Recently Fiat-Chrysler (FCA) CEO, Sergio Marchionne, announced a partnership with the world’s most valuable company and Silicon Valley giant Alphabet Inc. FCA will provide Alphabet with 100 self-driving Pacifica minivans that Alphabet will outfit with sensors and cameras to test its self-driving software on. The two companies will also have a conjoint team of engineers that will team up and be located in Detroit. This group was designed with the hope of helping improve the self-driving technology. Mr. Marchionne, when talking about the partnership and the technology, said that he believes that self-driving technology will be available in five years. It is conventionally believed that this technology will not be available for another fifteen or twenty years at the least. An analyst at Kelley Blue Book is skeptical of the partnership because there does not seem to be much collaboration between the two, ‘“So it remains to be seen how much work they actually do together.”’ This recent development seems like a continuation of the trend of Chrysler being third in terms of the Detroit 3, as Ford and GM have already invested money into autonomous vehicle technology. Going back to when we met with Mr. Thai-Tang he mentioned in his presentation that Ford is trying to rebrand itself as something more than just a manufacturer of cars. He felt that there were many technological aspects of car-making that will added in the future that traditional manufacturers may miss out on. The articles say that Mr. Marchionne thinks that this is too lofty a goal, however perhaps it is this line of thinking that consistently makes Chrysler the perpetual “Number 3.” Mr. Thai-Tang also mentioned that he was worried about the SV giants like Apple and Alphabet because of the amount of cash they have. This is pertinent because Mr. Marchionne doesn’t think that a merger between FCA and Alphabet will occur, however given this huge stockpile of cash Alphabet may make an attractive enough offer that would lead to a merger. Who knows, perhaps a merger with the most valuable company in the world will help pull FCA out from its third place position and help inspire a brand renaissance! Any thoughts on this partnership and prospects on a potential merger?
While visiting the motor city, a group of friends and I decided to make a late night run into the city to try to get a feel for the culture. My first thought when we got in the car at around midnight was “we need to find some food”. I think that the food in a city tells a lot about its culture and people. We drove down the high way looking for late night eateries, and by chance rolled past a tiny hole in the wall burger joint called Telway Hamburgers. The tiny shop with only enough space to fit a carryout window and a five stool bar did not catch our eye until we saw a sign hanging from its door, “4 Burgers 3 dollars”. We stopped immediately. A deal like that seemed impossible to pass on so we got out and tried it ourselves. Although the burgers were essentially sliders, they were incredibly tasty and left us satisfied as we turned towards our next destination. We pulled out of the lot and decided that our night couldn’t end there. The obvious next stop was directly into the heart of metro Detroit. We made it to mid town and started searching. We passed by many funky dives and exciting looking bars but landed on a bowling ally pizza restaurant combo called Sargent Pepperonis. When we walked in we thought we were just going to get a slice of pizza and sit around for a while but when we saw the retro bowling ally in the back of the restaurant we had to play. We ended up playing two rounds and eating 2 pizzas before we left, and decided that the night was a success. Full and happy we headed back to the hotel to get some rest. Although we didn’t have enough time to get a good feel for all of the night life in Detroit, we managed to find some great food and have a great time with out having to spend much money. If you ever make it back to Detroit these spots should be high on your list of places to go.
Bill Cosgrove’s framework
Hyudai has recently recruited Bentley designer, Sangyup Lee, to team up with a former colleague Luc Donckerwolke. Lee will work under Donckerwolke as the VP of design with “ambitious goals of building a world-class luxury brand.” These two had previously worked together designing vehicles for Bentley from 2012 through May of 2015 designing vehicles such as the Bentley Bentayga and EXP 10 Speed 6 concept. This move has not been a one off decision, but rather a strategic play to build a new brand edged towards higher end cars, by hiring others such as Manfred Fitzgerald a former Lamborghini brand and design director to the position of a Senior VP.
I am excited to see how Lee and Donckerwolke can transform the Genesis brand to be able to rival luxury pillars such as Cadillac, Lexus, Buick, Acura, and BMW. Having seen the designs that these two have worked on I do not doubt that Genesis will make its mark on the luxury market here in a few years. The article also discusses how they expect the luxury market to shift.
