 500,000 that are expected to be produced, Forbes reported in May.

Of course, the convergence of Alphabet's and Uber's business models makes another possibility plausible: Alphabet could consider becoming the ride sharing market owner in one strike by acquiring Uber.

Cautious investors should feel reassured by Alphabet's move to spin off the self-driving car unit as a stand-alone Alphabet company with detailed and transparent financial reporting, which will help understand whether the project is viable from a financial perspective or not. Bullish investors should think of the fusion of Alphabet's autonomous driving technology and Uber's winning business model as an excellent mid term investment opportunity.

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  • I do not have any business relationship with the companies mentioned in this post.
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