Tesla’s Robotaxi Ambitions Spark Investor Interest, But Waymo Leads the Pack

Tesla (NASDAQ: TSLA) showcased its vision for robotaxis on October 10, unveiling the Cybercab and Robovan, both designed for an autonomous taxi service. CEO Elon Musk anticipates that the Model 3 and Model Y will achieve unsupervised full self-driving capabilities in select states by the end of next year, with production of the Cybercab beginning in late 2026.

However, specifics about how the robotaxi business will operate remain unclear. Questions arise: Will Tesla manage the service? Will it sell vehicles to an operator? Can owners of Cybercabs contribute their cars to the fleet for passive income while they are at work or home?

Many investors forecast that Tesla’s robotaxi initiative could surpass its car sales revenue. Still, Musk has yet to present a transparent roadmap for achieving this ambitious future.

For those looking to invest in the autonomous vehicle sector, it may be wise to consider another option—Waymo. With 15 years of experience in self-driving technology, Waymo currently operates a fully-functional robotaxi service in three states. This gives it a competitive edge over Tesla and others, plus investors can gain access to it through its parent company, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).

Image source: Getty Images.

Impressive Growth in Robotaxi Rides

Waymo operates its robotaxi service in four major markets: Los Angeles, San Francisco, Phoenix, and recently, Austin, Texas. The company recently announced it is now completing 100,000 paid rides per week, a remarkable increase compared to its previous figures shared in June.

Growth is accelerating quickly for Waymo. It’s not only providing rides in four key cities but also forging partnerships to expand its reach. Last month, Waymo partnered with Uber to introduce a fleet of Jaguar I-Pace vehicles in Austin and Atlanta by early 2025. Additionally, it is collaborating with Hyundai to integrate its technology into the Ioniq 5 SUV, which is expected to join Waymo’s fleet in 2026.

To enhance its offerings, Waymo is refining its technology to reduce operational costs. In August, it launched an updated autonomous vehicle system, emphasizing safety while significantly lowering expenses. The previously used systems could cost as much as $100,000 when incorporated into a Jaguar I-Pace, but improvements and scaling efforts through collaborations like the one with Hyundai should help bring those costs down.

As Waymo boosts its operations, its parent company stands well-positioned to generate significant free cash flow, providing it with a head start over competitors. In an industry where early entrance and a robust network are critical, Waymo’s first-mover advantage could be crucial in the years ahead.

Investing in Waymo through Alphabet

While direct investment in Waymo isn’t possible, buying shares of its parent company, Alphabet, allows investors to tap into this potential. Alphabet is synonymous with innovative revenue streams, especially through its digital advertising business, which reported $64.6 billion in advertising revenue last quarter, with $13.4 billion in related costs. Additional services, such as the Android platform and Google Play, added another $9.3 billion to the bottom line.

Currently, Alphabet is facing an antitrust case initiated by the Department of Justice, which could reshape some of its operations. However, the impact is likely to be minimal, as Google remains the leader in search and Android operates as the most popular mobile platform worldwide.

A promising segment for Alphabet is Google Cloud, which has seen substantial growth, particularly in artificial intelligence. In the second quarter, Google Cloud revenue exceeded $10 billion—growing 29% year over year—while operating profits soared to $1.2 billion, a leap from $395 million last year.

Waymo constitutes a small part of Alphabet’s “other bets” category, generating just $365 million in revenue last quarter—far overshadowed by Google’s billions. Yet, if the future hinges on millions of autonomous vehicles operating in urban areas, Waymo could evolve into a significant revenue generator. For comparison, Uber’s mobility sector registered $20.5 billion in gross bookings last quarter.

Currently, shares of Alphabet can be purchased for under 19 times analysts’ projected 2025 earnings, effectively allowing investors to gain exposure to the leading robotaxi operator without additional cost. In contrast, Tesla shares are priced at 71 times the earnings estimate for next year, based on the assumption that Musk will successfully launch the robotaxi service as planned.

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Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. Adam Levy holds positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Tesla, and Uber Technologies. The Motley Fool maintains a disclosure policy.

The opinions and views expressed here belong to the author and do not necessarily represent those of Nasdaq, Inc.