Ford (NYSE: F) is taking a huge gamble on self-driving cars. The iconic automaker has pledged to mass produce the world’s first truly autonomous vehicle by 2021.
“Starting in 2021, if you want to get around the city without the hassle of driving or parking, Ford’s new fully autonomous vehicle will be there for you,” Ford CEO Mark Fields told reporters outside the company’s Silicon Valley Research and Innovation Center on August 16. To make that a reality, Ford will have to build a vehicle with Level 4 Autonomy.
Level four autonomy means that the car’s operating system will be able to do most of what driver’s do including parking, navigation, steering and more. In contrast, today’ self-driving vehicles can perform simple tasks like parallel parking and passing.
Reaching that goal is easier said than done. Ford Chief Technology Officer (CTO) Raj Nair admitted that the company has not even reached level three yet. The company will have to triple its investment in autonomous driving technology, Nair said.
That investment will include doubling the side of Research and Innovation Center. Ford is also investing in other companies including sensor-maker Velodyne and 3D mapping-service Civil Maps to achieve its goal. It has also acquired the machine vision company SAIPS and licensed technology from Nirenberg Neuroscience another machine vision company.
Ford is a Great Value Investment
Ford certainly has the resources to achieve that goal, it reported revenues of $155.60 billion, an income of $8.968 billion and a free cash flow of $6.047 billion on June 30, 2016. If that was not enough; the automaker has assets of $239.68 billion, and cash and short-term investments of $39.30 billion.
Ford is also making a lot of money right now it reported generating $13.63 billion in cash from financing and $20.38 billion in cash from operations during the second quarter of 2016. All that gave the company a profit margin of 4.99%.
Ford is also seeing significant revenue growth; the company added $13.65 billion in revenues during the 12 months between June 2015 and June 2016. Ford reported $141.95 billion in June 2015 and $155.60 billion a year later.
All this makes Ford a great value investment because it was trading at just $12.36 a share on August 24, 2016. To add icing to the cake Ford investors were rewarded with a dividend yield of 4.84% and a return on equity of 31.38%.
Are Self-Driving Cars a Smart Investment?
Okay, so Ford is a great company that is making a lot of money, but is self-driving vehicle technology a wise investment? Maybe not, even some of Ford’s executives have serious doubts about its profitability.
“The economics simply don’t make sense,” Nair said about level-four autonomous vehicles. The CTO admitted that only taxi or shuttle bus operators would be able to afford such vehicles.
That means the only market will be for commercial vehicles, mostly sold to ride-sharing services such as Uber and Lyft. Uber is currently testing Ford Fusion and Volvo XC90 autonomous vehicles in paying service in Pittsburgh.
Despite the doubts about the economy many companies are involved in the self-driving vehicle race. Alphabet (NYSE: GOOG) has a team of engineers working at a Fiat Chrysler (NYSE: FCAU) engineering center in Michigan. The engineers will equip around 100 minivans with self-driving technology to commercialize the Google car.
Uber has entered into a $300 million deal to help Volvo; a subsidiary of China’s Geely (OTC: GELLY) bring an autonomous car to market. Toyota Motors (NYSE: TM) has invested $1 billion to create the Toyota Research Institute to develop self-driving vehicles in Silicon Valley. Other manufactures such as Daimler, Volkswagen and Tesla Motors (NASDAQ: TSLA) are also heavily involved in self-driving car research.
Nobody knows whether all this will pay off but the auto companies are certainly convinced that self-driving cars are the future. Despite that almost all the commercial uses for autonomous vehicles are hypothetical. The potential profits from this technology are also hypothetical.
Some potential uses include delivery vehicles, ridesharing, buses and self-driving semi-trucks which Daimler (OTC: DDAIY) is developing. All that is years away, and there is the prospect of political and popular opposition. So far, government has ignored autonomous vehicles but I imagine it is only a matter of time before some politician starts ranting about the dangers of those soulless monsters on the same streets as your children.
That means, investors should buy shares in automakers because they are good companies not because of their self-driving vehicle capabilities. Despite all the promises and investments nobody knows if this technology will work or not.