A lack of genuine progress towards the prospect of self-driving cars taking to the roads without the need for a ‘safety driver’ able to take the wheel has led an influential analyst to cut his valuation of Waymo, Alphabet’s autonomous vehicles unit, by 40%. Despite the fact that it has almost no revenues yet, and significant losses due to the level of investment going into R&D and test driving, the perceived future value of the driverless vehicles market saw Morgan Stanley analyst Brian Nowak assign a $175 billion valuation to Waymo. He’s now cut that to $105 billion.

Waymo started as Google’s self-driving unit before being spun-out as its own company. It’s now part of Alphabet, the holding that was formed as the umbrella company to better structure the growing number of independent companies that had spun out of Google. Many analysts believe that of all the ‘non-Google’ companies now under the wings of Alphabet, Waymo and Google Cloud, the cloud computing unit, hold the most potential.

Allied Market Research puts the estimated value of the global autonomous vehicles market at over $550 billion by 2026 and that’s only the beginning. Once self-driving cars become the norm, which they are sooner or later expected to, many believe that private car ownership will become a rarity. Rather, we will use autonomous vehicles as a service on either a subscription or pay-as-you-go model and simply call one via an app to pick us up when we need to go somewhere. Not requiring a driver and running on electric is expected to mean such a service would be widely affordable. Large companies will run huge fleets of autonomous vehicles.

Waymo is currently considered to be the global market leader when it comes to developing driverless technology and has run far more test miles than any other company in the space. It also already has a pilot taxi service operating along fixed routes in Chandler, a satellite town of Phoenix, Arizona. Waymo may well, like Alphabet’s Androis OS for smartphones, offer its own driverless technology suite as an OS to other operators in the autonomous vehicles space. Or run its own fleets. Or both. Whichever direction it decides to take as a business model, Waymo looks very well positioned to establish itself as a, if not the, dominant player in the huge new market.

Given all of the potential of such a huge market, why has Mr Nowak slashed his valuation of the company? The simple answer is that unfortunately the past year or so has seen little genuine progress towards autonomous vehicles being able to take to the road without a driver. Even the pilot taxi service operating in Chandler still involves a safety driver ready to take control in an emergency. That is not only due to the technology not being quite ready yet. Many of the sector’s leaders believe it is, or almost is, ready for use along predefined routes that can be mapped in detail. But legislators and the public are not yet convinced.

Nowak’s cut to Waymo’s valuation is based on a more pessimistic outlook on when it can now realistically be expected that driverless vehicles will be on the roads. This delay means the losses of driverless players will continue to mount – with the need for safety drivers a major contributor. He explains in his note to investors in Alphabet:

“Over the past year, there have been a series of hurdles relating to the commercialisation and advancement of autonomous driving technology. Most notably, we underestimated how long safety drivers are likely to be present within cars and the timing of the rollout of autonomous rides-sharing services.”

The hype around the sector has notably been dialled down from the inside over recent months. Companies including Waymo, Uber and General Motors have all been making fewer and less ambitious statements around when autonomous vehicles will be a regular site on the roads. As recently as six months ago many industry insiders and analysts were confident fully autonomous vehicles would be a fact within 5 years. Most are now revising that back to closer to a decade.