Alphabet Inc's (GOOGL) Next Growth Cycle Is Closer Than You Think

Alphabet Inc's Google Goes All-In Into Self-Driving with Waymo.

Alphabet (NASDAQ:GOOGL) has been involved in developing self-driving vehicles since 2009 as part of its [in]famous moonshot projects. The company reported in 2015 that its self-driving cars had logged more than a million driving miles and established an impeccable safety record. But now for the first time, the company has created an independent self-driving car unit and named it Waymo. Waymo will build on self-driving technologies that the company has been developing at its Google X (moonshot) division. Here's why this moonshot could be the next biggest growth driver for Alphabet Inc and GOOGL stock.

Self-Driving Vehicles Could Go Mainstream Sooner Than You Think

Unlike Apple (NASDAQ:AAPL) whose self-driving car roadmap is anything but an open book, Alphabet has been quite clear about its autonomous car ambitions. The fact that the company is going all-in into self-driving at a time when Apple has begun scaling down Project Titan signals greater confidence by Alphabet in the autonomous car concept.

Self-driving cars could actually come sooner than many people think. Lack of a proper regulatory framework has been partly to blame for the slow advancement of the self-driving cars concept. Up until recently, a patchwork of regulation in the U.S. and Europe only allowed for testing of self-driving cars in certain states, cities, and towns.

But recent advancements in the industry could push it forward by several years. The National Highway Transportation Safety Administration (NHTSA) released new self-driving car regulations in September. Although these are mere guidelines and not rules, they are a clear indication that NHTSA is willing to work with tech to provide tools that make self-driving a reality sooner than the standard 4-8 years that it takes to introduce comprehensive changes.

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Top on NHTSA's guidelines is safety. Companies that manufacture autonomous vehicles will be required to sign a 15-point safety checklist to pre-certify their vehicles. But the safety of self-driving vehicles is not likely to become a major concern. So far, self-driving cars have proven to be considerably safer than human-driven vehicles. The global safety record of human-driven vehicles across all models is one death for every 60 million driving miles. Tesla's (NASDAQ:TSLA) vehicles have logged more than 130 million miles on Autopilot, with only one fatality recorded. Meanwhile, Alphabet's autonomous cars have logged a couple of million miles but with only a dozen or so minor accidents with no serious injuries or fatalities yet. Alphabet's impeccable safety record can partly be chalked up to the fact that it's self-driving cars have a speed limit of 25 miles per hour.

Self-Driving Can Disrupt The Private Automobile Market

Ultimately it's not very likely that the superior safety record of autonomous vehicles is going to change for the worse. As people become increasingly comfortable about hitching a ride in driverless cars, self-driving technology will likely disrupt the private automobile market.

Alphabet will use Waymo to explore opportunities in personal vehicles, public transportation, logistics, and ride sharing. Alphabet is, in fact, one of the foremost companies in the autonomous driving field, and graduation of the project into a targeted revenue generating enterprise is a big positive for Google X and GOOGL stock. But perhaps nowhere is the opportunity for self-driving car greater than in the burgeoning shared mobility market, one that is championed by the likes of Uber and Lyft.

According to Morgan Stanley, cars will drive 19.6 billion miles globally in 2030, almost double the 10.2 billion miles they travelled in 2015. That growth rate is much faster than the estimated production of light vehicles over the same period which will lead to fast growth in the shared mobility industry. Shared cars accounted for just 4% of global miles travelled in 2015, but will account for nearly 30% by 2030.

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And, sharing a ride will gradually become cheaper than owning a car. Currently, it costs $0.76/mile for a self-owned car compared to $1.50/mile for a shared ride. But the tables will eventually turn and by 2030 it will cost $0.50/mile for a shared ride compared with $0.75/mile for a private vehicle. Vehicle sharing is seen as the biggest potential market for autonomous vehicles because they remove the human bottlenecks and improve the economics substantially. Morgan Stanley predicts that the shared mobility market will grow to a $2.6-trillion industry by 2030. In a wildly successful scenario, Alphabet might be able to sell as many self-driving cars in 7-8 years as BMW currently does. BMW sold 1.9 million vehicles in 2015. At an ASP of $75k, that would net the company $142.5B, almost triple its current annual revenue. So that's a solid opportunity for Alphabet. Even 20-30% of that would still present a healthy incremental revenue stream for the company.

Investor Takeaway

In the recent past, the future of the autonomous vehicle remained unclear due to lack of a proper regulatory framework that would support mass sales of such vehicles. But with NHTSA starting to move quickly to introduce such regulations, the future of the industry looks bright.

Alphabet is amongst the first companies that are fully dedicated to the self-driving car industry. And now with Waymo the company will be in a better position to take advantage of the opportunities offered by the growing shared mobility market. It will probably take 3-4 years before Alphabet can start selling its autonomous vehicles in large enough volumes. But this is ultimately a long-term catalyst for GOOGL stock.

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Brian Wu Brian Wu   on Amigobulls :
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