Google (NASDAQ:GOOG) (NASDAQ:GOOGL) plans to develop cars driven by computers. The company intends to make 100 prototype driverless cars without steering wheels or pedals. Google's move into the driverless car segment comes shortly after Tesla disclosed plans to produce a car capable of running on "auto-pilot" within the next three years.
Ford (NYSE:F) also announced a partnership with the University of Michigan and State Farm Mutual Insurance Company to test how its automated driving technology might be applied to improve traffic safety. Nobody quite knows whether legal and safety issues can be overcome before driverless cars are allowed on the road, but all the major players seem convinced about the project's potential.
What are driverless cars?
In many ways, self-driving cars are a logical extension of existing driving aids such as lane-keeping, cruise control, and emergency braking. These systems must all be tied together in a driverless car. Google believes it's not too hard to train cars to warn drivers about dangerous obstacles, once the vehicles have been loaded up with the appropriate software.
Accordingly, the current self-driving vehicle prototypes are covered with sensors that map nearby features and identify pedestrians. Google's driverless cars scan the environment to build detailed 3-D maps. Google's software also ingests data on speed limits and reported accidents.
How big is the market?
The correct answer is nobody knows, because driverless cars are not yet on the road. But, that has not stopped research companies from forecasting the potential size of the market. Though these cars are currently unavailable, HIS Automotive predicts they will be available by 2025. The research firm expects global sales of self-driving cars in 2025 to be 230,000. It also predicts sales in 2035 to reach 11.8 million, or 9% of the 129 million global auto sales expected that year.
How this changes Google as an investment
Driverless cars have broad implications for Google. The company is claiming its car could save almost 30,000 lives per year on U.S. highways, and driverless cars could reduce accident-related expenses by at least $400 billion per year in the U.S. This could create business opportunities that dwarf Google's current search-based revenue. Google has a chance to be as big in hardware as it is in software with the driverless car.
Google must persuade states to pass laws legalizing the still-emerging technology. A basic premise of driving is that a person controls the car, and safety is a paramount concern.
So far, Google has outfitted Toyota Priuses and Lexus SUVs them with cameras, sensors, and computers. The vehicles have driven more than 500,000 miles without an accident. But, Google isn't fully certain they can drive in rain or snow. So, the cars are still far from perfect.
Plus, how would regulators know that a car's computer couldn't be commandeered by a hacker? How would they know the car could drive safely under a range of conditions? Regulators would need plenty of time to include requirements that Google might consider onerous.
If any company can make driverless cars something people want, it's Google. The company not only has a massive base of customers already using its Android operating system, it also has plenty of cash to make driverless car a reality. In addition, it has no worries about disrupting its current business. The emerging industry could also be good for the other players in the sector, as they may end up with a smaller share of a big market.