In late May, Fiat Chrysler (FCAU) submitted a proposal to merge with Renault (RNSDF -3.86%). The proposal was initially met with enthusiasm, and then things started to fall apart. Upper executive deaths and imprisonments, French government intervention, shifting alliances, bargaining tactics -- in this week's episode of Industry Focus: Energy, analysts Nick Sciple and John Rosevear explain the tangled web of this merger and all the parties involved. Is there any hope of seeing this deal go through? Tune in to find out.

In the second half of the show, the hosts explain the current state of the auto industry -- why so many of these companies are merging, the state of affairs with electric vehicles and self-driving technology, the future of big auto, and more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

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This video was recorded on June 13, 2019.

Nick Sciple: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today is Thursday, June 13, and we're breaking down Fiat-Renault merger discussions. I'm your host, Nick Sciple, and today I'm joined by Motley Fool senior auto analyst John Rosevear via Skype. How you doing, John?

John Rosevear: I'm doing well, Nick. How are you?

Sciple: I'm doing great. We've got a fun topic today. We were chatting a little bit before the show, this is almost as much kind of a political intrigue story as it is a business story. For a little background, on May 27, Fiat Chrysler submitted a proposal to merge with Renault. The terms of the deal, it would create a 50-50 ownership stake between Fiat and Renault. Shareholders would be completely separate from the 20-year partnership that Renault has enjoyed with Nissan and Mitsubishi. They're projecting $5.6 billion in annual savings. And it sounds like both of these companies have been really interested in moving through on this deal; however, there's been some snags in the past couple weeks. Want to give us a little background on what's been behind this deal, and what we've seen in the past week or so?

Rosevear: Well, first of all, when the deal came out, I think a lot of us said, "Well, clearly this isn't out of the blue." This is a formal proposal that FCA has made after talking to Renault about what would it take? [laughs] Renault's board immediately released a statement saying, "We're reviewing this with great enthusiasm," or something like that. I forget exactly what they said. But it was clearly, "This friendly proposal is of great interest to us," which seemed like a translation from French of, "We're in."

Initially, Nissan said, "Yeah, we're not going to stand in the way of this." And then things got a lot more complicated. As I was saying to Nick before the show, really, the way to think about this is, this a dance between four parties. The parties are Fiat Chrysler, Renault, Nissan, and the French government, which owns a stake in Renault and wants to keep the jobs and French ownership and all of that stuff, and has those kinds of interests in this. The dance went around and around. Finally, John Elkann, chairman of Fiat Chrysler, said, "All right, we're walking away." [laughs] Digging into this is really wild, kind of a soap opera, almost.

Sciple: Yeah. I think there's some personalities involved in this as well that you can trace back to this deal. You had Sergio Marchionne, who had been the CEO of Fiat Chrysler for a long period of time, had been exploring different merger opportunities. I think I'd read he'd talked to GM, several other folks, trying to find a partner for Fiat. However, he has a reputation for being a tough negotiator, and people were very nervous that they were going to get a bad deal him. He suddenly passed away last summer, and that changed the entire dynamic at Fiat, as you said, with John Elkann taking over. Renault, very similar situation with the Carlos Ghosn criminal investigation that has removed him from the top of the Nissan-Renault partnership, removing these huge personalities from both of these businesses. What role do you think that's played in this merger maybe getting explored today, and the background politics of it?

Rosevear: I mean, it just makes it easier to make a phone call. Somebody like John Elkann can make a call that perhaps Sergio would have had a harder time with. I mean, Sergio and Ghosn both, these two huge, larger-than-life characters in the auto business for many years. Ghosn was effectively CEO of both Nissan and Renault, which are separate companies, but not really separate companies, that have been in what they call an alliance, which is this agreement to share parts and engineering costs and so forth in different regions of the world. He put this together. He was the big deal, he was one of the great people you want as a keynote speaker at your auto conference. A big celebrity in the business. Something that we are still learning about happened in Japan at Nissan, where all of a sudden, all the knives came out for him at once. And he was not just run out of Nissan, but he was arrested and charged with various things -- misusing company funds, more or less. Clearly there's an agenda going on here that goes beyond what you see in the headlines. 

