Honda announced on Wednesday that it has agreed to invest $750 million in Cruise, GM's self-driving car company. On top of that, Honda plans to spend $2 billion over the next 12 years developing a fully self-driving car based on Cruise technology. It's a big vote of confidence for Cruise and a blow to Cruise's biggest rival, Waymo, which is owned by Google's parent company, Alphabet.

Waymo is widely recognized as the self-driving technology leader. The company says it will launch a fully driverless taxi service in the Phoenix metro area this year; no one else is close to launching a comparable service.

But while Waymo is almost certain to get to market first, its biggest challenge will come later: rapidly expanding to other cities in the wake of a successful Phoenix launch. Waymo is going to need carmakers' help to build enough cars, quickly enough, to grow its driverless car business into a global juggernaut. And carmakers are not enthusiastic about ceding control of their industry to a Silicon Valley upstart.

Waymo won't run into this problem right away. It already has commitments to buy 62,000 cars from Chrysler and another 20,000 cars from Jaguar. That will be enough cars to dominate the Phoenix taxi market and expand into a number of other cities.

But to become a major player in the global self-driving car market, Waymo is eventually going to need to put its technology into millions of cars, not just thousands of them. To do that, it's going to need a lot of help from established automakers. And one of Waymo's biggest potential partners, Honda, just threw its weight behind Waymo's strongest rival.

Waymo needs automakers' help to grow

Waymo's roots as Google's self-driving car project mean the company has a wealth of experience managing software and computing hardware. But Waymo has no experience with car manufacturing. Recognizing this, Waymo has chosen to buy cars from other companies instead of building its own.

But reliance on other car companies could become a bottleneck for Waymo. For its early cars, Waymo has bought off-the-shelf Chrysler Pacifica minivans and installed sensors and other hardware on them by hand. That makes sense during the development process, but this method doesn't scale well.

To build the thousands—and eventually millions—of cars necessary for Waymo's technology to go mainstream, Waymo is going to want to tightly integrate its sensors and computing hardware into car designs so they can be added during the manufacturing process. This is not only a more efficient method—it's also going to produce higher-quality vehicles.

But not only does Waymo not have much experience working with carmakers, carmakers also don't have much incentive to work with Waymo. Waymo's plan, at least initially, is to buy cars from carmakers and use them to build a Waymo-branded taxi service. If that business model succeeds, it will turn carmakers into anonymous suppliers for a Waymo-branded service. Even if Waymo pays piles of money for the cars up front, that's not a good long-term future for carmakers.

Waymo’s negotiations with automakers haven’t always gone well

For example, in 2016, Waymo tried to forge an ambitious deal with Ford. However, The Information's Amir Efrati reported last year that Waymo's partnership with Ford "fell apart because Waymo (then still part of Google) didn't want to front some of Ford's cost to expand manufacturing capacity to eventually produce thousands or potentially millions of electric light passenger vehicles that would be powered by Google software."

Waymo was asking Ford to take a big risk on the front-end, but the carmaker wouldn't have shared much of the upside if Waymo was successful. Waymo would control the relationship with customers and would have the option to switch to other carmakers once its deal with Ford was over.

Waymo has also been talking to Honda for the last couple of years with little to show for it. Bloomberg reported in 2016 that the two companies had been discussing joint research-and-development efforts. More recently, The Verge reported back in April that Waymo was on the cusp of signing a deal with Honda to build a self-driving delivery vehicle.

We don't know the full details of the negotiations, but it's not hard to guess why Honda would be reluctant to sign a deal that would relegate it to being a relatively anonymous hardware provider for a Waymo-branded service.

In an interview with Bloomberg, Mike Ramsey of industry advisory film Gartner described Waymo as "difficult to work with because they want everything."

The Cruise model is more appealing to carmakers

Cruise CEO Kyle Vogt has argued that being part of GM gives him some unique advantages. GM's ownership of Cruise means that there's no danger of the two companies having divergent interests. If Cruise prospers, GM will reap the benefits as Cruise's parent company. Common ownership also makes it easier for Cruise's engineers, who are focused on self-driving sensors and hardware, to work with GM engineers who are experts on vehicle design and manufacturing.

"Hand-building a few hundred complex cars is tortuous and expensive, but it’s technically possible," Vogt wrote last year. "But things start to fall apart beyond that. The wiring harness in our new car has 4,085 wires and 1,066 connectors, meaning that without rigor and process, vehicles will spend most of their time in the shop while technicians chase 'ghosts' (chafed wires, loose connectors, or anything else that causes things to suddenly stop working)."

Vogt says that Cruise and GM engineers have been working hand-in-hand to design a vehicle that's ready to be manufactured at scale in GM's existing auto manufacturing plants.

With the Honda deal, Cruise is seeking to take this basic framework and franchise it. Selling about five percent of Cruise to Honda gives Honda a financial stake in Cruise's success. And Cruise's experience working with GM engineers means that the company has a better understanding of what's necessary to build a self-driving car that's suitable for manufacturing at scale.

A third approach to this problem is being pursued by Aurora, a startup co-founded by Chris Urmson, former head of Google's self-driving car program, Sterling Anderson, former head of Tesla's Autopilot program, and Drew Bagnell, formerly a senior member of Uber's self-driving car team. Their goal is to build a self-driving technology stack that they can license to car companies.

The startup is still in the development phase, so it's not yet clear what its relationship with carmakers will look like. But Aurora's basic sales pitch is that the experience of its founders will allow it to develop Waymo-caliber self-driving technology but leave carmakers more in control of the business model and customer relationships. That pitch seems to be working: Aurora is only about two years old, but it has already scored Volkswagen and Hyundai as partners.

Waymo could adopt the Cruise model

To be fair to Waymo, it has had some luck finding automotive partners. So far, the self-driving technology company has an order for 62,000 Chrysler Pacificas and another 20,000 Jaguar I-PACEs over the next three years. That's easily enough cars to launch large-scale taxi services in a number of cities.

But Waymo has ambitions to eventually get its technologies into a large fraction of all cars on the road. That's going to require numbers much larger than the 82,000 vehicles Waymo has ordered so far.

And crucially, the car business involves long lag times. It typically takes about four years for car companies to design a new car model. So if Waymo wants to expand rapidly in the early 2020s, it needs to start working with automakers now on car designs that can be manufactured at scale.

One way Waymo could entice other major carmakers into its camp would be to follow Cruise's approach and offer them equity in Waymo. The 2016 decision to split Waymo off from Google could make this easier to pull off. Offering carmakers a financial stake in Waymo would make those carmakers more motivated to help Waymo succeed and less worried that close collaboration with Waymo engineers could lead to the leakage of valuable trade secrets.