Self-driving cars haven't yet hit commercialization as they are still in the conception phase. But IHS Markit estimates that they could eventually make up for over a quarter of new vehicle sales in the long run once adoption starts hitting critical mass in the next couple of years.
One of the best ways to tap into this opportunity is through Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) . The Google parent's self-driving subsidiary Waymo has clocked a massive technology lead over rivals that could soon translate into a lot of money. Here's why.
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In pole position
Waymo's cars have driven more than 5 million miles on public roads, mostly city streets, across diverse locations in the U.S. The company reportedly has thousands of self-driving cars in its fleet already, so it has already done the majority of the groundwork before the monetization phase begins.
The good part: Waymo's investments in self-driving technology have put it miles ahead of rivals. For instance, Waymo's self-driving cars clocked 352,545 autonomous miles on California roads last year, with the self-driving car system being disengaged only 63 times. This means that a human driver had to take control of the autonomous car only once every 5,595 miles.
Its next closest rival, General Motors , did only 125,000 miles, and that too with a higher disengagement figure of 105. So, GM's cars had to be taken over by a human driver every 1,254 miles. Such a huge lead has given Waymo confidence to launch fully self-driving cars that don't need a human driver, and the company seems all set to take the next step toward commercializing its technology.
First steps toward monetization
Waymo never wanted to make self-driving cars of its own. Instead, the company has been partnering with automakers to install its tech in their cars. Last year, the company announced that it will be tapping Fiat Chrysler 's Pacifica Hybrid minivans to test its early rider program in Phoenix, Arizona, to get feedback about its autonomous taxi service by providing free trips.
The good news: Arizona's transport department has approved Waymo's application of offering its services as a transportation network company. The company now intends to launch its commercial taxi service later this year in Phoenix, allowing customers to hail a ride on its autonomous car using an app.
This would make Waymo the first operator of a commercial self-driving cab service in the U.S., and it won't be long before it expands this model elsewhere. In all, Waymo has tested its self-driving cars in 25 cities in the U.S., so it can quickly roll out its service in other areas based on the success it finds in Phoenix.
Not surprisingly, Waymo is already planning for such an eventuality as it recently announced a deal with Jaguar Land Rover to add 20,000 self-driving I-Pace electric SUVs to its fleet in the long run. Waymo intends to deploy this new car for testing by the end of the year, and eventually become a part of the company's commercial ride-hailing fleet from 2020.
The two companies believe that they can offer as many as 1 million trips a day when the fleet is at full strength. Now, it is not clear how much money Waymo would be making thanks to such deals, but investors can expect substantial gains as the Alphabet subsidiary could be on track to reinvent the lucrative ride-hailing market.
Waymo could be minting billions
Waymo's successful rollout of an autonomous service will put it well ahead of ride-hailing giants such as Uber, whose self-driving program stalled after a fatal crash earlier this year. Uber reportedly holds more than 70% of the ride-hailing market in the U.S., which was worth an estimated $17 billion last year.
The ride-hailing industry in the U.S. is estimated to generate $30 billion in annual revenue by 2022, and Waymo's technology lead in self-driving cars over rivals like Uber means that it can make a mark over here. So, Waymo can mint a lot of money even if it carves out just 10% of the U.S. ride-hailing market in the next five years, which will be a remarkable jump from the current levels.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy .