One of the big draws at the recent annual Consumer Electronics Show in Las Vegas was the automakers showing off their latest driverless car technologies.WAYMO.image

Behind all the hoopla, however, was one inescapable fact . . .

Carlos Ghosn, the CEO of Renault (OTC: RNLSY) and Nissan (OTC: NSANY), put it best: “There are still some problems to be solved.” He believes it will be two or three years before the technology is advanced enough for those vehicles to operate safely on the roads.

Ghosn was talking about level 3 vehicles according to a classification system devised by the Society of Automotive Engineers. Level 4 and level 5 automated vehicles are even further out. For a look at the SAE’s levels of driving automation, see the graphic below.

A level 3 car designed for drivers to take their hands off the wheel and eyes off the road – for extended periods of time – is promised by Audi (owned by Volkswagen) to be out later in 2017.

But what about vehicles from Silicon Valley?

Waymo: Ahead of Rivals

The foremost player here is Waymo, the autonomous car company owned by Alphabet (NASDAQ: GOOGL).

At the recent annual Detroit Auto Show, Waymo revealed it had built all of its self-driving sensor hardware itself. This puts the company ahead of rivals such as Uber in the race to perfect driverless vehicle technology.

John Krafcik, the CEO of Waymo, said this signaled an “inflection point” for the company,as this will dramatically reduce the cost (possibly up to 90%) of its autonomous vehicles. That is certainly an important step in the move toward commercialization of such vehicles.

Krafcik added that building the hardware and software together was crucial in improving accuracy. Or in other words, safety.

This is not good news for all the auto parts providers that were looking to cash in on autonomous vehicles. This includes the likes of Mobileye (NYSE: MBLY) and Delphi Automotive (NYSE: DLPH).

It’s a win-win scenario. Alphabet won’t have to get into car making business and automakers could just plug in Waymo technology into its vehicles without spending a penny for the platform’s development.

Smart Moves by Waymo

There is one other reason I like Waymo’s approach to autonomous vehicles.

It says that its vehicles will be unplugged from the internet for the majority of time, lowering the chances of these vehicles being hacked.

CEO Krafcik told the Financial Times, “Our cars communicate with the outside world only when they need to, so there isn’t a continuous line that’s able to be hacked, going into the car.”

Hacking risks rise as more and more sophisticated and connected technology is put into our cars. Once hackers get in via an internet connection – such as a connected radio – they can then take control of critical functions like steering or braking.

Over the past few years, automakers including General Motors (NYSE: GM), Ford Motor (NYSE: F), Toyota Motor (NYSE: TM) and Fiat Chrysler Automobiles (NYSE: FCAU) have all reported car hacking vulnerabilities to varying degrees.

This shouldn’t come as a shock – these firms are not technology companies, they are car makers.

A three-year study from cyber security company IOActive found that more than half of car components had “flaws” that could be exploited by hackers to control parts of a vehicle’s key functions.

The leader of the research, Corey Thuen, said “Every system or component that we tested had at least one vulnerability.” That is scary!

Especially if one considers that some automakers like BMW (OTC: BMWYY) has said that 5G networks will be essential because its vehicles will need to transmit data constantly and communicate with other vehicles.

Alphabet’s Waymo cars doesn’t require communications infrastructure. They are intended to be nearly completely self-reliant. Its vehicles will only have to open a link to the cloud to send or receive pertinent information such as traffic reports.

That seems the safer route to me than the approach of others in building self-driving cars. This is just another reason to own Alphabet for the long-term.

Save

Save

Save

Save

Save

Save

Save

Published by Wyatt Investment Research at