How Waymo Pulled Ahead in the Robotaxi Race

[00:00:00] [SPEAKER_02]: Robert Half Research indicates 9 out of 10 hiring managers are having difficulty hiring. Robert Half is here to help. Our recruiting professionals utilize our proprietary AI to connect businesses with highly skilled talent. At Robert Half, we know talent. Visit roberthalf.com today.

[00:00:23] [SPEAKER_03]: Welcome to Tech News Briefing. It's Wednesday, October 23rd. I'm Zoe Thomas for The Wall Street Journal.

[00:00:30] [SPEAKER_03]: Demand for artificial intelligence chips is booming, but the honeymoon for chip equipment makers may be coming to an end.

[00:00:39] [SPEAKER_03]: We'll find out why a contrast between companies at different ends of the semiconductor sector has become clear.

[00:00:45] [SPEAKER_03]: And then, after a somewhat bumpy start, the robo-taxi race is on.

[00:00:52] [SPEAKER_03]: And Alphabet's self-driving car unit Waymo is pulling ahead. We'll tell you how Waymo got its lead.

[00:01:02] [SPEAKER_03]: Starting with the chips industry. The stock prices of companies like NVIDIA have been on a tear thanks to demand for AI chips.

[00:01:11] [SPEAKER_03]: But this demand is not benefiting all companies in the semiconductor space.

[00:01:16] [SPEAKER_03]: And investors last week may have experienced whiplash after dueling earnings reports presented a mixed picture of the sector.

[00:01:23] [SPEAKER_03]: Here to tell us what's been going on is Dan Gallagher, a columnist for WSJ's Hurt on the Street.

[00:01:29] [SPEAKER_03]: So, last week we had these sort of two opposite earnings results.

[00:01:34] [SPEAKER_03]: We had a Taiwan semiconductor manufacturing posting strong third quarter results, and they said that they expected revenue from server AI processors to more than triple.

[00:01:44] [SPEAKER_03]: And then the flip side of that is we had ASML, the Dutch equipment maker, said net bookings were less than half of what Wall Street expected.

[00:01:53] [SPEAKER_03]: What is going on here?

[00:01:54] [SPEAKER_00]: There's a lot of complexities in the business, and you first have to look at these two companies at almost different ends of the spectrum.

[00:02:00] [SPEAKER_00]: ASML makes these very complicated, expensive lithography machines that are crucial for leading-edge semiconductor manufacturing.

[00:02:10] [SPEAKER_00]: So, essentially, TSMC is a big customer. They buy these machines.

[00:02:14] [SPEAKER_00]: ASML's problem is that the other two big customers, Samsung and Intel,

[00:02:18] [SPEAKER_00]: now those three have typically accounted for more than half of the spending on all chip equipment gear globally, are having problems.

[00:02:26] [SPEAKER_00]: Their capital spending has been going down, so they're not spending as much.

[00:02:29] [SPEAKER_00]: So, for an equipment maker like ASML, the net effect is not great.

[00:02:34] [SPEAKER_03]: What did ASML say will potentially help their business normalize?

[00:02:38] [SPEAKER_00]: That's always been pretty cyclical and sometimes unpredictable because they don't sell a ton of these machines.

[00:02:44] [SPEAKER_00]: The machines cost a lot. So, it doesn't take a big volume shift to have that effect.

[00:02:50] [SPEAKER_00]: What worried the street is that their longer-term forecast for next year, they said it would come on the low side of what they projected.

[00:02:58] [SPEAKER_00]: Again, because some of these major chip makers are having some trouble.

[00:03:01] [SPEAKER_03]: Yeah, let's remind people a little bit for a second because it seems like TSMC is doing fine.

[00:03:06] [SPEAKER_03]: But what about these other two, Samsung and Intel? What's kind of holding them back?

[00:03:10] [SPEAKER_00]: Well, different problems on the end.

[00:03:12] [SPEAKER_00]: Like, Samsung is struggling to get some of its technology qualified for some of the most advanced uses.

[00:03:19] [SPEAKER_00]: Samsung is very exposed to memory, and that's a very different market.

[00:03:22] [SPEAKER_00]: It can be super cyclical, and they're still trying to qualify some of their memory to get included with NVIDIA systems.

[00:03:28] [SPEAKER_00]: Intel is having much bigger problems because they're racing to catch up to TSMC, but it's super expensive,

[00:03:35] [SPEAKER_00]: and they've really had to cut down their capital spending in order to conserve cash.

[00:03:40] [SPEAKER_03]: How are investors reacting to this news that kind of goes in two directions?

[00:03:45] [SPEAKER_03]: Some are doing great.

[00:03:47] [SPEAKER_03]: Some aren't doing great.

[00:03:48] [SPEAKER_00]: So the way last week played out is that ASML first came out,

[00:03:52] [SPEAKER_00]: and actually their report slipped out a day early because of the technical problem, so it shocked the street.

[00:03:58] [SPEAKER_00]: ASML's report really dominated this sentiment,

[00:04:01] [SPEAKER_00]: And that's because it's clear that even though AI demand is booming,

[00:04:05] [SPEAKER_00]: that doesn't necessarily mean all demand for all chip equipment is going to go the same way.

[00:04:11] [SPEAKER_00]: And chip equipment is like just a unique market.

[00:04:13] [SPEAKER_00]: Companies that sell gear are selling gear with almost years of lead time because it takes years to build a chip fab.

[00:04:20] [SPEAKER_00]: So it pays to kind of understand the specifics of each business specifically and how they're going to feel that and see that,

[00:04:27] [SPEAKER_00]: as opposed to like, oh, it's a chip stock.

[00:04:29] [SPEAKER_00]: Let's bid it up because they might do well with AI.

[00:04:32] [SPEAKER_03]: All right.

[00:04:33] [SPEAKER_03]: That was Dan Gallagher, a columnist for WSJ's Hurt on the Street.

[00:04:37] [SPEAKER_03]: Coming up, after a rocky start,

[00:04:39] [SPEAKER_03]: self-driving taxis are winning over passengers in cities like San Francisco.

[00:04:44] [SPEAKER_03]: We'll tell you what's changed after the break.

[00:04:47] [SPEAKER_02]: Robert Half Research indicates 9 out of 10 hiring managers are having difficulty hiring.

[00:05:00] [SPEAKER_02]: Robert Half is here to help.

[00:05:02] [SPEAKER_02]: Our recruiting professionals utilize our proprietary AI to connect businesses with highly skilled talent.

[00:05:08] [SPEAKER_02]: At Robert Half, we know talent.

[00:05:10] [SPEAKER_02]: Visit roberthalf.com today.

[00:05:18] [SPEAKER_03]: Alphabet's self-driving car company, Waymo,

[00:05:22] [SPEAKER_03]: is poised to take advantage of the excitement around robo-taxis.

[00:05:25] [SPEAKER_03]: But that wasn't always the case.

[00:05:28] [SPEAKER_03]: Last summer, Waymo's sleek white Jaguars with their whirling sensors and cameras

[00:05:34] [SPEAKER_03]: were picking up just about 10,000 paid rides a week.

[00:05:38] [SPEAKER_03]: By May, though, that number had jumped to 50,000.

[00:05:42] [SPEAKER_03]: Now it's more than 100,000 across Los Angeles, Phoenix, and Waymo's biggest market, San Francisco.

[00:05:50] [SPEAKER_03]: Here to tell us what's changed and what that means for the company is our reporter Megan Bobrowski.

[00:05:55] [SPEAKER_03]: So Megan, about a year ago here in San Francisco, there was a lot of skepticism,

[00:06:00] [SPEAKER_03]: even some calls for these self-driving cars to leave the city.

[00:06:04] [SPEAKER_03]: But things have changed.

[00:06:06] [SPEAKER_03]: What happened in terms of public perception?

[00:06:08] [SPEAKER_01]: There's a couple of things that have happened that have turned the tide in Waymo's favor.

[00:06:12] [SPEAKER_01]: One being that more time on the roads has given Waymo opportunity to improve the vehicles.

[00:06:19] [SPEAKER_01]: Another thing is people have just gotten used to seeing these cars around.

[00:06:23] [SPEAKER_01]: And so like any new technology, you might be frightened by it or scared at first.

[00:06:28] [SPEAKER_01]: But the more you are around it and the more you use it, the more comfortable you become with it.

[00:06:32] [SPEAKER_01]: To be sure, Waymo has also gone on its own huge marketing blitz and has put ads on social media.

[00:06:38] [SPEAKER_01]: They even went so far as to put Waymo codes in fortune cookies.

[00:06:43] [SPEAKER_01]: And another big thing that helped Waymo was its main competitor, Cruz, lost its permits to operate in California last fall.

[00:06:51] [SPEAKER_01]: They had an incident where they dragged a woman 20 feet after she had already been hit by a human-driven car.

[00:06:58] [SPEAKER_01]: And they got their permits pulled after this incident happened.

[00:07:01] [SPEAKER_01]: And so Waymo is the only player left in town.

[00:07:04] [SPEAKER_03]: What do the Waymo riders who have become fans say about it?

[00:07:09] [SPEAKER_01]: For one, they think that the cars drive safer, less erratically than some human drivers.

[00:07:16] [SPEAKER_01]: Another thing is people told me that sometimes they don't want to talk to the driver or make small talk.

[00:07:22] [SPEAKER_01]: And then when you call a ride, it is generally slightly more expensive than an Uber or a Lyft.

[00:07:28] [SPEAKER_01]: But you don't have to tip because there's no driver.

[00:07:31] [SPEAKER_01]: There's not even an option to tip.

[00:07:32] [SPEAKER_01]: If you wanted to tip, you can't.

[00:07:33] [SPEAKER_03]: What do Waymo's financials look like?

[00:07:36] [SPEAKER_03]: I mean, how do they make this work as a business?

[00:07:38] [SPEAKER_01]: Waymo is a part of Alphabet, which is a public company.

[00:07:43] [SPEAKER_01]: And so Alphabet reports financials every quarter.

[00:07:46] [SPEAKER_01]: And Waymo is listed in that other bets category that's lumped in with a bunch of other things.

[00:07:51] [SPEAKER_01]: And so Waymo's financials do not get broken out on its own.

[00:07:55] [SPEAKER_01]: And so we don't know if Waymo is profitable on its own or what type of revenue it's generating right now.

[00:08:01] [SPEAKER_01]: But we've been able to piece together a few things that are interesting.

[00:08:05] [SPEAKER_01]: So for one, they've raised billions of dollars.

[00:08:08] [SPEAKER_01]: Alphabet has given them billions of dollars to work on this.

[00:08:11] [SPEAKER_01]: They just got another $5 billion from Alphabet to keep going.

[00:08:15] [SPEAKER_01]: And they're raising money right now from external investors.

[00:08:18] [SPEAKER_01]: And then also the other thing to consider is even if Waymo were breaking even on every passenger ride they do,

[00:08:27] [SPEAKER_01]: still nearly 40% of the miles they drove from September 2023 to May 2024 did not have passengers in them.

[00:08:36] [SPEAKER_01]: So they're not making any money on the rides that don't have passengers in them.

[00:08:40] [SPEAKER_01]: They don't sit around while they're waiting for passengers.

[00:08:43] [SPEAKER_01]: They circle or they go back to the depot or something.

[00:08:45] [SPEAKER_01]: So there's those miles.

[00:08:46] [SPEAKER_01]: And then there's also test miles.

[00:08:49] [SPEAKER_01]: You're not making money while you're doing test miles.

[00:08:53] [SPEAKER_01]: What are some of the other hurdles that Waymo has to overcome?

[00:08:56] [SPEAKER_01]: Residents have changed their tune a bit, at least in San Francisco.

[00:08:59] [SPEAKER_01]: But local officials, some are still holding out, still want to see more transparency from Waymo.

[00:09:07] [SPEAKER_01]: So Waymo gets its permits to operate from state regulators.

[00:09:12] [SPEAKER_01]: They do not have to get any permits from the city of San Francisco to operate.

[00:09:16] [SPEAKER_01]: And so that has created some friction between local officials and this company because they are asking for data.

[00:09:23] [SPEAKER_01]: For instance, the city of San Francisco has asked for data on stalling in traffic.

[00:09:30] [SPEAKER_01]: And that was a big issue for obvious reasons.

[00:09:33] [SPEAKER_01]: You know, it's causing traffic jams.

[00:09:34] [SPEAKER_01]: Cars might run into them.

[00:09:36] [SPEAKER_01]: And so the city has requested this data on stalling and some of these other incidents and has said that they haven't received the data that they're looking for.

[00:09:46] [SPEAKER_01]: And Waymo's response to that was that they comply with all required data reporting requirements.

[00:09:52] [SPEAKER_01]: What about a federal investigation into Waymo?

[00:09:55] [SPEAKER_01]: Earlier this year, federal regulators opened an investigation into Waymo over some of its cars colliding with parked cars and things and then also driving the wrong way down city streets.

[00:10:08] [SPEAKER_01]: You know, these cars are not perfect and they're still working things out.

[00:10:12] [SPEAKER_01]: And so they are facing an investigation from NHTSA, which is a federal regulator, over some of those incidents.

[00:10:18] [SPEAKER_03]: Tell us about some of the mishaps that Waymo has had on the roads.

[00:10:22] [SPEAKER_01]: They've stalled on city streets.

[00:10:24] [SPEAKER_01]: They've blocked construction zones.

[00:10:26] [SPEAKER_01]: Last year, one hit and killed a dog in San Francisco.

[00:10:30] [SPEAKER_01]: Waymo said that incident was unavoidable.

[00:10:33] [SPEAKER_01]: And then more recently, a few weeks ago, Kamala Harris was in town and they had set up a perimeter for her arrival.

[00:10:42] [SPEAKER_01]: And Waymo got confused and stopped near this perimeter.

[00:10:46] [SPEAKER_01]: And law enforcement had to get in the car and move it.

[00:10:50] [SPEAKER_01]: And the next day, two Waymos stalled at the site of this music festival in San Francisco and blocked traffic.

[00:10:56] [SPEAKER_01]: And so Waymo, their response is that they're in frequent communication with local and state and federal officials, including the U.S. Secret Service, and that they worked to fix these issues.

[00:11:09] [SPEAKER_03]: Have there been bigger changes industry-wide for robo-taxis?

[00:11:13] [SPEAKER_01]: Yes.

[00:11:14] [SPEAKER_01]: Cruise, as we mentioned, left the market last fall.

[00:11:18] [SPEAKER_01]: They say that they plan to return.

[00:11:20] [SPEAKER_01]: Tesla is another company that has announced its ambitions to enter the market.

[00:11:24] [SPEAKER_01]: And also Amazon owns a self-driving project called Zoox, and their cars are everywhere in San Francisco.

[00:11:31] [SPEAKER_01]: And so they have stuff that they plan to launch soon.

[00:11:35] [SPEAKER_01]: But you can expect the market to heat up.

[00:11:38] [SPEAKER_03]: That was our reporter, Megan Bobrowski.

[00:11:40] [SPEAKER_03]: And that's it for Tech News Briefing.

[00:11:43] [SPEAKER_03]: Today's show was produced by Julie Chang with supervising producer Catherine Millsop.

[00:11:48] [SPEAKER_03]: We had additional support from Pierre Bienneme.

[00:11:50] [SPEAKER_03]: I'm Zoe Thomas for The Wall Street Journal.

[00:11:52] [SPEAKER_03]: We'll be back this afternoon with TNB Tech Minute.

[00:11:56] [SPEAKER_03]: Thanks for listening.