“In the future, as disruptive technologies kick in, luxury is going to be about experience. People are going to look for a special experience rather than something special to own.”
Given the graph above there is definitely a potential for this market and I am interested to see which company this new development will draw from.
Article link here
Past employees from Apple, Tesla, Cruise Automation, Google, and several others have joined forced to create a new Silicon Valley based company – called Otto – to focus on commercial self-driving trucks. Two of the prominent founders include Lior Ron, prior top executive in Google Maps, and Anthony Levandowski, a member of Google’s self driving car team. It seems like experience from all sides of the industry are coming together to tackle the problem. Instead of building trucks, Otto aims to create software kits for existing models that can be installed. Otto is initially focusing on high way driving as most trucks spend most mileage at high speeds. Human drivers will still have to navigate cities and streets. Levandowski is an industry leader in autonomous driving with experience that pre-dates Google’s programs. The company is entirely self-funded with no external investors holding any shares. There is currently no release date of final price, however it is expected to be much less than $100,000 – $300,000, the average price of a freight truck. Otto-trucks will be able to operate for many more hours than a human driver is allowed to. Regulations are in place regarding rest hours, but autonomous driving is paving a new path that will require new laws. Daimler and Volvo Trucks are also researching self-driving systems to implement within their own trucks. Levandowski writes on the competition, “I think the trucking folks are doing a great job, and eventually they would probably solve the problem… I’m not trying to dismiss them in any way, I think it’s fantastic what they’re doing. But I think it’s a different timeframe and objectives as to what we’re trying to solve and what they’re trying to solve.” These manufacturers will require brand-new trucks to implement the software, where Otto is aiming to add to existing trucks. Autonomous trucking seems like an incredibly lucrative industry as trucks can be driven on the high way from point-to-point and navigated around cities by humans waiting on each side.
Tesla Motors, Inc. Analyst PE Estimates
The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative to its per-share earnings, and is a commonly used statistic for stock evaluation. Many of the major automakers, save for Toyota, are projected to have stable P/E ratios over the next three years. Ford has a current ratio of 6.9, General Motors with a 6.08, and Fiat Chrysler with a 5.22. Each of these companies are projected to maintain these numbers within a relatively small margin between now and 2018. Toyota is more interesting, however, as in 2019 their ratio is projected to fall off a cliff from an estimated 7.89 in 2018 to 0.10. Yet even with this sharp shift, all these established automakers have a positive P/E ratio primarily ranging between 5 and 7.
Tesla is a major outlier in the industry in terms of P/E (shown on the right), which has become normal for the electric car maker. In 2015 their price-to-earnings ratio was -54.24, and is estimated to bottom out at -141.69. These numbers are shockingly low, but even more surprising is the projected number for 2018, a positive 59.17. I suppose this massive number may be enough to entice investors to weather the storm for the next few years as Tesla ramps up production for the new Model 3 and attempts to produce a profitable quarter for the first time without the selling of government carbon credits. If Tesla is able to achieve a ratio of anywhere near 59.17, it will be a full magnitude higher than any of their competitors.
Google’s parent company, Alphabet, is trying to expand into the ride-sharing market by pairing with the Waze app to let commuters carpool together. On Monday, Alphabet launched its pilot program to let thousands of individuals in the San Francisco area hitch rides to or from work. One interesting aspect of this launch is how this affects Google’s relationship with Uber. Uber, the most valuable private venture backed company, was funded by Google back in 2013 for $250 million. While Google and Uber have been allies, recently the two companies have been butting heads as they both are in the research and development stages of driverless car technologies.
Alphabet began testing the app, Waze Rider, in Tel Aviv back in 2015. Now thousands of people use the app in Israel, where Alphabet takes a 15% commission on the rides. The pilot program in the United States will charge riders 54 cents per mile to hitch a ride with the app users. Alphabet does not plan to take any cut during the pilot program, instead, they plan to use the app to gauge interest and see if there is potential in the United States. This news comes a day after reports that Apple invested $1 billion of its free cash in the Chinese ride-sharing firm Didi Chuxing. Ride-sharing is a growing market right now and it will be interesting to see who comes out on top between Uber, GM with Lyft, Apple with Didi Chuxing, and Google with Waze Rider. Thoughts?
