Investors Are Losing Patience With Slow Pace of Driverless Cars

Activist investor TCI Fund Management this month sent a letter to Alphabet questioning the company’s continued spending on its self-driving unit, Waymo.

“Waymo has not justified its excessive investments, and its losses should be reduced dramatically,”

Christopher Hohn,

TCI managing director, wrote in the letter. Waymo declined to comment.

Waymo has benefited from the patience of Alphabet, which began work on driverless cars more than a decade ago. The unit began raising money from outside investors in 2020—a move that sparked speculation that Waymo was preparing a spinoff as a stand-alone company.

Waymo operates driverless cars in a ride-hailing service for paying customers in the Phoenix metro area, and is expanding into San Francisco and Los Angeles. Last month, Waymo Co-Chief Executive Officer

Tekedra Mawakana

talked about the challenges of safely deploying the new technology.

“This really is about being patient in the learning but being precise in our execution,” Ms. Mawakana said. “This is a really long-term opportunity.”

Intel Corp.

INTC -1.70%

last month took its Mobileye car-tech unit public in an initial public offering that valued the company at $23 billion on the first day of trading—well below the $50 billion its leaders had initially targeted.

Ford Motor Co.

F -2.27%

and

Volkswagen AG

also recently retrenched on their autonomous-vehicle efforts, in late October pulling the plug on their joint investment in driverless-car firm

Argo

ARGO -0.49%

AI.

The two rival car companies had invested billions of dollars in the startup late last decade, when both had fully robotic cars at the core of their plans for future services and revenue streams. Each company said it plans to redeploy resources to technology considered more viable in the near-term, such as driver-assistance systems and automated approaches that allow vehicles to pilot themselves in limited situations with a human driver engaged.

“It’s become very clear that profitable, fully autonomous vehicles at scale are still a long way off,” said

John Lawler,

Ford’s chief financial officer.

Meanwhile, a driverless-delivery startup, Nuro Inc., this month disclosed it would reduce staff by about 20%, citing difficulties raising new funds.

The shift in sentiment is a change from a few years earlier, when a wide assortment of companies from the Motor City to Silicon Valley were betting on self-driving technology to disrupt the car industry and unlock billions of dollars in new revenue.

A $1 billion deal by

General Motors Co.

GM -1.84%

to acquire an autonomous-vehicle startup called Cruise was one of many such efforts, as companies competed to lock in talent and assure investors they were preparing for the future.

Tesla Inc.

TSLA 1.77%

CEO

Elon Musk

promised in 2016 to demonstrate a vehicle traveling in fully autonomous mode from Los Angeles to New York by the end of 2017—a date that came and passed without such a public display. His vision and promises for driverless vehicles have helped bolster Tesla’s stock to make it the world’s most valuable auto maker.

The industry’s enthusiasm began to waver in 2018, after a test vehicle being used by

Uber Technologies Inc.

UBER -1.11%

struck and killed a pedestrian. The incident led to more scrutiny of the technology and highlighted the safety challenges involved in turning a vehicle over to a robot.

As some companies move from demos to deployment, it is clear that for now, a complex and costly back end of maintenance and operations is required to run these networks of vehicles.

Morgan Stanley analyst

Adam Jonas

said in October he was no longer assigning any value to GM’s Cruise driverless-car business in his valuation of the auto maker’s enterprise value.

He told investors he expected GM’s losses on the unit—which he currently estimated at $2 billion a year—to possibly double in the next few years. “We believe GM might realize that their investment in Cruise is a ‘sunk cost’ and should move on,” he wrote.

Even amid the pessimism, many analysts say that autonomous technology still holds great potential, creating difficult decisions for car makers weighing future needs, particularly for electric-vehicle development.

GM remains bullish on driverless cars, and has said that long-term, sustained investment is needed to make them a commercial success. Earlier this year, GM deepened its support of Cruise, spending $3.45 billion to buy out SoftBank Vision Fund L.P.’s stake and provide its self-driving car division with additional capital.

A spokesman for GM said the company disagrees with Mr. Jonas’s assessment, pointing to recent comments from General Motors CEO

Mary Barra,

saying she believes Cruise is now a leader in autonomous vehicles.

“Every car maker will need an autonomy strategy, just like they all need an EV strategy,” said

Gene Munster,

managing partner at Loup Ventures, a venture-capital firm specializing in tech research. “We are likely five years away from an inflection point, and companies that want to reap the benefits need to be aggressively investing in that tech today.”

—Mike Colias contributed to this article.