Fiat Chrysler (FCAU – Get Report) and Alphabet’s (GOOGL – Get Report) self-driving car division confirmed late Tuesday a partnership in which the embattled auto company will certainly offer a fleet of minivans to the tech giant for testing of self driving cars.
But while seeing a stodgy old automaker that for years complained regarding the billions it has to spend to Get hold of caught up on technology group along with a Silicon Valley titan would certainly most likely appear adore an investor’s dream come true. Yet as quickly as it involves the rumored partnership between be careful just what you wish for.
Fiat Chrysler will certainly offer Alphabet along with 100 Chrysler Pacifica hybrid minivans to accommodate self-driving features. The partnership was one that reportedly came from several discussions Google has actually held along with automakers in recent months.
Fiat shares opened down much less compared to 1% at $7.94 per share Wednesday morning. The company has actually a $10 billion market cap.
On paper, such a partnership makes sense. Alphabet is diving head initial in to the automotive business, Yet lacks the manufacturing capability to roll out vehicles for the masses and has actually said it has actually no desire to Get hold of in to the carmaking business. Google has actually been testing self-driving vehicles on highways for a lot more compared to 5 years, and of late has actually earned a collection of auto-related hirings and comments that indicate it believes it is closer compared to several expected to bringing out a commercial product.
A deal along with a significant automaker additionally provides Google along with a ready-earned global network of sales and service locations.
Fiat Chrysler, meanwhile, is a minnow in the global auto business that is far behind a few of its rivals in terms of next-generation powertrains and driving technologies. Company CEO Sergio Marchionne has actually vocally lobbied for a merger initial along with General Motors (GM – Get Report) and a lot more recently along with Ford Motor (F – Get Report) as a method to combine R&D costs, Yet those calls have actually fallen on deaf ears in no small section due to the fact that Fiat calls for the assistance even more compared to its would-be partners do.
Still, a Fiat Chrysler/Google partnership is fraught along with danger for the two sides. Fiat Chrysler’s vehicles have actually been plagued along with quality manage issues, along with Consumer Reports in February ranking Fiat last in its annual rankings and placing no Fiat or Chrysler vehicles among those it recommends for purchase.
And Fiat Chrysler is well behind its rivals in developing electric vehicles or even hybrids, the presumed favorite propulsion means for the fabled Google car. It’s debatable whether Google would certainly be well-served tying its roll out such a revolutionary brand-new technology to a company along with Fiat Chrysler’s issues.
For Fiat Chrysler, the stakes are even higher. Google, according to reports, was close to a deal along with Ford last fall and has actually had discussions along with others automakers. Yet those have actually stalled over problems of manage and debates over that would certainly control the customer partnership and customer data. Apple (AAPL – Get Report) has actually had similar difficulties reaching out to automakers, according to German media, failing to reach deals along with the two BMW and Mercedes Benz maker Daimler over similar concerns.
Alphabet is presumably looking for a similar arrangement in these latest discussions, and in Fiat Chrysler it may have actually found a partner needy enough accept its terms. For Fiat Chrysler investors, the risk is that the company either goes along along with Google and surrenders considerably of the upside, or backs away and misses out on its last ideal possibility to Get hold of an overnight technology upgrade and delivering down its future R&D spending plans.
A wild card in Fiat Chrysler’s quest for a partner is Marchionne’s planned 2018 retirement, and his perceived desire to Get hold of something done prior to he vacates the corner office. along with top automakers seemingly not interested, Fiat Chrysler’s deal selections appear limited to second-tier Chinese or European players. A partnership along with Google could be Marchionne’s last ideal possibility to make a splash.
It doesn’t appear that Fiat Chrysler is negotiating from a placement of strength.
— A version of this story appeared on TheStreet on April 29