Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Will Ford Motor (F) Make Money from Self-Driving Cars?

Ford Motor (F) is making a $4 billion bet on self-driving cars that may never pay off. For instance, Ford plans to start production on an autonomous car the public could hate in 2021.

Notably,people are attacking and threatening Waymo self-driving vans in Arizona. In fact, law enforcement documents over 20 incidents involving vehicles from the Alphabet (NASDAQ: GOOG) owned Waymo, Interesting Engineering reports.

For instance, a man aimed a revolver at a Waymo van on August 1, 2018, The Arizona Republic reports. In addition, assailants have thrown rocks at Waymo vehicles and slashed tires on Waymo vans. In addition, a Jeep tried to force a Waymo van off the road several times.

Ford takes Major Risk with Self-Driving Vehicles

Hence Ford Motor (F) is taking a major risk with its plans to test drive self-driving cars in Washington D.C. next year.

CNN reports, Ford subsidiary Argo AI will test autonomous vehicles in the nation’s capital next year. Currently, Argo is mapping the District of Columbia. To explain, the maps will guide autonomous vehicles through the streets.

The major risk for Ford and Argo is that public criticism of self-driving cars in DC will inspire a US Representative or a U.S. Senator to introduce legislation to ban the vehicles. I have to wonder what Ford management is thinking because putting these vehicles where politicians could see them is stupid.

Inp articular, Ford executives must remember that the fools who throw rocks at self-driving cars can vote. In fact, attacking self-driving vehicles is a cheap and easy crusade for any demagogic politician out to bash big business.

The nation’s demagogue in chief, President Donald J. Trump (R-New York), usually lives in Washington. Hence, Ford could find itself the target of a Trump twitter tantrum.

Will Ford Motor (F) Lose Money on Autonomous Vehicles?

Under these circumstances, Ford Motor (F) could lose all the money it is investing in autonomous vehicles. For instance, Ford reportedly spent $1billion to acquire Argo.

In addition, the Ford Autonomous Vehicles subsidiary is planning a ride-hailing service similar to Alphabet’s (NASDAQ: GOOG) Waymo One. Importantly, Waymo One is hauling passengers is Chandler, Arizona, and presumably putting them at risk of a violent attack.

Interestingly, Ford tested reactions to autonomous vehicles with fake self-driving delivery vans, The Drive claims. Inaddition, Ford is testing autonomous delivery with the help of Domino’s Pizza (NYSE: DPZ) and Postmates.

Hence,Ford management understands the risks of autonomous vehicles and is trying to assess them. Notably, I believe the greatest risk to self-driving vehicles is human opposition.

Ford Motor (F) is building the infrastructure for self-driving vehicles

Besides risk assessment, Ford Motor (F) is building the infrastructure autonomous vehicles will need.

For instance, Ford and Autonomic are developing a Transportation Mobility Cloud which will serve as an information sharing system for autonomous vehicles. TechCrunch reports, the cloud will commute with vehicles, determine routes, gather data, analyze data,and support payment processing.

Thus Ford is entering the data business which can be lucrative. For example, Ford can sell the data it collects through the Cloud to other car companies, car-rental companies, or Uber.

How Ford Motor (F) can cash in on Data

In particular, the Ford cloud could make ride-hailing apps more efficient. It could redirect Waymo vans to a part of town where there is a heavy demand, for example. In addition, the Cloud could route vehicles around traffic jams or construction.

Harvesting data is a great idea for Ford because The Economist describes data as the world’s most valuable commodity. In fact, The Economist claims data“the oil of the digital era.” Thus, data is now worth more than black gold.

Therefore, Ford will make money by building a system that collects data from self-driving vehicles and sells it. To explain, Uber or UPS (NYSE: UPS) could purchase data about traffic conditions from Ford. Uber and UPS will use the data to design their routes.

Obviously, Ford will receive complaints about privacy violation and surveillance for entering the data collection business. However, other companies; like Alphabet, have successfully dodged that bullet.

How valuable is Ford Autonomous Vehicles?

Given the potential profits, the $4 billion Ford Motor (F) is reportedly planning to spend on Ford Autonomous Vehicles LLC is a wise risk.

