Tesla is valued at close to $15 billion more than Ford despite generating a fraction of the revenue, and none of the profit, of the auto manufacturer credited as central to revolutionising modern manufacturing. The company is also worth more than GM. Uber, while still a private company, is valued at somewhere between $50 billion and $60 billion by its investors.
Ford’s current market capitalisation is just short of $40 billion on 2017 revenues of $156.8 billion and a $7.3 billion pre-tax profit. Tesla generated revenue of around $11.7 billion and made a $2 billion loss. Uber generated $7.5 billion in revenue and made a loss of $4.5 billion ($2.2 billion not including one-off legal costs). SoftBank’s huge technology fund still invested $9.3 billion to become the company’s biggest shareholder.
The message seems relatively clear – investors are showing more faith in the companies considered to represent the latest technology in the world, and its future, than they are in more tradition auto manufacturers who actually make money. The reasoning is based on an assessment of future potential earnings in a transport industry expected to undergo huge changes over coming years. The move to electric cars and an ownership model expected to evolve into ‘transport as a service’ is clearly expected to favour the hi-tech of Tesla as a manufacturer and already-established ride hailing brand of Uber.
However, the established auto manufacturers, companies that have built their brands over decades, are now setting themselves onto a war footing and demonstrating they are not prepared to quietly ‘do a Kodak’. BMW is a prime example and has even set up an alliance with traditional rival Daimler, with the two companies earlier this year merging their ride-hailing apps and car-sharing services. The move was a focused challenge to the rise of Uber and Lyft. It shows a determination from BMW that the company will not resign itself to a future as a luxury white-label manufacturing partner to tech companies dominating the ‘Transport as a Service’ future.
The latest indication of BMW’s ambition in the future of personal transport has been the Seattle launch of the company’s ride-hailing, Uber-rivaling ReachNow app, supported by a fleet of small BMW SUV’s. The company is testing a range of services in the city from ride-hailing to car sharing and the various shades in between. Other traditional car manufacturers such as Mercedes-Benz, Audi, Volvo and Nissan are too. If the beta testing of services taking place in Seattle demonstrates profit potential, BMW plans to roll out operations across other cities in the USA and Europe.
For BMW, and the Munich-based company’s tradition peers, the challenge is, as one company exec is said to have put it, transitioning from being a company which manufactures ‘the ultimate driving machine’, to one that offers ‘the ultimate being driven machine’. They are having some success with 100,000 members having already been attracted to ReachNow’s Seattle services.
BMW and its peers know they have no choice. Silicon Valley’s technology companies are already planning on building their own fleets of cars, or white labelling models made by traditional manufacturers. The winners will be the tech companies that figure out how to make a great car or makers of great cars who figure out how to provide a great tech-based service. Seattle is shaping up to be one of the first big fronts as the battle begins to intensify.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.