The driverless vehicle technology race is over. Congratulations Alphabet (NASDAQ:GOOGL) investors. Alphabet stock was the right bet.
For years, auto and technology investors have been anticipating which company would be the first to have a fully autonomous vehicle service available to the public. Earlier this month, that question was answered.
On Oct. 8, Alphabet subsidiary Waymo announced its fully driverless rides will be available to the public in the Phoenix area. Within days, General Motors (NYSE:GM) announced its Cruise driverless vehicles will begin testing without drivers in San Francisco before the end of the year.
Cruise and Waymo have been the frontrunners in the AV technology race for a long time. Now that AV has gone from being a buzzword to an actual thing, the AV tech race is over. A new race has now begun. Which of the two companies can get the first mover advantage in a massive global AV service market?
Alphabet Stock the AV Winner
Alphabet subsidiary Waymo has been testing its AV technology in the Phoenix area since 2018. But for the first time ever, Phoenix users who call a car using the Waymo One app can now get a car without a human safety driver behind the wheel. The service is pretty surreal to see in action. Alphabet stock investors can check it out in the video here.
The fully driverless service is only available in an area about 50 square miles in size to start. Waymo said it plans to expand the offering to the entire Phoenix public in the weeks ahead.
Waymo said 5% to 10% of its rides so far in 2020 have been fully driverless and have involved users who signed non-disclosure agreements to participate.
It’s best not to get bogged down in the details. The year is 2020, and the American public can climb into a Waymo vehicle and be taken across town to their destination without a driver. That is a great reason to own Alphabet stock.
GM Cruise and Alphabet Stock
When I bought Alphabet stock for myself back in March, I mentioned Waymo as one of the big reasons why. At the time, Navigant Research had named Waymo as the market leader in AV technology. As it turns out, they were right. Navigant also named GM Cruise as a close second in the AV race. As it turns out, they were right again.
On Oct. 15, GM announced its Cruise AV subsidiary has gained approval from California regulators to remove human safety drivers completely and begin testing completely unmanned AVs in San Francisco by the end of 2020. Waymo had previously been granted a similar permit.
GM seems to clearly be lagging Waymo in rolling out its AV service to the public. In its commentary related to the AV headlines, GM understandably emphasized the fact that Cruise will be the first company to test unmanned vehicles “on the streets of a major US city.”
The next leg of the race will likely be a close one between GM and Waymo to see which robotaxi service ultimately becomes the gold standard in major cities throughout the country.
Tesla Is Lagging
I try to be a rational Tesla (NASDAQ:TSLA) skeptic. Navigant says Tesla is miles behind Waymo and GM. While YouTube users are watching the fully AV Waymo ride video, they can also check out Consumer Reports’ review of Tesla’s Autopilot feature.
“We had some significant concerns with the newer features of the full self-driving package,” Consumer Reports said.
Autopilot has some major flaws. From struggling to navigate a parking lot to stopping at green lights to straight up running stop signs, the Consumer Reports video on Tesla Autopilot is pretty scary.
Yet Tesla is forging ahead. CEO Elon Musk said the company launched a Full Self-Driving beta test this month to “expert & careful drivers.” Of course, Tesla has been telling its customers they are getting Full Self-Driving hardware since 2016. But long-term Tesla investors know all too well at this point to disregard most of what Musk says.
Not only is Tesla’s full self-driving software not actually full self-driving, it seems Tesla is leaving drivers to figure out what self driving can and can’t do. Waymo, GM and all other AV companies have conducted carefully controlled pilot tests before rolling out their software to the public. But not Tesla.
How to Play Google Stock
AV technology is a major investing opportunity.
I think Alphabet stock is a great investment with a number of major long-term growth catalysts ahead. I believe GM is an AV growth stock disguised as a value stock due to its 7.2 forward earnings multiple. And as I’ve said many times before, I believe Tesla’s valuation is ridiculously high due to the stock being caught in an electric vehicle bubble.
If you want to invest in driverless vehicles, Alphabet stock is the best choice. It is officially the first major company to launch a fully self-driving service to the public. GM stock is a good second bet given its extremely attractive valuation and regulator-approved AV technology.
On the date of publication, Wayne Duggan held long positions in GOOGL and GM.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. He is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.
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