Separately, there was no drama like that was Sergio. He just died. He'd gone in for a shoulder surgery or something like that, something fairly routine, and they discovered he had the bad cancer. He struggled for a while and then he went downhill. Sergio was a guy who smoked an awful lot of cigarettes, so in a sense, it's not surprising that in his mid-60s, he was hit something like this. But it was very sudden. He is greatly missed inside both Fiat Chrysler and Ferrari. He was also CEO of Ferrari. [laughs] Another giant leader of both companies. Reputation as a very blunt talker, very sharp, very no-nonsense. Spoke Italian and English fluently. His English was often very, shall we say, colorful. Very blunt, even with analysts, in a way that you didn't really hear from anybody else in the industry. And he came out a few years ago and said, "Look, this only makes sense if we start some consolidation. There's too much duplication of effort. It drives everybody's costs up. It makes cars more expensive. It crushes everybody's profit margins. It's not sustainable long-term, especially as we're looking to go to new technologies and so forth. We just can't do it. There needs to be fewer companies with more scale."

One of the reasons that they spun Ferrari out, really, was thought to be at the time, when they did Ferrari's IPO and made it a stand-alone company rather than under the FCA wing, was so that Ferrari could stay under Italian ownership while they took the rest of the company and sold it or merged it to another automaker. That was very clearly seen as a signal that they were serious about this talk. And, yeah, he did woo General Motors. Mary Barra told him they weren't interested. We now know that he had a few phone calls with Bill Ford, executive chairman of Ford Motor Company. It never got beyond the phone call stage. He probably had calls with most of the other major automakers we can think of. But then he was off the stage, and Elkann, who was the representative of the Agnelli family, who has controlled Fiat for decades, and who is kind of Sergio's protege, in a sense. Elkann is young, he's early 40s. Very smart guy. Decided to pursue things, clearly, and this conversation happened.

I don't know the Renault side quite as well. It's not a company that we follow closely in the United States, although I've always kept an eye on it. Clearly, having Ghosn out of the picture felt like, "Well, maybe we aren't bound to the alliance quite so firmly anymore. Maybe we can make our own decisions that are in the best interest of Renault and Renault's shareholders. Boy, this sounds like it could give us the scale that we need. FCA has something we would very much like -- a big presence in North America, where SUVs can be sold at great profits. We have something that FCA would like -- a fairly advanced and electric vehicles. There's a lot of synergy to be had here, and it feels like a fit to us. Now that Ghosn is not exploring his plans for global domination or whatever, and we're out from under that, perhaps we can have a real conversation here." And that's what led to this, I think, as far as we can tell from news reports and the few things I've heard from inside FCA. They were optimistic going into this. There was a thought in both companies that this was going to happen, and happen quickly. And clearly, we saw some wrenches get thrown in the works.

Sciple: Yeah, we've seen FCA in particular, when we look at some of the issues in Europe getting ready to be hammered with some emissions issues, not having as much of a robust electric presence as maybe some other automakers. This merger with Renault would solve that problem for them. They've been buying some credits from other automakers to handle their business in the near term. But that's not going to be a long-term solution. I think a merge with Renault covers those EV requirements in Europe. So there's some clear synergies. However, as you said, part of the tensions here have been with Nissan. They have this big partnership with Renault that's been going on for 20 years. Carlos Ghosn was the cornerstone of that partnership. However, that's begun to fray, and that's been part of the tension that has disrupted this deal. Probably at the beginning of this was, Nissan has been seeking, probably in the aftermath of the Ghosn controversy, to change some of its corporate governance structures. I think they wanted to finally create a committee for compensation and things like that. Renault has threatened to hold back support for those governance changes, concerns that changing those terms would impact Renault's ability to influence what's going on at Nissan. Renault's a 43% shareholder in Nissan, so of course, anything that's going to reduce their influence there is concerning to them. And then Nissan turned around and opposed the FCA merger. So we've got this core tension in the Renault-Nissan partnership caused by Ghosn being removed, that has really thrown a wrench in this FCA deal. Do you want to talk a little bit about those background tensions there and the partnership?

