It has finally come to this: the iconic automobile, the dream machine of the 21st century, is set to become merely a feature of 21st-century infotainment plumbing.
That's the view of Morgan Stanley auto and mobility analyst Adam Jonas. In a research note published Wednesday, he grappled with Ford's destiny in what he called the "Auto 2.0" future:
A constructive view of Ford’s potential in Auto 2.0 is to view the firm’s global car population as mobile real estate, a data pipe ... equivalent to telecom spectrum. With the right strategic repositioning over many years, Ford may be in a position to convert its (roughly) 2 billion of daily vehicle miles traveled into a data harvesting, machine learning, content delivering juggernaut. In today's automobile business model, once the car is sold the OEM loses that customer, giving up the opportunity to generate after sale revenue to other firms in other industries. In the Auto 2.0 business model, we see 100% of the revenue and profit eventually coming from the operation of vehicles in a network.
We're starting to see a lot of this sort of thinking now, as the alleged mass-disruption of transportation pivots from electric cars to self-driving cars to connected/networked cars. Those pivots are largely being forced by well-funded Silicon Valley experiments that thus far have demonstrated no real business case.
Tesla is effectively the only major stand-alone electric carmaker. The global market for these vehicles is only about 1% of total sales; consumers have basically said "no thanks" to EVs. Google has amassed millions of autonomously driven miles with its test fleet, but the company hasn't figured out how to make money on tech. Apple was supposed to be making a car but now probably isn't. Uber rolled out self-driving vehicles in Pittsburgh last year, but its revenue comes almost entirely from human-piloted cars.
The car-as-data-node idea
Enter the car-as-data-node idea. Because the tech industry has thus far failed to meaningfully disrupt transportation — cars built, cars sold, on an individual basis — or even really taken a genuine shot at the much-vaunted opportunity, it's reverting to a model that it understands and can make money on. Data and software go hand-in-hand, so why not make the next big thing the invasion of that stubborn, rolling sanctuary?
After cycling through the path of greatest resistance — real-world vehicles — the putative disruptors have slipped back to the past of least resistance: the virtual realm of code and information flows. Hence the techy "Auto 2.0" terminology that Jonas employs. Auto 1.0, for anyone keeping track, was formerly just known as the "car business" and lasted for over a century.
The whole point of making cars into data pipes is compelling, and Ford's new CEO, Jim Hackett, has offered some intriguing and nuanced ways to make this work in Ford's favor (he hasn't yet laid out any official road maps yet). But the bottom line is that the main purpose of such a pipe would be to sell car owners stuff. And the notion raises big privacy and intellectual-property issues: Who owns the data? Carmaker or car owner? If the latter, then the fat profit margins expected from this business — former Ford CEO Mark Fields thought they could be 20% — might be in doubt.
This lastest pivot, after more than a decade of the car business not really changing all that much, is evidence of a deeply embedded problem with the industry. Automakers are doing quite well these days, making lots of money as consumers buy SUVs and pickups.
But there's no story there. It's just boringly excellent execution quarter after quarter, money in the bank, and consumers presented with a vast array of choices with no automaker able to develop monopoly control of any aspect of the market (save Tesla, with its tiny sliver). If you don't want to lose your money, you can buy Ford's stock at its currently rather depressed price of $11 and collect a generous 5.5% dividend.
Or you can tell Ford to stop doing what it obviously does well and ask it to make a costly bet that big data is where the action is. Oh, and make sure that you don't keep that big data but instead, share it with tech companies.
When you start to see a lot of pivots, plot changes, and techno-speak getting into a discussion about a perfectly successful and profitable business, you have to ask yourself what you're really being sold.
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