- Ford and Google say they are partnering on self-driving cars.
- Ford has a presence in Silicon Valley, and Google has the financial strength to make this work.
- CFO Ruth Porat wants Google units to be self funding and Ford is an ideal partner to help Google self driving cars scale.
Ford Motor (NYSE:F) stock got a big boost on December 22, up nearly 3% and crossing $14 for the second time in a month, on word it will partner with Alphabet Inc-A (NASDAQ:GOOGL) on self-driving cars.
The move makes sense. If the artist formerly known as Google is to become a major player in autonomous vehicles, it needs a manufacturing partner. Ford has over a century of experience, and it has been looking at the autonomous category for some time.
While a joke 10 years ago, and a curiosity five years ago, self-driving or autonomous cars look set to explode as a category over the next five years. There remain skeptics. While California wants to require that drivers be in such cars, tests have shown that this actually makes the cars more likely to crash.
There are concerns that the cars can be hacked, both through their computer systems or with a simple laser pointer on the road.
These, however, are technical and legalistic problems, the kind Google has been working through for years. Ford, meanwhile, certainly knows how to make cars.
The present Google prototype looks like a miniature Volkswagen (OTC:VLKAY) Rabbit. When Ford showed a self-driving car, it was basically a Mustang with a lot of electronics on it. For short trips in-town, I can see myself letting my old car go and ordering one of these regularly.
Ford and Google have been working together for years. Ford chairman Alan Mulally sits on Google’s board. It’s interesting because a decade ago Ford was much closer to Microsoft (NASDAQ:MSFT) with its Sync entertainment system, which hurt the car with reviewers because it was less reliable than the underlying car platform.
Google, or more precisely Alphabet, should have a reason to do things this way, too. Ford can scale quickly and prove the market (or disprove it) in a way that Tesla (NASDAQ:TSLA), with its single factory, can’t. Which leads to the next possible step, the one everyone is speculating on --- Alphabet buys Ford.
Financially it would be a snip. Alphabet is worth $520 billion, Ford just $54 billion. Alphabet could pick up 10% of Ford’s common for, say, $6 billion, with an option to buy a controlling stake, and stock in Ford would likely jump. While Google is a $66 billion business, Ford has about $145 billion in sales – it would be a shark eating a whale.
But is it going to happen? Alphabet CFO Ruth Porat wants the various pieces of the company – the other letters other than Google – to become self-funding. While investing in Ford and building a factory would be a risk, taking a small position with an option would quickly bring Google to scale and is the best hope for making that autonomy happen.
If Google is ready to make a go or no-go decision on autonomous cars, in other words, Ford is the most logical partner. The business would be a risk, but the financing looks very simple, and if you’re in Ford stock as a solid dividend play – a yield of 4.24% covered three times by earnings – you might want to move over for a few speculators.