This Week in The Index, July 30, 2023 - The Road to Autonomy

Alphabet Q2 Earnings, Waymo’s New Financial Discipline: What Does It Mean for the Autonomy Economy?

This Week In The Road to Autonomy Index — For the week of July 24, 2023, The Road to Autonomy Index returned 1.82%, while the S&P 500 returned 0.81%. The top performing stocks in The Road to Autonomy Index this week were Alphabet which returned 10.46%, Ryder which returned 10.15%, and Micron which returned 8.45%.

On this episode, Grayson Brulte discusses Alphabet’s Q2 2023 earnings and the impact on Alphabet’s “Other Bets” including Waymo. As it was announced on the earnings call that Ruth Porat, CFO will be transitioning into the newly-created role of President and Chief Investment Officer of Alphabet and Google on September 1st.

In a July 26th article, Barrons highlighted the fact that Ms. Ms. Porat will now be responsible for investments in Alphabet’s “Other Bets” portfolio, which includes Waymo. In her new role, look for Ms. Porat to make significant changes to the way “Other Bets” is managed from a financial perspective.

The seeds for this change were hinted at on Alphabet’s Q2 2023 earnings call, as Ms. Porat stated the following on the call:

As to our Other Bets, for the second quarter, revenues were $285 million and the operating loss was $813 million. The decrease in operating loss was primarily driven by a reduction in valuation-based compensation liabilities related to certain Other Bets.

– Ruth Porat

The Q2 2023 loss in “Other Bets” was down from $1.34 billion in the second quarter of 2022, but still a significant loss for Alphabet. Especially with investor, TCI Fund Management publicly calling for financial discipline at Waymo. Over the last five years, “Other Bets” has generated only $3 billion of cumulative revenue, but insured $20 billion of operating losses with Waymo making up the bulk of these losses.

One day after the earnings call and Ms. Porat’s statement about “Other Bets”, Waymo publicly announced that it was shutting down Waymo Via, its trucking division to solely focus on robotaxis. The rumors of Waymo coming under financial pressure from Alphabet and shutting down their trucking division have been circling for roughly a year now prior to the announcement. The rumor came true on July 26, 2023.

As Waymo focuses on Waymo One, their robotaxi business, we will be watching to see if and when Waymo decides to license the Waymo Driver. Licensing the Waymo Driver would create a low-cost, scalable revenue stream for Waymo that investors would cheer including TCI Fund Management as it would stem losses and put Waymo on the road to profitability.

The bottom line is that change is coming to Waymo. On September 1, 2023, Waymo gets a new boss — Ruth Porat as she will become de facto CEO of Waymo in her new role as President and Chief Investment Officer.

While change is coming to Waymo (and in our opinion for the better), Cruise continues to scale eastward with the new recent expansion announces of Miami and Nashville. Cruise is scaling from a technical perspective because of structure of their ML models and from a business perspective because of their leadership team.

Right now, the robotaxi race is a two horse race between Waymo and Cruise. Then there is Zoox, an Amazon company, a company that has a bright future, but a future that is uncertain as Andy Jassey, CEO of Amazon is on a cost cutting mission. Zoox currently employees 1,252 employees according to LinkedIn data, costing Amazon roughly $313 million dollars a year in salaries at an average salary of $250,000 per employee (not including bonuses, stock option grants or benefits).

It’s expensive to operate Zoox and the big question becomes how long will Amazon continue to invest in Zoox? Will Amazon follow Alphabet’s lead and install financial discipline on Zoox or will they continue to allow Zoox to build their robotaxi business?

This and many more questions remain with a backdrop of rising interest rates and a U.S. consumer that is starting to show some financial strain. While the economic environment might be uncertain, we are at the dawn of The Autonomy Economy. Autonomy will be one of the largest industries in the future and the time to prepare is now, but with financial discipline in mind.

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The Road to Autonomy Index®

The Road to Autonomy Index is an autonomous vehicle index comprised of 38 publicly-traded companies. The Index is a rules-based equity benchmark index that is calculated by Standard and Poor’s Dow Jones Indices. The Index measures the performance of a basket of global companies that are involved in the development and commercialization of autonomous driving technologies.

Included in the Index are companies that are developing autonomous vehicles (self-driving cars), autonomous trucks and off-road specialty vehicles. As well as transportation, technology, industrial and services companies that have identified autonomy as a key component of their growth strategies. 

Inclusion of a security within The Road to Autonomy Index® is not a recommendation by The Road to Autonomy Indices LLC to buy, sell, or hold such security, nor is it considered to be investment advice.