Howes: Tech threat to Detroit outweighs foreign rivalry
Forget foreign competition from Japan and Germany. The most serious threat to Detroit and its hometown auto industry is the tech revolution in the global auto and transportation space.
The biggest players aren’t Toyota Motor Corp. or Volkswagen AG. They’re the mega-rivals to whom General Motors Co. ceded global volume leadership in a calculated series of moves to concentrate capital and attention where they can generate the biggest short- and midterm returns for GM shareholders.
The biggest players are Google parent Alphabet Inc.’s Waymo and Intel Corp., proud new owner of autonomous vision pioneer Mobileye NV. Or Delphi Automotive PLC, the ex-GM parts supplier whose shares quadrupled as its former parent’s flatline. Or Elon Musk’s Tesla Inc., the electric car maker that trades higher even as it consistently loses money selling its sleek models to high-end customers.
They’re fast and they’re rich. They’re considered innovative, and they’re far more beloved by smart money investors looking for the next Amazon or Apple so they can score a fat payout. They’d also change forever the auto industry born in the shops of Henry Ford and Gottlieb Daimler.
Vexing as that reality is to Detroit — now that it delivers record U.S. earnings only to get sideways share performance in return — it’s not likely to change. Investors believe in the Tesla, Delphi and Waymo stories, to name three, because they believe the rationale powering them: namely, that the global auto and mobility sector is the most likely intersection of transportation, autonomous technology and artificial intelligence.
Who bets right, and buys early, stands to reap enormous rewards not seen in the auto space since the Blue Oval became a household name ringing familiar from Dearborn and Britain to postwar Germany and Soviet Russia. The numbers are potentially staggering, as Morgan Stanley raised in a note Monday.
“The recent run in mega-cap tech firms has moved investors to ask: ‘What markets are large enough and ripe enough for disruption to move the needle for a firm worth the better part of $1 trillion?’ Our discussions with investors suggest that the global auto and transportation industry sits at the top of the list.
“If you consider markets where applied” artificial intelligence “has the potential to open up vast new markets for adjacent data monetization, autos sits at the epicenter of the tech disruption spectrum.”
This is huge. Want to know why GM is taking stakes in tech start-ups, touting its Chevrolet Bolt electric car and reshaping its global footprint? Want to know why Ford Motor Co. replaced its CEO and shuffled senior management following two years of record earnings?
Want to know why “mobility” and “autonomy” get far more media attention than the pickups and SUVs that account for all the profits and the vast majority of the top-line revenue pushing the industry forward? Or why shares in Delphi are much more highly valued than those of its former parent, GM, or Ford, a customer?
It’s the tech revolution. It’s the titanic clash between archetypes of the Old Economy and New Economy, the industrial heartland and the coasts, the traditional auto industry that put the world on wheels and a tech sector looking to claim that leadership with enabling technologies that presume to replace drivers altogether.
It’s the fact that Tesla can lose more than $13,000 on each unit sold in the first quarter and still see its shares rise. It’s the fact that Waymo, Alphabet’s self-driving vehicle unit, could be valued at $70 billion, Morgan Stanley estimates, should its owners decide to spin it off to investors.
That would make the company more valuable than GM and Ford, more valuable than Tesla and Delphi and just about any motley assortment of suppliers serving the industry today and trying to position themselves for tomorrow.
It’s not immutable, surely, but value reflects potential. And right now potential in the auto space is most reflected in the tech side of the equation — not the industrial automakers that have defined the character of this town for a century.
The task ahead is not to prove GM, Ford and Fiat Chrysler Automobiles NV can compete with the best automakers in the world. They can. They need to prove they can develop technology, integrate it into vehicles and produce it at scale better, faster and cheaper than anyone else.
If they do, the value will come because that’s the way the market works.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.