By Amir Efrati

Google Inc., which has been working on software to help major automakers build self-driving cars, also is quietly going around them by designing and developing a full-fledged self-driving car, according to people familiar with the matter.

In recent months, Google has held talks with contract manufacturers to build new cars to Google’s specifications, said the people familiar with the matter. The move came after Google’s talks with big car brands about incorporating its technology into their vehicles failed to yield a partnership, one of these people said.

Google also has a novel idea for what it could do with these cars. The company has considered ways to sell self-driving vehicles to individuals. But it also has focused on the potential for an autonomous car it designs to become part of “robo-taxi” services that pick up passengers on demand, these people said. Whether Google would try to operate such services on its own is unclear.

The company didn’t respond to requests for comment.

MANUFACTURING DISCUSSIONS

For its new effort, Google has been talking to major auto-components companies, such as Continental AG and Magna International, to manufacture a car under Google’s direction, said the people familiar with its plans. Just as supply-chain company Foxconn helps Apple and other hardware companies build phones and computers, these companies provide components to big automakers and help them assemble vehicles.

On Thursday Germany newspaper Frankfurter Allgemeine Zeitung said Google was nearing a deal with Continental, one of the world’s largest auto-components suppliers, to create a self-driving car system. The report didn’t provide further detail about the system and the companies declined to comment on it, the newspaper said.

Google’s search for a manufacturer shows how cars could become the latest piece of the hardware industry to be commoditized, much like computers and mobile devices have. The bodies of those devices are now made by a wide array of inexpensive providers, while the software and apps that run on them have risen in importance.

While Google doesn’t have the facilities or know-how to actually manufacture its own fleet of cars, it already has some car hardware experience. For instance, it has worked on developing a spinning laser device known as a lidar that generates information about the car’s physical surroundings that can then be analyzed by Google’s software, one of the people familiar with the matter said.

Whether Google will go ahead and partner with a contract manufacturer to build a car to its specifications remains unclear. The company is still seeking to partner with well-known automakers, one of the people familiar with the effort said.

But the “do-it-yourself” effort is classic Google. In recent years, the company has designed its own phones and laptops, in large part to encourage existing hardware makers to follow its lead and adopt new aspects of its Android mobile operating system and Chrome software.

PRESSURING AUTOMAKERS

Indeed, one of the people with direct knowledge of the effort says Google wants to pressure major car brands to embrace autonomous-navigation technology, whether they partner with Google or not. This person added that Google already feels it has spurred carmakers to embed more self-driving features. Of course, car companies have been conducting research on self-driving car technology for years, well before Google unveiled its effort in 2010.

By designing its own car and commissioning a manufacturer to make it, Google is preparing to open a direct rivalry with established auto brands in Detroit and overseas that also use component makers to make their cars but have a different vision for how autonomous navigation technology should be used.

People familiar with Google’s project say the company doesn’t believe most of the major auto brands actually want to build a fully autonomous car.

Some auto executives including Dieter Zetsche, chief executive of Daimler AG, owner of Mercedes Benz, have said as much. At an event earlier this summer, Zetsche reportedly said that his company wants to automate the boring elements of driving, such as being stuck in traffic, but would “never automate the cool part of driving.”

For instance, the new 2014 Mercedes S-Class, which is expected to go on sale later this year, can slow or speed up depending on the movements of a car in front of you, and has steering assistance that keeps the car in the center of its lane.

“ROBO TAXIS”

One idea Google has been studying is how its vehicles could become part of robo-taxi systems in which a fleet of self-driving cars would pick up passengers and work commuters on demand, according to people familiar with the matter. Google believes that such systems could potentially reduce the need for people to own cars and reduce accidents.

Last year Google considered possible U.S. cities where it could help launch such a robo-taxi service, said one of the people familiar with its plans. Such an approach would be similar to Google’s Fiber project, in which it is beginning to install high-speed Internet and cable service to residents in the Kansas City area to pressure telecom industry incumbents to boost Web speeds.

At first, the robo taxis would require humans sitting behind the wheel in case of emergencies, said the person familiar with Google’s conception of the project.

But another knowledgeable person said that Google more recently has focused on “finding a solution that scales,” or making vehicles widely available to consumers. It’s unclear exactly how Google would do so without cooperating with a car company that had dealer relationships.

“MOONSHOTS”

The economics of direct sales to consumers or robo-taxi systems would be exceedingly complicated, said the people familiar with the self-driving car effort, and far afield from Google’s primary business of selling online ads.

Google’s current, small fleet of self-driving cars – which are Toyotas retrofitted with cameras, sensors, radars, and Google’s special software – cost around $150,000 apiece, according one person familiar with the matter. Google has been working hard to lower the cost by designing some hardware components on its own, said another person.

The financial risks explain why the project is located at Google X, the R&D lab near Google’s headquarters. Google X focuses on what CEO Larry Page calls “moonshots,” or high-risk projects that could have big payouts if they succeed.

Inevitably, there will be political and regulatory hurdles too.

Google has been working to make sure self-driving cars will be formally legalized in the U.S. It previously spearheaded legislation in Nevada, California, Florida and Washington DC that allows for licensing and testing autonomous vehicles on public roads.