Last Friday, Google raised some eyebrows when they announced their latest project: Cars that drive themselves.
Google's robocars are already operating on California public roads. Apparently, GOOG has been working on this project in stealth mode for a while.
They currently have 7 customized robocar prototypes: 6 Prius hybrids, and 1 Audi TT.
And according to the NYT, the fleet has already logged 140,000 miles with only "occasional" human intervention — and 1,000 miles with zero human input.
There is a driver behind the wheel at all times, of course. No mid-road trip naps just yet...
The driver can take control of the car from the computer at any time, similar to disengaging cruise control.
The cars can smoothly merge into highway traffic, navigate city congestion, and spot potential hazards.
There's only been one accident so far, and that happened when one of the Toyotas was rear-ended at a stoplight.
To accomplish this impressive feat, Google uses an array of sensors and processors.
Here's a quote from the company's official blog:
Our automated cars use video cameras, radar sensors and a laser range finder to “see” other traffic, as well as detailed maps... to navigate the road ahead. This is all made possible by Google’s data centers, which can process the enormous amounts of information gathered by our cars when mapping their terrain.
Talk about a game-changer...
If Google pulls this off, it will be a huge win for investors.
The technology is probably ten years away from being commercially viable, but Google is one of the few companies with the skills and engineering to get it done.
Imagine, ten years down the road, Honda dealers might be selling Accords equipped with a Google Auto-Pilot option...
If robocars become widely adapted, the revenue we're talking about is massive. Billions annually. There are around 50 millions cars sold every year, worldwide. It's a big, big market.
But robot cars are so far outside Google's core competency — search — that some are scolding Google for getting distracted with "side projects."
Henry Blodget of Business Insider had this to say:
Why is Google spending the $10+ million of shareholder money per year the project consumes (15 engineers, plus drivers, plus the cars)? Isn't there something closer to its core business that Google could spend this money on?
I usually enjoy Mr. Blodget's writing, but couldn't disagree more with him here.
Skeptical investors said the same thing about Google Apps; when the company bought YouTube; and when they launched their wildly successful Android mobile OS...
They said it would distract the company from search. They were wrong.
Google is still light-years ahead of the competition in search, and those little "side-projects" are already paying huge dividends.
Google CEO Eric Schmidt recently announced that advertising revenue from Android has already completely covered the cost of development. And YouTube is doing around $1b in ad revenue a year.
Plus, Google has $29 billion in cash laying around. I'm glad they're investing in potentially-lucrative projects like this one.
The Google Kingdom
As a company, Google is structured like a dictatorship. Every share owned by the founders has 10 votes, while common shares only have one. They intentionally structured the IPO so that investors have almost no input in managerial decisions.
So they can do whatever the hell they want. They will shrug off critics of this and other side-projects. They run the show. And I'm fine with that.
If you don't like the company's direction, don't buy the stock. I'm staying bullish on Google and will continue to own it.
Improved safety, efficiency
Back to the benefits of robocars — namely, safety and efficiency.
Every day, without fail, I see dozens of bad drivers and brake-riders on I95.
They hit the gas too late, brake too early, and slam brakes at first sight of a cop (even when they're already doing 10 under). 75,000 text-messaging, makeup-applying, Facebook-status updating, nose-picking maniacs operating on a crowded four-lane highway.
It's all horribly inefficient, not to mention dangerous. WHO says 1.2 million people die in automobile accidents every year.
Automated cars will likely revolutionize the way we travel. They will vastly improve MPG, reduce road congestion, and hopefully save millions of lives.
If Google executes well on this, it'll be a major victory. It's projects like this that help make GOOG my #1 U.S. equity pick.
Robocars may not be a reason to own Google in and of itself, but it's a nice bonus for shareholders — a relatively cheap bet by the company which could pay off 10,000 times over, a few years down the road.
Adam Sharp
Analyst, Wealth Daily
Once a driverless taxi company begins operation personal car ownership for the masses will be on its way out the door – economics will ensure it. Consider this: if it costs you $2 to take a taxi anywhere in your city, why would anyone want to spend $500-$1000 a month owning a car.
The transportation needs of a city with one million residents could easily be served by 20,000 driverless taxis and a central mass transit system to solve the problem of peak hour traffic load. Under this scenario, GHG emissions virtually disappear, 95% of all parking becomes obsolete, households save thousands each year on transportation, and cities will grow denser because far less room is needed for auto infrastructure and transportation costs have been transformed from high fixed, low marginal to zero fixed, moderate marginal (under a zero fixed, moderate marginal transportation cost structure, people will become economizers and proximity becomes more important).