MEET ATLAS, DESIGNED BY BOSTON DYNAMICS, FUNDED BY DARPA -- and soon to be owned by Toyota? Image source: BOSTON DYNAMICS.
Three months ago, I pooh-poohed the idea that Toyota Motor Corporation (NYSE: TM) might buy Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Boston Dynamics -- the humanoid robotics arm of the company formerly known as "Google." Three months later, it looks like I couldn't have been more wrong.
Yesterday, TheFly.com reported that rumors are beginning to fly about an imminent sale of Boston Dynamics to Toyota. The main source for this view -- although it's been mooted by several -- is the website TechInsider.io, which assures us that the "ink is nearly dry" on a deal to sell the division.
So there it is: I was wrong in predicting General Dynamics would step up and buy Boston Dynamics -- but I was also half right....
Toyota -- more than just cars
Turns out that Toyota, while a big user of robots on its automotive assembly lines (something Boston Dynamics does not do), has set up a special division that may be a more natural fit for Boston Dynamics. Dubbed the "Toyota Research Institute," or TRI, this special group is technically set up under the Toyota corporate umbrella, but is physically located in Silicon Valley.
Toyota tasked TRI with doing R&D work in artificial intelligence and robotics, and to that end, has given TRI a reported $1 billion budget to build out its capabilities. In March, TRI acquired the entire engineering team of Jaybridge Robotics. Jaybridge is a Massachusetts-based start-up working on driverless cars, and so Toyota's interest in that tech is only natural.
But it seems TRI -- and Toyota -- may also be interested in doing some military work. The Wall Street Journal reports that TRI's head is former DARPA program manager Gill Pratt, who worked with the government's team of mad scientists from 2010 through 2015. As such, he would be very aware of Boston Dynamics' past work with DARPA in the field of military humanoid robots. In particular, he'd be familiar with Boston Dynamics' Atlas robot, which participated in the DARPA Robotics Challenge in 2013.
In any case, Pratt seems to like Boston Dynamics quite a lot today, and apparently enough that he wants to buy it for Toyota.
What it means for investors
Alphabet never disclosed how much it paid to acquire Boston Dynamics back in 2013. It's unlikely Toyota will be more forthcoming if it acquires the division in 2016. Suffice it to say that this makes it difficult to value the deal, or opine on whether Toyota is getting a good price.
That said, you can still see why the deal might appeal to Toyota. Acquiring a military robotics maker opens up a potential new market for Toyota, which at 7% projected earnings growth over the next five years (according to data from S&P Global Market Intelligence) is currently only expected to grow at about half the rate of the auto industry at large.
In short, if the Jaybridge acquisition in March was a deal aimed at bolstering Toyota's competitive position in cars, buying Boston Dynamics appears to be a way to juice Toyota's growth in areas its rivals may not be exploiting at all. It's a deal that, with Toyota stock currently selling for less than 8 times earnings, just might be good enough to make investors give Toyota a second look.
