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Waymo and Apple Pick Their Dance Partners for Self-Driving Cars

By Billy Duberstein - Jul 10, 2017 at 9:45PM

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Maintaining your car takes work. Waymo and Apple are finding that out, and just threw Avis and Hertz lifelines to the future.

Think of your last experience with a rental car company: Hauling luggage onto a shuttle bus, waiting in line, paying a hundred dollars for a few days in a Corolla (no offense to Corolla owners, of course).

While it may seem that autonomous ride-sharing services will eventually relegate such experiences to the same fate as Kodak film, portable CD players, and sport jackets with the sleeves rolled up (as in, not around anymore), recent tales of car rental companies' demise appear to be greatly exaggerated.

At the end of June, Alphabet's Waymo (GOOG -0.69%) (GOOGL -0.72%) announced a partnership with Avis (CAR 0.36%) to maintain its 600-car fleet of Chrysler Pacificas in Phoenix.

Later that same day, Apple (AAPL -0.44%) announced a partnership with Hertz (HTZG.Q) to lease several Lexus RX450s from Hertz's Donlen fleet management unit. Avis and Hertz shares both surged on the news. 

Avis logo

Image source: Avis.

Rationale

As it turns out, tech giants don't really want to tackle the mundane problems of rotating tires, changing oil, checking tire pressure, or, you know, parking (I live in LA, so I can sympathize).

As I previously wrote, Waymo and Apple are solely focused on the sensor and software technology behind autonomous cars, not on making actual cars themselves, as Tesla (NASDAQ: TSLA) is. Waymo and Apple are now testing their respective autonomous technologies on public roads, and both seem to realize maintenance, parking, and logistics for a large fleet is more trouble than it's worth doing themselves. That's where Avis and Hertz come in. 

Waymo's deal

While financial details were not disclosed, Waymo's agreement with Avis seems the bigger deal of the two. Waymo will own all its vehicles (unlike Apple, which leases its cars from Hertz), and the multiyear agreement entails Waymo paying Avis a fee for comprehensive service. Avis will renovate some existing facilities to protect and house Waymo's minivans, and Avis personnel will do regular car stuff -- oil changes, cleaning, tire rotations, etc. -- while Waymo's engineers will handle the sensors and tech.

Of particular interest to Waymo is Avis' Zipcar subsidiary, the on-demand rental company Avis bought back in 2013, which currently has over a million members in the U.S., Europe, and Canada. Back then, it was Zipcar that was seen as the disruptive threat to rental companies. Now it's self-driving cars. (Note to self: The car rental business is tough.)

The new deal clouds the picture regarding Waymo's existing partnership with Lyft, announced earlier this year. While Lyft may have tons of data, it doesn't have real estate, or, you know, cars. Those are the responsibility of its drivers. 

Waymo, of course, doesn't seem to care. Since it supposedly owns the best self-driving tech out there, and every automaker, ride sharing, and car rental company is afraid of being left out of the autonomous future, Waymo can call the shots with non-exclusive partnerships.

Lifelines to the future

What the partnerships do show, however, is that automakers and rental companies should still have a place in the brave new self-driving world. While Google and Apple are spending tons of money on self-driving tech, Apple has shelved its plans to build an actual car (at least for now), which means existing automakers will still likely build the autonomous vehicles of the future -- just equipped with Silicon Valley tech.

It also appears that car rental companies will have their place as well. In fact, MKM analyst Chis Agnew postulates rental car company values will actually increase in a self-driving world:

[C]ar rental will likely become more, not less, relevant in an autonomous world. We believe a large under appreciated asset for the car rental companies are its fleet management and logistical capabilities as well as its broad geographic footprint, particularly its airport locations. In-fleeting, owning, de-fleeting, organizing, maintaining and servicing fleets at scale is complex. 

Waymo CEO John Krafcik seems to agree, saying, "With thousands of locations around the world, Avis Budget Group can help us bring our technology to more people, in more places." 

Land -- it's the only thing they're not making any more of -- and Avis' real estate looks to be quite valuable to Waymo at the moment.

Don't forget the old guys

While most think it's only the disruptive tech upstarts that will own the future, investors shouldn't disregard old-school companies with large, established asset bases. As the Waymo-Avis and Apple-Hertz deals show, what's old can become new again.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Billy Duberstein owns shares of Alphabet (C shares) and Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and TSLA. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Avis Budget Group, Inc. Stock Quote
Avis Budget Group, Inc.
CAR
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Apple Inc. Stock Quote
Apple Inc.
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Alphabet Inc. Stock Quote
Alphabet Inc.
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$118.84 (-0.72%) $0.86
Hertz Global Holdings, Inc. Stock Quote
Hertz Global Holdings, Inc.
HTZG.Q
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$119.82 (-0.69%) $0.83

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