Rosevear: I'm not sure it caused the tensions. It felt like both parties thought they might be headed for a divorce. And then all of a sudden, this starts, and the other one is like, "Wait, you're going too far. Wait a minute, wait a minute." [laughs] It almost felt like that from the outside. What is becoming clear is Ghosn ... I don't want to say made a lot of enemies, but had a lot of opposition that had perhaps held its voice while he was in power. And now Carlos is not with us anymore; we can go my way, we can go this way, we can go this very different way -- these kinds of conversations happening inside both companies as executive management teams figured out, where are we going to take this next? And I think there was some real testing of the relationship, and some questions as to whether maybe turning in other directions where the better thing. Somebody inside Renault was like, this whole thing with Nissan was just cooked up by Ghosn because he wanted to be the great king of autos or something like that. You can hear that there's maybe a lot of chafing and resentment now that he's gone. Like, "We're going to do our own thing. We're not reporting to Ghosn anymore. We're not second banana in this relationship. We're going to assert our own direction. Oh, hey, John Elkann wants to talk to us. That might be the way to do this long-term, rather than this very frayed relationship with Nissan. Or maybe we could bring the whole thing along, but not with Nissan driving." If you read between the lines a little bit of the quotes you see in the media, and what you hear from people, you can feel some of those tensions. There was some resentment on the Renault side. On the Nissan side, there was some, "Why doesn't Renault shut up and come along with us?" [laughs] You can see how it went. Like I said, it felt like the relationship was headed for a divorce. It was that sort of dynamic.

Sciple: Right. So, then, as a result of this tension between Nissan, that's where we get our fourth dance partner, like you mentioned off the top, which is the French government, which has seemed to take the side of Nissan in this entire debate, saying Renault should fix its 20-year relationship with Nissan before it ever explores a merger with Fiat. As soon as that came out, that's when Elkann came out said, "Listen, the political environment in France right now is currently not conducive to this merger going through. Therefore, we're going to pull out." There's some background there in France. You said off the top, wanting to protect jobs in the country. They've had the yellow vest protests in that country, which clearly have been on the minds of the political actors there. Is this merger dead on arrival here, with the political issues, and it seems to be that the Nissan relationship is on the rocks? What is going to save this merger in the near term, given all this intrigue between all these parties?

Rosevear: Well, as a colleague of mine said when the news came out that FCA had walked away, walking away from the table is a time honored Italian negotiating technique. And throwing up your hands and saying, "Forget it, I can't work with you." A sense that this maybe isn't done. What we have here is, Renault would like to do the deal more or less as written. FCA would like to do the deal more or less as written, as the proposal went. The wrenches are coming from elsewhere. They're entities that have leverage over Renault to some degree. Those are the sticking points.

It would not surprise me if, in two weeks, a month, something like that, we hear that there's a revised merger proposal that Nissan won't oppose and the French government has signed off on. There seems to be some things happening behind the scene here.

It would also not surprise me if these outside dancers, as we called them, really do kibosh the deal. I think it should happen. I think the deal as proposed made a lot of sense. Sergio was not wrong in saying that margins are too thin and they'll spend too much money that could be streamlined and cut if greater economies of scale were applied. The way you do that is by combining Renault sales with FCA sales in different markets, and rationalizing products, and sharing the stuff under the skin that most customers don't pay attention to, the architectures and so forth, that allow vehicles to be built on the same assembly line and that save engineering costs. There's a lot of potential for that here. There's a lot of potential for reducing costs in a lot of ways. But of course, when the French government hears that, they see French jobs going away. Among their other concerns about ownership and this and that, that is something that we see consistently as a concern with many governments, especially in Western Europe. When we talk about combining automakers, they're like, "Well, you can't cut any jobs."

