When it comes to developing self-driving cars, who are the top automakers? And which of those have stocks worth buying?
Navigant Research recently attempted to answer the first question. In a new report, the research firm examined "the strategy and execution of 18 leading companies developing automated driving systems" and ranked the contenders by relative strengths and weaknesses.
I think there are reasons to quibble with Navigant's assessment -- specifically, I think it underweighted companies that might have good technology but that don't actually build vehicles at scale right now. But its ranking of automakers is probably pretty sound, and in its top tier of "Leaders," there are three that pay nice dividends and could be good buys right now: Ford Motor Company (NYSE:F), General Motors (NYSE:GM), and Daimler (OTC:DDAI.F).
Ford is an intriguing buy right now for several reasons, and self-driving is certainly one. The Blue Oval's autonomous-vehicle development effort took a huge step forward in February with the creation of a Ford-funded start-up called Argo AI.
Simply put, Argo AI is vehicle that will help Ford hire and retain the best available software talent in what has become a fiercely competitive market for the services of top engineers. Argo's structure gives its employees the opportunities and equity upside of a start-up with the assurance of an auto giant's financial backing. (Ford gets dibs on its product, of course -- but it might be offered for sale to other automakers.)
Argo AI was co-founded by big-name veterans of self-driving research programs at Alphabet's Waymo unit and Uber Technologies -- and funded to the tune of $1 billion by Ford, which is folding its existing self-driving software team into the new company.
Ford hasn't said a lot about its plans on the hardware side. We do know it plans to begin mass-producing a Level 4 self-driving vehicle for commercial use by 2021. Ford also seems to be laying the groundwork for an integrated "mobility" offering of its own that could include Ford-branded ride-haling and car-sharing services, summoned via a smartphone app called FordPass.
Meanwhile, Ford's stock is trading at just 6.5 times its 2016 earnings (net of special items), and its very sustainable dividend is yielding a fat 5.2%. It may take a few years for Ford's self-driving investments to show in the bottom line, but they could generate good growth in time.
Like old rival Ford, GM's stock is cheap at 5.7 times its 2016 earnings, and it's paying a solid (and again, sustainable) dividend yielding 4.4%.
Also like Ford, GM is emerging as a self-driving leader. In fact, GM may well be ahead: Under CEO Mary Barra, GM tends to let its products do the talking -- or put another way, GM keeps its future plans under wraps to a greater extent than many rivals.
But we know a few things:
- GM owns 9% of ride-hailing company Lyft.
- GM last year bought self-driving start-up Cruise Automation and made Cruise the center of its self-driving software effort.
- GM is building out its OnStar network to serve connected vehicles with high bandwidth.
- GM started an urban car-sharing service called Maven early last year, and it's growing quickly.
We know one other thing: GM is shipping an innovative electric car, the Chevy Bolt, which is designed to be a "platform" (GM's term) for developing connected-vehicle and self-driving technologies and bringing them to market. The Bolt is also, by design, very well-suited for urban ride-hailing and car-sharing duties.
See the picture that's emerging? Here's a hint.
Reportedly, GM will soon -- as in, within the next few months -- build "thousands" of Bolts with prototype Level 4 self-driving systems for an extensive multicity test with Lyft. The data harvested from that effort -- and the fact that the Bolt is already in mass production today, and the self-driving prototypes will be built on the Bolt's regular assembly line -- could put GM at the forefront of the early commercialization of self-driving technology, with obvious (good) implications for the General's bottom line.
Daimler is mostly known to American investors as the owner of the Mercedes-Benz brand. Less well-known is that it's also a major player in heavy trucks and buses, with several brands including Freightliner, Western Star, Thomas Built, and Setra, along with Mercedes-Benz's own commercial-van and medium and heavy truck lines.
That gives it at least two separate and intriguing ways to bring its self-driving technology to market. Daimler already has an agreement with Lyft's larger rival, Uber Technologies, to supply self-driving vehicles in a few years. It's known to be working with Uber, giant auto supplier Bosch, NVIDIA, and other big names to finish and commercialize a Level 4 system over the next couple of years.
That system won't just go in cars for Uber duty, though. It'll almost certainly be offered as a luxury option on Mercedes-Benz vehicles -- and it'll definitely have a place in Daimler's big trucks.
This photo, taken during a demonstration on the Autobahn last year, nicely sums up one of Daimler's big opportunities.
The three trucks are traveling in an automated convoy, led by the first truck -- which, as you can see from the position of the driver's hands, is driving itself. I'm sure you can also see the huge commercial implications.
Right now, Daimler is trading at about 8.4 times its 2016 earnings per share (7.97 euros). That's not as cheap as Ford or GM, but it's still fairly inexpensive for a company that generates much of its revenue from luxury products. It's also cheap enough that Daimler's generous dividend (3.25 euros) means a 4.8% dividend yield.
Again, you'll have to wait a while for the benefits of this technology to accrue to Daimler's bottom line. But as with Ford and GM, you'll get paid to wait -- and you might be quite happy with the result in several years.