To explain, Ford Autonomous Vehicles is the Ford Motor Company (NYSE: F)spinoff that will operate ride-hailing services and the Ford Cloud. They launched Ford Autonomous vehicles in July 2018, Automotive News reports. In particular, Ford will invest $3 billion in the LLC and another $1 billion in Argo.

The current plans are for Ford Autonomous Vehicles to offer a self-driving commercial vehicle; probably a Ford Transit van, in 2021. Most likely, companies like Postmastes will use the van for delivery.

Currently, there is a huge market for delivery vehicles. For instance, Amazon (NASDAQ:AMZN) is ordering 20,000 Mercedes-Benz Sprinter vans from Daimler (OTC:DAI) for its delivery service. Hence, there is a lucrative and growing market for a self-driving Ford Transit van.

Under these conditions, Ford Autonomous Vehicles’ value could rival that of Waymo.Notably, Morgan Stanley claims estimates Waymo’s value at $175 billion Forbes reports.

If Morgan Stanely’s projection is accurate, Waymo is now the most valuable Unicorn,or pre-initial public offering (IPO) company. Conversely, the most valuable known Unicorn is China’s Ant Financial value, which has an estimated value of$150 billion.  Thus an intriguing possibility here is that Ford Autonomous Vehicles is more valuable than the Ford Motor Company.

Is Ford Motor (F) a value investment?

Interestingly, Ford Motor (F) is already a value investment. For instance, Ford records $37.666 billion in revenues and a gross profit of $3.746 for 3rd Quarter 2018. Yet Ford stock was trading at $8.27a share on 19 December 2018.

In detail, Ford (F) generated an operating income of $864 million and a net income of $991 million during 3rd Quarter 2018. Hence, Ford has a superb track record of making money from the vehicles it makes now.

For instance, Ford had an operating cash flow of $5.179 billion, a financing cash flow of $144 million, and a free cash flow of $3.198 billion for 3rdQuarter 2018. Plus Ford reported $18.562 billion in cash and equivalents and$17.78 billion in short-term investments on 30 September 2018.

Therefore, Ford had $36.342 billion in cash at the end of 3rd Quarter 2018.Thus, Ford has the resources to monetize self-driving vehicles. For instance,the $4 billion the company plans to invest in Ford Autonomous vehicles is less than one-ninth of the cash reported in September.

Why Ford Motor (F) can make Money from Autonomous Vehicles

Given Ford’s financials and track record of vehicle sales, it is safe to assume the company can make money from self-driving vehicles.

For instance, Ford markets America’s best-selling vehicle the F-series pickup truck. Notably, Ford sold 821,558 F-series in the first 11 months of 2018, and896,764 F-series in 2017, Ford Authority estimates. Hence, Ford knows how to sell vehicles to real people in the real world and make money from those vehicles.

Hence, it is safe to assume an autonomous F-series will quickly become America’s most popular self-driving vehicle. Notably, the F-series is North America’s “family car” of choice in the 21st Century.

To add icing to the cake, Ford and the world’s largest automaker Volkswagen AG (GR: VOW) are discussing a partnership to share technology, marketing, and distribution. Notably, one reason Volkswagen wants to partner with Ford is that Ford is stronger in autonomous vehicles, The Detroit Free Press reports.

Importantly, Volkswagen could take Ford’s money-losing overseas operations off its hands.Ford lost $245 million in Europe, $208 million in the Asia-Pacific region, $152million in South America, and $378 million in China during 3rdQuarter 2018. Markedly, Volkswagen is the best-selling car in China the world’s largest auto market.

Yes Ford Motor (F) pays a Dividend

Under these conditions, Ford Motor (F) is the best self-driving vehicle stock because it is cheap, makes money, and pays a dividend.

For example, Ford paid a 15¢ dividend on December 3, 2018. In addition, Ford offered shareholders a dividend yield of 7.08%, a payout ratio of 43.5%, and an annualized payout of 60¢ on December 19, 2018.

Ford is a value investment that could get better because of self-driving vehicles. If you want to invest in autonomous vehicles without taking a big risk Ford (NYSE:F) is a good choice.