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Ford is showing other car companies how to take the fight to Silicon Valley

Big carmakers have fought off competition from Silicon Valley by (intelligently) buying up all their competitors - with Ford leading the smart car race, argues Paul Cuatrecasas, CEO of Aquaa Partners.

By Ellie Burns

Has Silicon Valley lost the race against the big auto companies to create autonomous cars? James McElroy wrote an article for Autoblog last week saying just that.

I think it’s much too early to say for sure. A lot can change very quickly in technology. Many of the big auto companies are still saddled with debt, and struggling with consumer demand. An external shock could easily change the dynamic.

Ford is showing other car companies how to take the fight to Silicon Valley

Paul Cuatrecasas is CEO at Aquaa Partners, an M&A advisory firm that helps companies guard against disruption by acquiring the right tech companies.

But the carmakers do seem to be fighting off the tech companies fairly well for the moment. They’ve taken the fight to the insurgents and disruptors, and are emerging victorious for now.

If you can’t beat them, buy them

How have the major carmakers managed it? Rather than compete directly, the auto companies have chosen to bring the disruptors and challengers into their fold through acquisitions.

In the last few years there has been a startling increase in the number of car-industry megadeals. PwC estimates that the amount spent on acquisitions in the auto sector increased by an incredible 340 per cent between 2014 and 2015.

Faced with fundamental strategic shifts, rather than fight toe-to-toe with many of Silicon Valley’s scrappy startups, whose teams were often savvier and more nimble, the auto industry decided intelligently and defensively to selectively acquire the competition.

GM acquired autonomous technology company Cruise and took a huge stake in Uber competitor Lyft. Mercedes-Benz invested in and acquired startups such as FlightCar, Hailo, and Blacklane. Toyota bought AI firm Jaybridge Robotics. And Ford has invested in and bought up a range of technology companies, including NuTonomy and Argo AI.

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Although the final result of these deals is not yet known – and there are many more deals to come – the data we do have shows that this approach is working. According to research by PwC, more than 70 per cent of the most acquisitive firms in the automotive sector outperformed their competitors in EBITDA growth. And five of the top 10 consolidators grew EBITDA margins by more than 50 per cent.

Ford’s acquisition of Argo AI is tech acquisition at its best

But the real accolades, in my opinion, for the moment, need to be saved for Ford. While some auto companies have muddled through by defensively acquiring technology startups, Ford appears to have viewed this market turbulence and disruption as an opportunity to drive growth and get ahead of its peers.

Its most recent investment in Argo AI can be read as a $1bn bet to secure a competitive edge against its competitors. While many other auto manufacturers have acquired tech that allows them to add autonomous elements, such as self-parking cars and motorway line tracking, the mission of Argo AI is much more ambitious.

In a recent blog post, Argo said that its goal was to realise a future where a vehicle is “connected, intelligent, and able to safely operate itself alone or as part of a shared fleet.” Its ambition is to build cars that operate fully, or largely, autonomously.

Ford is showing other car companies how to take the fight to Silicon Valley
Ford’s investment, which gives it control of the company, is not then a defensive purchase, but an offensive one. It has taken a strategic view on the whole future of transport, and then carefully selected a company that it believes could own the ‘technology stack’ that will support the rest of the industry in this new future. It believes that Argo AI will not only power Ford’s cars, but could power the transport industry as a whole.

If its bet pays off, Ford will be able to license its technology to the rest of the global auto manufacturer industry. This is the imagination that underlies the comments from Mark Field, the CEO of Ford, that the company is no longer just a car manufacturer, but a “mobility” services provider.

Ford’s strategy stands out for its vision and confidence. Technology acquisitions work best when CEOs don’t feel like their hand is being forced; that they’re scrabbling around for a defensive purchase. They work best when the CEO and management team enthusiastically engage with the acquisition process, and see it as an opportunity both to plug the holes in company’s weaknesses and make an audacious, but considered, bet on the future of the industry.

Clearly, we don’t know how Ford’s bet will fare in the long run, but many other CEOs and executives can learn a lot from the company and Mark Fields.

 

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