Autos

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

It has been roughly a century since Ford Motor offered Americans a car in any color as long as it was black. Now it has a new pitch: any car as long as they're not driving it.

Mark Fields, Ford's CEO, went to Silicon Valley on Tuesday to unveil plans for a mass-produced, self-driving vehicle by 2021. Here are some initial observations:

  • It's important to share: Ford's vehicle will be specifically for ride-sharing services along the likes of Uber or Lyft. The reason? Economics. Autonomy costs money (new sensors, software and vehicle design). One way to make it pay, though, is if it helps remove another cost -- such as an Uber driver.

  • Shrinking to grow: Robo-taxis can also help expand the potential market for an incumbent vehicle manufacturer like Ford -- important, given the potential for ride-sharing to undercut individual car ownership. Older people unable or unwilling to drive and unlicensed people wouldn't normally have a relationship with a company like Ford. Now they might.

    Focusing on a market centered on compact, urban centers also provides breathing space to perfect the sophisticated mapping needed to bring self-driving vehicles everywhere. This also, along with helping older people get around, fits with two defining demographic trends of the 21st century: urbanization and aging.

  • A new model: No word yet on what Ford plans to call this new vehicle, but one thing is clear: It will require a new business model. In keeping with his surroundings and knowing his audience on Tuesday, Fields embraced the language of transformation and disruption, saying, "We're no longer just an auto company. We're also a mobility company."

    Well, not quite yet of course, but the intention is sound enough. Apart from the different revenue model required by a service business, there are other considerations.

    How will the economics be shared? Ford announced investments in four different partners on Tuesday to help develop critical components like lidar detection systems and machine learning. Moreover, further down the line, what would mass penetration of self-driving vehicles mean for manufacturing? Would the overall car market shrink or increase? What would happen to cyclicality if fleets of robo-taxis were replaced at predictable intervals and what would that mean for investment in factory capacity?

  • Capital is king: Call me a cynic, but under that California sunshine, Ford seemed to be throwing a little shade Tesla's way. Tech chief Raj Nair's comment about the economics of personal self-driving not adding up was one that seemed designed to jab at Tesla's ambitions, as was his skepticism about the safety of semi-autonomous features where a driver is expected to take over in certain situations. Meanwhile, Fields's boast that Ford isn't "in a race to make announcements" was either designed to deflect the notion that the company is playing catch up to both Tesla and General Motors, or maybe he had this in mind.

Whatever the case, the upshot is that Ford has now fully committed to the race for autonomous vehicles. It has vast resources and more than a century of engineering under its belt -- along with some spectacular failures. Just like Tesla or GM, there's no guarantee it will succeed.

For investors, though, the key point is that the racetrack is filling up. For Tesla, that is a concern -- its costs are high and its capital needs are spiraling. It's head start and success to date have made it the only game in town for many investors wanting to hitch a ride on the 21st century automobile. Look at its market capitalization versus the Detroit dinosaurs whose revenues and profits vastly overshadow it:

Bigger Than It Appears
Despite its much smaller scale, Tesla's market cap is comparable with Ford's and GM's
Source: Bloomberg

Purists wouldn't dream of switching their investor dollars away from Tesla to the likes of Ford. But others taking a more risk-averse stance may well do so, especially if, a few years down the line, traditional vehicle makers back up their talk with actual progress. Even if Ford fails, competition is an expensive business. Capital, along with code, is the killer app for tomorrow's cars.

On a final note, investors shouldn't forget component makers, either. Tesla, Ford, GM, Toyota, Google, Apple, Uber and others are about to enter a gladiatorial contest to win in autonomy. In doing so, they will celebrate successes and try to forget failures. Either way, though, they'll be spending billions of dollars on software, sensors and other vital elements of this new technology. For the likes of Nvidia, Mobileye, Panasonic and others, that offers a bright future, regardless of who wins the race.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in New York at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net