Car Manufacturers Band Together on Autonomous Driving To Defend New Tech Threat

Reports this week suggest that auto manufacturing grandsire Ford is in talks with other traditional car makers over joint investment and partnerships in the autonomous vehicles space. It marks another demonstration of how the industry’s traditional powers are beginning to set aside decades old rivalries in favour of trying to work together. The development can be seen as less a case of business evolution meaning these companies are turning all warm and fuzzy in their old age and more a recognition of the real threat posed to their industry by new tech-centric interlopers.

The problem companies such as Ford face is that their investors hold them to a different standard than companies defined by financial markets as ‘tech’ and ‘growth’ companies. For 2017, Ford posted revenues of $41.3 billion and net income of $7.6 billion, the equivalent of earnings per share of 39 cents. Tesla, the electric car maker investors treat as a tech company, lost $2 billion over 2017 on revenue of $3.3 billion. That’s revenue almost 14 times less than Ford brought in, and an overall loss in the billion. And yet, Tesla today has an overall market capitalisation of just under $60 billion. Ford is just over $36 billion against 2018 accounts that are unlikely to materially differ hugely from those of last year.

The reason why is twofold. The first is an arguable market blind spot for ‘tech’ and ‘growth’ companies that Tesla benefits hugely from. Not everyone agrees on the valuation with the company earlier this year the most shorted stock in the history of the stock market. But enough do to keep its valuation sky high. The second is benefits from being considered to be in a strong position to capitalise on the evolution of the car market that autonomous driving technology is expected to result in.

Many analysts predict that the car ownership model will be completely flipped with private ownership all but dying out. When driverless cars become a reality, which may not be long with Alphabet’s Waymo unit is already test running a commercial driverless taxi service in Arizona, it is expected that it will become more economically attractive to have a ‘transport-as-a-service’ subscription with driverless vehicles picking you up and dropping you off at the touch of an app. It is also predicted to be a hugely valuable market.

The result is that the technology companies currently developing the latest technology in the world of autonomous vehicles are being favoured by markets in the belief they are currently best positioned to take the larger piece of the pie. Traditional car manufacturers will simply compete to provide the manufacturing facilities for the non-driverless tech part of the car and live or die at the whim of their tech overlords’ choice of manufacturing partner. Similar to the value split between smartphone makers such as Apple and Samsung who own the brand, design, technology and, in the case of Apple, OS to their smartphone models, and whoever the manufacturing process is outsourced to.

However, car manufacturers are starting to fight back, as evidenced by the recent news that Argo AI, Ford’s self-driving unit, is in talks with several other OEMs (traditional car manufacturers) over joint investment and other partnerships around autonomous vehicles technology. German peer Volkswagen is said to be the company that the most serious talks are taking place with. General Motors, Ford’s great U.S rival, is taking a similar approach. It has secured driverless vehicle R&D investment from Softbank, the world’s biggest tech investor as well as from Honda. Both have taken stake’s in its Cruise self-driving division.

On Wednesday Ford also announced a partnership around trialling self-driving services with retailer Walmart, itself an older bricks and mortar retailer now involved in a titanic struggle with tech-centric rival Amazon, which rose to prominence through ecommerce and has only recently taken its first steps into physical locations.

Ford has been accused of being slow to react to the threat posed by a self-driving future for cars. However, chief executive Jim Hackett recently told journalists

“we think we are further ahead than people understand”.

Whatever the reality of the situation, the trend of traditional carmakers tackling a new enemy together seems set to continue. ‘The enemy of my enemy is my friend’ may well become the legacy industry’s new mantra.

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