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Over the past few years, the undeniable buzz has surrounded autonomous vehicle technology as start-ups and major manufacturers alike battle it out to be king of a new frontier.
However, included Ford Motor Company‘s (F 0.44%) shy away from trying to develop fully autonomous driving technology through Argo AI — and the accompanying $2.7 billion handicap — investors may wonder if the drive toward fully autonomous vehicles is a mistake and if General Motors (GM 0.90%) Ford is about to admit what he did.
Ford: Payback will take longer than expected
Argo AI is a self-driving vehicle technology start-up with Ford and Volkswagen Group as the main advocate. Long story short, it was unable to attract new investors and announced last fall that it would shut down operations.
That decision cost Ford a whopping $2.7 billion in a non-cash, pre-tax dilution of its big investment in Argo, and largely led to the automaker’s $827 million net loss in the third quarter.
Perhaps most telling for Ford investors, and more pertinent to broader automotive investors, is the company’s admission that bringing Level 4 advanced driver assistance systems (ADAS) to market is profitable. is nowhere near doable at the moment.
“We’re optimistic about a future for L4 ADAS, but profitable, fully autonomous vehicles at scale are a long way off and we don’t need to create that technology ourselves,” President and CEO Jim Farley said in a press release. release.
Ford moved on and decided that the better opportunity for its investors was to focus on Level 2 and Level 3 systems, which didn’t completely cut out a human driver. Management believes that strategy can better serve customers by providing services, options, and thus profitability in the near term.
What about Ford’s crosstown rival?
Ford’s moves with Argo AI mark a rare distinction between it and rival General Motors, which has received much praise for Cruise, its autonomous technology subsidiary in which it has put $2.1 billion into this year to raise its stake from 60% to 80%.
It’s a fair question for investors to ask if General Motors is throwing capital into a money pit, and not cutting its technology losses far out of scale and profitability. For now, GM maintains that it’s not at fault, and believes Cruise is making operational progress.
Cruise is expanding into two new markets, Austin and Phoenix, with its San Francisco operations continuing to grow. Management believes Cruise will generate revenue of $1 billion by 2025, but that depends on safety and regulatory approvals.
Investors won’t have to wait long to see if that $1 billion hit by mid-decade, and as they see how the dollars start adding up, they’ll have a better view of whether $50 billion annually Cruise’s 2030 revenue target makes sense.
Fork in the road
If GM succeeds and hits its Cruise revenue targets by the end of this decade, it will be one of the biggest wins by an automaker this century. And investors will be rewarded handsomely for this success.
If it turns out that GM is copying Ford’s mistakes and throwing money at a buzzword that is far from helping the company’s bottom line, investors will have a lot to complain about.
It’s impossible to know how this will play out and investors choosing between Ford and General Motors need to know their stance on autonomous vehicle development, as this represents a rare major difference in strategy between the two.
Daniel Miller has held positions at Ford and General Motors. The Motley Fool has positions and recommends Volkswagen AG. The Motley Fool has a disclosure policy.
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