Waymo’s move to bring its hardware manufacturing in-house shows the company’s attempt to edge out suppliers like Delphi and Mobileye.
For at least several months before Alphabet splintered off its car division and named it Waymo, the company had made it clear that it did not want to build a car. Instead, Waymo’s strategy was to work on developing the brains of the emerging self-driving industry’s cars instead.
They were building the driver, executives had said time and time again. Today, that may mean one of Waymo’s new ambitions is to provide the complete technological platform to the automakers making self-driving vehicles.
It’s not entirely clear when the plan shifted, but the new tack easily jibes with Alphabet CFO Ruth Porat’s directive to meet specific financial targets for the company’s sometimes wayward experiments, known as moonshots. It’s not as sexy as building a car, but it’s a quicker way to realize revenue from a new industry.
The first indication that Waymo was positioning itself as a competitor to players like Mobieleye and Delphi came in December, when CEO John Krafcik announced the company was going to build its own sensor technology, the proverbial eyes that self-driving vehicles need to track the road and any obstacles such as oncoming traffic or pedestrians.
But the real key is that the hardware would be far cheaper than what was currently available. Specifically, Krafcik said the company found a way to bring down the cost of a crucial technology that it once sourced from third-party suppliers: The laser-based radar.
When the company first built its own self-driving prototype it cost $75,000. A combination of altering the design and bringing the production in-house allowed the company to bring that cost down 90 percent, according to Krafcik.
At the time, Krafcik said selling its hardware to automakers was a possibility.
“Having our hardware and software development under one roof is incredibly valuable,” Krafcik said during his keynote at the AutoMobili-D conference in Detroit. “Our sensors are developed in close collaboration with our software experts who specialize in AI techniques like machine learning. A single integrated system means that all the different parts of our self-driving technology work together seamlessly.”
Waymo’s relationship with automakers will likely be different than that of a traditional supplier. One version of that relationship is its partnership with Fiat Chrysler, for which the two companies collaborate on building the vehicle but they are owned and operated by Waymo.
Suppliers, on the other hand, simply deliver its hardware or software to automakers which then integrate it into the vehicles during production.
Car companies typically have to seek many different supply chains, roughly breaking down into hardware and software. Waymo is betting that by building both the hardware and software into one system, it can make the technology more valuable. It’s easier, for instance, to negotiate one deal than multiple agreements. As Krafcik said in his keynote, the software and hardware are also more closely integrated.
Already, the company is being mentioned in the same breath as the players it wants to beat. On Ford’s quarterly earnings call Thursday, an analyst asked whether Ford would consider sharing data with suppliers like Waymo or Mobileye to create standardized HD maps for the industry. Ford CEO Mark Fields responded the company would have to determine whether it’s ceding a competitive advantage to other automakers by sharing the data.
Still, that doesn’t mean it’s in the bag for Waymo.
For one, we’ve seen a number of suppliers that automakers are already working with strike up partnerships in the last few months.
In August, Delphi and Mobileye (which supplies sensor technology) announced the companies were partnering to develop a fully self-driving system that automakers can begin to integrate into their vehicles in 2019. BMW has already said it will integrate that system into a fleet of its vehicles.
Chipmaker Nvidia also announced it would begin working with hardware suppliers Bosch and ZF and would power Audi’s self-driving system.
More importantly, automakers have had long-standing relationships with these suppliers. It’s a close network that is difficult to infiltrate, one insider argued. Yet another said there are still opportunities. Tesla, for instance, stopped working with Mobileye after a fatal car crash.
“Every automaker works with hundreds of suppliers,” the source said. “So I don’t think it’s fair to say that they wouldn’t drop one