One of the things FCA said, its initial proposal was, "We're not closing a single factory. We can do this without closing a single factory." That was a key point of what they said on day one, when this became public, in their initial press release. No factories will be closed. We'd reduce costs by sharing engineering and so forth. It seemed to be a way of saying, "We won't cut blue collar jobs, but we might cut white collar jobs." [laughs] But even then, that might have been enough to bring France to say, "Wait a minute." As you said, FCA proposed that this combined company be domiciled in the Netherlands. FCA itself is now domiciled in the Netherlands, for reasons that have to do with ensuring that the Agnelli family has a controlling stake, as I understand it. Maybe that was negotiable, I don't know. But if that's a sticking point, then that's something that's going to have to be addressed if the deal is going to be revived.

I do not think we've heard the end of the story. There's still an unfolding drama inside Nissan. Renault had its shareholder meeting yesterday, and there was quite a bit of back and forth on all of this stuff. It sounded like Renault was leaving the door open. That was my takeaway from the notes I read from that meeting. But whether FCA will be allowed by the other parties to walk through it is a different question.

Sciple: Yeah, something to continue to watch. Obviously, a lot of political intrigue here that maybe is swallowing up some of the clear business benefits of what this combination might generate.

Okay, John. On the back half of the show, I want to look a little bit more macro on what's going on in the automotive industry, and just talk about, what are the factors that are driving so many partnerships between automakers that we've seen in the past year or two? Just recently, we've seen Toyota partner with Suzuki, Subaru, and Mazda on EVs, Ford and VW have partnered maybe six months ago, GM and Honda partnered on batteries. We've got a large number of partnerships over the past year. We just mentioned the potential merger between Fiat and Renault. What do you think are the key drivers behind this, both from a technology point of view as well as a broader macro auto market perspective?

Rosevear: First, as Sergio Marchionne always said, there are too many automakers spending too much money on redundant things. Everybody goes out and reinvents the wheel every few years. This is a high-cost, low-margin business. Those costs are not coming down as fast as people would think. But they could come down if you could get larger scale.

Now, take that thinking, and take the generally accepted view that the world is moving toward electric vehicles and increasing automation. This is the self-driving cars thing. Those are expensive technologies to develop. The electric vehicle tech itself isn't quite as radical as some people think it is. It's not like Tesla invented this and nobody else can do it. It's mostly straightforward. The tricky part, the thing that has taken time for the big automakers to bring EVs to market on scale, is the supply chain. There just wasn't enough lithium and cobalt and so forth coming out of the ground for a while to make enough batteries for all of these cars everybody wanted to make. There's a lot of infrastructure between the lithium mine and the car factory that has to come into place. We have to make batteries, we have to make battery packs, we need to be making electric motors, the right kinds of electric motors, what are the right kinds of electric motors, we need a factory to make a whole lot of electric motors. This kind of stuff all has to be worked out. Companies like Volkswagen and GM and so forth have been bringing along these supply chains.

But the amount of money being spent here is quite big on both of those initiatives, both the whole self-driving thing and the electrification. You're talking billions. And if everybody's spending billions, there's going to be some thought toward, well, what if we joined forces? We're not sharing vehicle designs, but fuel cells. Are fuel cells a thing? Well, GM and Honda were both asking the same questions around the same time. Well, alright, let's join forces and develop fuel cells. GM has been tinkering with fuel cells since the 1960s. They bring a lot to the table. Honda had some ideas and technology of its own. They brought some to the table. They joined forces and developed fuel cells together. They developed what was viewed as an intermediate solution. Honda chose to roll it out in limited numbers with a car. GM said, "We'll wait for the next generation." But the project continues. For instance. This is just one thing. And now that has expanded. The two companies, from an engineering perspective, found they work well together. Well, OK. GM has an electric vehicle in mass production, and is working on expanding and developing its next generation battery technology, which is coming fairly soon, which will spawn a whole second generation of electric vehicles, things that go beyond the Chevy Bolt. Honda said, "Hey, can we get in on that? It saves us the trouble of developing our own battery pack technology, and gives you scale right away. And, we know we work well together. We'll design our own electric cars, but we'll design them around your battery packs." And GM said, "Okay." So, that's going on.

