Ford Motor Company (NYSE:F)’s Crucial Investment for Its Tech Ambitions

Ford Motor Company (NYSE:F) is investing a little under $200 million in Pivotal which underlines how serious it is about emerging technologies. The investment does not come as a surprise as the Detroit-based automaker believes that by embedding new technologies in cars, it will be able to sell more cars in future.

Addressing Consumer Needs

Fast tracking vehicles and mobile tools is the automaker primary goal as it continues to bet big on mobility. Automakers are increasingly infusing technologies in cars in response to customers yearning for cars that can do much more than just hit the road.

There is a belief in the auto industry that car owners in future will want to control more of their cars operations with mobile devices. Given the changing consumer tastes, Ford Motor Company (NYSE:F)’s investments on Pivotal is somehow justified given what the startup has to offer when it comes to developing software for enhancing mobility.

Reasoning behind Ford’s Investment in Pivotal

Pivotal is not a typical cloud computing infrastructure firm. Controlled by EMC Corporation (NYSE:EMC) the firm has not only attracted investment from Ford but Microsoft Corporation (NASDAQ:MSFT) as well. The recent round of investment has sky rocketed its valuation to $2.8 billion.

Given the wave of investment, one would ask why tech giants are betting big on the startup more so Ford. Some would argue that the automaker as merely trying to copy General Motors, which invested $500 million in Lyft, a company it hopes to use to enhance its technology and ride sharing prospects. Pivotal is completely different from Lyft and as it stands, could be worth more in terms of long-term value generation

Lyft will mostly enhance General Motors operations into the ride-sharing business. Pivotal, on the other hand, will not only act as a software as a service company for Ford Motor Company (NYSE:F), but a platform as a service. What this means is that the carmaker will gain access to some of the most advanced software development method and cloud tech skills.

Ford’s Smart Mobility Push

The software development methods should especially come in handy, in accelerating what Ford Smart Mobility is working on. Launched in March, the subsidiary main goal is designing, building and investing in such things as connected cars and autonomous technology. Ford just like other automakers is betting big on autonomous cars and with Pivotal on board, it should be able to bolster its efforts on this front.

The partnership is already bearing fruits the two having unveiled FordPass app. Launched in April; the smartphone app helps users with parking, car sharing among other services. Pivotal essentially provides a pathway of marrying car making with technology.

Ford Motor Company (NYSE:F) plans to open new software labs in the US and Europe as part of an effort that seeks to enhance prospects on the mobility front. Staffed with software architects, engineers, and experts the labs will leverage Pivotal capabilities and technologies in developing software as part of its mobility push.

Bottom Line

The auto industry is in a transition, as it becomes clear the future will be about autonomous cars and consumers not owning cars. Software will play a big role as consumers yearn for cars that can do more than just hit the roads. With the technologies that are set to revolutionize the industry still in development phase, investing in software development companies has become the norm as automakers try to reduce their risk exposure.

Pivotal stands to make money as long as there is demand for tech in the auto industry. Its business model is low-risk given that more companies are willing to pour money to enhance their auto technology.

Any amount that the cloud-based software giant generates going forward, Ford Motor Company (NYSE:F) will be entitled to some as n equity holder. The automaker also stands to take advantage of the new technologies that the startup develops more so on the mobility front.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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