Why Google’s Fiat Chrysler Partnership Should Matter to Investors – Motley Fool

Google Driverless Car
Image source: Alphabet.

Last year, the tech buzzword du jour may have actually been the “Internet of Things.” If the initial few months of 2016 are any type of indicator, self-driving cars appear to be in pole placement for this year’s new, brand-new thing.

Recently, tech colossus Alphabet Inc.‘s (NASDAQ:GOOG) (NASDAQ:GOOGL) Google announced a partnership along with automaker Fiat Chrysler (NYSE:FCAU) to develop an inevitable byproduct of the coming shift to autonomous vehicles — self-driving minivans.

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Chrysler plus Google
In a press release last week, Fiat Chrysler announced it had reached an agreement along with Google to expand Google’s self-driving test regimen to consist of the Chrysler Pacifica minivan. The deal is substantial for investors as it marks the initial time Google has actually agreed to directly collaborate in its self-driving automobile efforts along with a significant car manufacturer. Specifically, Google and Fiat Chrysler will certainly jointly design and outfit about 100 Chrysler Pacifica minivans along with Google’s proprietary self-driving technology, which must effectively double the company’s current self-driving automobile fleet.

According to John Krafcik, the CEO of Google’s Self-Driving auto Project: “The opportunity to job closely along with FCA [Fiat Chrysler Automobiles] engineers will certainly accelerate our efforts to create a fully self-driving auto that will certainly make our roads safer and bring day-to-day destinations within reach for those that cannot drive.”

Potential safety rewards have actually been heavily emphasized as soon as automakers and tech companies argue the case for autonomous vehicles (AVs), and this announcement is no different. The press release notes that about 33,000 car-accident deaths occur in the U.S. each year, an estimated 94% of which happen due to human error, and self-driving vehicles could steer clear of several of these deaths.
Chrysler Pacifica

Image source:  Fiat Chrysler.

To guidance the collaborative effort, the 2 Google and Fiat Chrysler will certainly relocate their respective engineering groups to a presently undisclosed location in southeastern Michigan, which, for those free of a map handy, is about the location of Detroit.

Still figuring it out
Investors cheered late last month as soon as several well-regarded tech websites published articles claiming Alphabet was “close” to spinning out its self-driving cars from X (its secret project improvement arm), in to a stand-alone piece of the company’s “Various other Bets” reporting segment.

The exact same reports suggest that divisions classified as stand-alone Various other Bets are expected to be on monitor to provide revenue, the implication being that Google’s Self-Driving auto Project may additionally comply with this criterion. I don’t necessarily buy this line of reasoning. Alphabet has actually publicly explained that, as of the end of 2015, only three of its (at least) seven Various other Bets provide meaningful revenue, though the variety of total Various other Bets could be considerably higher.

From an analyst’s perspective, Points are much less clear as soon as discussing the financial implications for the companies involved. Case in point: the 2 Alphabet, and Chinese search electricity Baidu, which additionally has actually big plans in AVs, have actually publicly stated they have actually no tip exactly how their eventual AV business models will certainly function.

At this point, investors are left to presume, as the companies themselves appear to be doing, that there’s your hard earned cash to be gained in self-driving cars, even if no one can easily pinpoint the exact means of monetization yet.

Though it doesn’t necessarily inspire a great deal of confidence, this assumption appears fair. Leading global consultancy Boston Consulting Group estimates the self-driving car market will certainly make a $42 billion economic opportunity by 2025. A lot more broadly, the auto industry generates trillions of dollars in revenue every year.

So while the Google-Fiat Chrysler partnership must guidance accelerate the 2 companies’ AV improvement efforts, we could still be a method off from seeing the potential financial impact from tech’s next big thing.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Andrew Tonner owns shares of Baidu. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Baidu. attempt any type of of our Foolish newsletter services free for 30 days. We Fools could not all of hold the exact same opinions, however we all of believe that considering a diverse range of insights makes us much better investors. The Motley Fool has actually a disclosure policy.