Ford and Google: Teaming Up to Build the Car of the Future?

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Reports are circulating that Ford Motor (F) and Alphabet (GOOGL), the company formerly known as Google, are teaming up to make the car of the future. Citigroup's Itay Michaeli offers his two cents:

Rebecca Cook/Reuters

Media outlets (Yahoo! News, Automotive News) are reporting that Google (covered by Mark May) and Ford are in talks to create a JV where Ford would build Google’s next-generation autonomous vehicles. The articles suggest that: (a) an announcement could be made at CES; (b) the partnership would be legally separate from Ford; (c) the deal would be non-exclusive meaning that Google could still work with other automakers; (d) this would be a contract manufacturing deal though it’s unclear to us what total economics might look like.

Initial Thoughts; Details Key but Initial Impression Positive – While it’s probably premature to form definitive conclusions on this news pending key details around Ford’s role (i.e. is it solely contract manufacturing, or more?), our initial impression is positive. The news is consistent with our view that the Silicon Valley vs. Traditional Auto “winner take all” narrative is partially flawed because the looming driverless car era will strengthen the position of some automakers in this race. In fact, since our report we’ve seen two additional supportive data points: (1) Recent draft rules by the California DMV suggested that autonomous cars would need go through a certification process, have a driver in the car and be made available to the public on a leased basis (in our view, “leased” is key because its suggests automakers would still own the robot & data access). (2)

Tesla’s

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) (not covered) Elon Musk was quoted in Fortune suggesting that getting to fully autonomous cars still requires more data and as such automakers might end up operating these features in “shadow mode” where cars accumulate data on what would’ve happened if the car was in full control (in our view, this means existing automakers could enjoy a head start on this data collection on level 2/3 cars)...

Today, most auto-tech discussions (regulations, ride sharing, autonomous) cast automakers as disadvantaged at best and disrupted at worst. Not only do these Ford-Google headlines support the increasingly important role of automakers, but we believe they also support that the economics that may be available in the coming years/decades may also be overlooked.

Shares of Ford Motor have jumped 2.5% to $14.07, while Alphabet has risen 0.4% to $764.02, and Tesla Motors has gained 0.6% to $233.83.