I am a Googler and I've heard Larry, Sergey, and many on the self-driving car team talk about the project. While I'm sure monetization is on their minds as well, the very clear message from them is that they view this project as changing the world for the better.
In today's world, it is very hard not to be cynical, and it's especially hard not to be cynical online without looking like a Pollyanna or a corporate shill but in this case, I believe the opportunity for public good is the strongest motivator for the project.
Much like NASA, Google gets tons of ancillary benefits from doing all of this R&D so even if the project itself isn't a revenue generator, it will still deliver value to Google, but I think what gets many of the people working on it up in the morning is the chance to reduce the number of traffic fatalities, to turn parking lots back into parks, and to let people spend time on the road enjoying themselves and not grimly staring at the car in front of them.
To me it seems totally reasonable that Google would charge for the software. It's an innovative, valuable product. I see no reason why they shouldn't get paid for that.
That seems like a very poor assumption. Personally, I assume google will make money selling a car (or the tech), just like any other business. Just because the search business is free and makes their revenue through advertising doesn't mean that the car business would have the same approach.