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Will it become too expensive for some to drive cars given what has to be the inevitable rise in insurance rates given the increase in fatalities? This issue is front and center at Alphabet (GOOGL) - Get Alphabet Inc. Class A Report , basically a belief that unless reckless smart phone use is curtailed -- something talked about in Monday's Journal -- there will be a further decline in car-buying from the younger and more challenged cohort. (Alphabet is part of my Action Alerts PLUS charitable portfolio.)
There are two secular trends at work here, Lyft and Uber, which have become the way that younger people like to travel, and the self-driving car and the coming necessity of it.
The reason I like Alphabet's Waymo option comes from a particular decision the company made not to use off-the-shelf semiconductors from the likes of NXP Semiconductors (NXPI) - Get NXP Semiconductors NV Report (although it remains in the Action Alerts Plus portfolio because of the Qualcomm (QCOM) - Get QUALCOMM Incorporated Report deal and the fact that I believe it would be higher without the $110 takeover cap.) The scientists at Waymo have spent a great deal of money developing tailored chips that have brought the price down dramatically and, I believe, have made it so that Fiat Chrysler (FCAU) - Get Fiat Chrysler Automobiles N.V. Report , which is the company's partner, may have a real leg up on these cars. (Qualcomm is part of the Dividend Stock Advisor portfolio.)
I am sure some want to play this with Fiat. I get that.
I think it should be why, if you own Alphabet's stock, you should buy more. The perception of this company as a search company beholden to advertising is going to change within two years, I believe, because of these cars. The margin for them and the necessity of them because of that 1.25-million fatality rate just make Alphabet into a totally different, higher-multiple company than many think. I believe Alphabet is far ahead of everyone else in this race.
One of the key tenets the Waymo people taught me is there is no way we would have started with humans driving cars had we had the alternative of self-driving cars. To put the fatalities in perspective, the number of traffic deaths we suffer worldwide now is the equivalent of a 737 falling out of the sky every hour of the day. Do you think anyone would fly given those odds?
What makes me think that Waymo could be way ahead? Disengagement. That's the metric the industry uses. It gauges how often a human has to take over from the car. In 2015 Waymo cars needed to disengage at a rate of 0.8 times per thousand miles. Today it's just 0.2 times, a fourfold increase.
Public statistics kept by California under the Autonomous Vehicle Disengagement Reports 2016 (available at the California DMV Website) show that no other company s is even close to that or even below 1. Plus, the sample size is overwhelming. Waymo drove 635,868 miles with 121 disengagements. Compare that with the General Motors (GM) - Get General Motors Company (GM) Report Cruise, 9,776 miles and 181 disengagements; Nissan (NSANY) , 4,099 miles and 28 disengagements; Mercedes-Benz with 673.4 miles and 336 disengagements; or Tesla (TSLA) - Get Tesla Inc Report , at 550 miles and 182 disengagements.
That again is proof to me about how it's not a test for Waymo, it's a business, and why Fiat Chrysler, which has a 100 minivan deal with Waymo, is the company to watch if you want to map adoption.
Fatalities, insurance, convenience -- it's coming, and coming sooner than expected.
Action Alerts PLUS, which Jim Cramer co-manages as a charitable trust, is long GOOGL and NXPI.