Beginning on April 13th, Ford began a month long window for buyers to submit applications to purchase the all new limited edition Ford GT. In that time frame, 6,506 orders were received – far greater than the 500 GTs Ford will produce for the 2017 and 2018 model years. Dave Pericak, director of Global Ford Performance, said, “We’re excited by the amount of enthusiasm fans are showing for the new Ford GT.” However now the process begins of selecting the legitimate prospective owners for the $400,000+ supercar, powered by Ford’s twin-turbo 3.5-liter EcoBoost V6. The move to power the car with an EcoBoost V6 aligns with Ford’s strategy to market the EcoBoost engines across their entire line of vehicles, notable with the 2.3L EcoBoost in the new Mustang. Preference for orders will be given to previous GT owners, last produced from 2004 to 2007.
Many may not understand the importance of the production of supercars by major automakers, or comprehend why these companies might pour millions of dollars into a design that they may not recuperate. Yet the purpose of the supercar is two fold: to win the hearts of customers and enthusiasts, and to showcase new technologies that may become more widespread in the future. One of these new technologies might be the Corona Ignition System, which I included in my journal here.
Within the next 5-10 years, auto experts expect to see vehicles with some level of autonomy available for public purchase. However, fully or almost fully autonomous cars may not be on the roads and available for public purchase for another 10-20 years. Additionally, services such as Uber will most likely offer driverless services, thereby increasing the mobility of seniors and adolescents. The largest opportunity cost of driving today is the loss of productivity, but Autonomous car companies boast that the passengers may sleep, eat, drink, read, etc while riding. This is expected to increase miles travelled from about 3.1 trillion to potentially 5 trillion by 2050. So what does this mean for consumers?
Increased travel time, decreased opportunity cost of driving, increased productivity, but also increased traffic congestion. In the future, perhaps driverless cars will reduce the width of highway lanes and potentially decrease congestion given that the autonomous cars “won’t need much margin of error.. There will be fewer accidents to tie up traffic. But those advantages will be limited as long as driverless cars share roads with conventional cars, likely for decades” (Lowy). Airlines and other forms of transportation will face competition if speed limits are raised and people choose to travel by car (with as much luggage as they want) at great speeds. Laws will need to be adjusted and cities/streets remodeled, but in the near future, we should most certainly be expecting greater congestion, potentially for many years until conventional cars are eliminated from the roads.
Personally, I will be interested to see the environmental impact self-driving cars will have. Can engineers design a car that incorporates both the self-driving software and either electric or hybrid technology that makes the car both efficient environmentally and socially?
Earlier today, the government of South Korea announced that it would order Nissan “to recall hundreds of its diesel-powered … sports utility vehicles,” following an impending investigation into potentially rigged emissions tests. The Ministry of Environment released a statement stating that the “the Japanese auto maker had used a defeat device that allows the SUV to clear stringent diesel emissions tests but helps turn off the vehicle’s emissions management system during actual driving conditions.” This comes after very similar allegations have been charged to VW this past month.
When addressing the situation, Dion Corbett, a spokesman for Nissan, denied the claims explicitly stating that “Nissan has not and does not employ illegal defeat or cheat devices in any of the cars that we make.” Mr. Corbett’s side of the story is strengthened by the fact that “EU authorities have concluded that Nissan vehicles they (the EU) tested used no illegal defeat devices.”
The fault may in fact lie with the manufacturer of the diesel engines inside the car, Renault SA. Earlier this year Renault recalled “more than 15,000 diesel vehicles to repair emissions-control systems” after a emissions probe launched by the French antifraud officials. Another cause for this investigation could be the recent large investment of Nissan in Mitsubishi Motor Corp, “which in April admitted to falsifying (emissions) data.” This is especially relevant after it was found out that two of the models for which the data had been embellished were manufactured by Mitsubishi but sold under Nissan’s brand name.
It will be interesting to see how this plays out and to see how other governments will increase awareness and improve testing strategies to prevent these falsehoods in the market.
Article link here