That has replicated itself with different pairings throughout the industry. Ford and VW have had some huge talks. They are thought to be days away from a deal where VW will make a substantial investment in Argo AI, which is a start-up that Ford essentially funded, and took a majority stake in, and then delegated their self-driving software team to. Sent them to Pittsburgh to go work for Argo AI. Argo AI is best thought of as the slightly outsourced but not fully outsourced software team for Ford's self-driving effort. The hardware is still being done in-house in Michigan. Ford has always said, "We'll share, if people want to bring money." VW, which appears to have gotten frustrated with the company they were working with on self-driving stuff, is close to signing a deal to participate there. For instance.

We can point at, a lot of the different automakers have these kinds of relationships. Toyota owns stakes in Subaru, it has a close relationship with Mazda. Of course, they're all jumping into electric vehicles as a group. Subaru is a profitable company, but by auto standards, it's a tiny one. They sell about a million vehicles a year worldwide, most of them in the United States. They don't have a scale of somebody like Toyota. But if they work together with Toyota, then they can develop Subaru-flavored vehicles off the common technology that is developed. That gives Toyota even more scale when it goes to buy batteries, when it goes to set up factories, and so forth. That brings costs down for everyone. Etc, etc, etc. We're seeing this story over and over.

Sciple: To your point off the top, a lot of people don't realize how complicated the automotive supply chain is, how many layers there are of suppliers that go from tier one supplier, tier two, all the way down to make these vehicles. When you have a fundamental change in technology, switching to EVs, that supply chain hasn't been developed. You've seen Tesla quote out that when they first started to scale up, they realized, "Hey, to meet our targets, we need to make more batteries that exist in the world today." Clearly, there needs to be a scale-up in the infrastructure to support this industry.

Rosevear: And remember, Tesla is huge in investors' minds, and has been for years; but in terms of volumes per year, it's tiny. Tesla is hoping to sell 500,000 vehicles a year at some point soon. VW sells 10 million. [laughs] It's a huge difference in scale. If Tesla is having trouble getting enough batteries, and VW wants some significant percentage of its vehicles to be fully electric, by the mid-2020s, imagine what VW has to do in terms of getting all of the inputs to its assembly plants to make those vehicles. The batteries, the battery packs, the raw materials, the motors, all the stuff we just talked about. It's much huger than what Tesla had to do and cobbled together.

The good news is that some suppliers have gotten educated either by working with Tesla or watching Tesla on what's going to go on here. And, by the tinkering-level EV programs we've seen at several automakers over the last several years, where they're doing a proof of concept. You can even think of the Chevy Bolt as GM's large scale proof of concept. Can we mass-produce electric cars? What does it cost? Who's ready to supply us? All that stuff. The simple analysis is, GM loses money on the Bolt program. Yeah, but GM's learned an awful lot. That's been going on elsewhere, too. One of the lessons that seems to have been learned is that partnerships can give us more scale to bring costs down.

Sciple: Right, exactly. It's just going to require a huge investment to develop the amount of supply chain and infrastructure to support how large people expect EVs to be in the future. There needs to be, likely, a supply chain as robust as the current internal combustion engine supply chain in order to support this industry going forward. That has not yet [been] developed. That takes a lot of money.

One other factor as well, you've talked about how expensive developing EVs and autonomy is. There's also a cyclicality to the auto market that can make making those big investments difficult as the market begins to slow. We saw last year, China, the largest auto market in the world, had its first decline in vehicle sales in 20 years. Declined by 5.8%. Vehicle sales in the U.S. have been about flat. As you look at an auto market that appears to be maybe turning over a little bit, how much more important are these partnerships and cost sharing relationships to support these companies as they weather the cyclical downturn?

Rosevear: I think a lot of automakers are saying, "Okay, how much cash have I got?" The plan is, when there's a downturn, because automakers have such high fixed costs, their profits disappear a lot faster -- if Ford loses a third of its sales, it's barely breaking even, and it may be into the red. You wouldn't necessarily think that if your model is a software company, but it is. So, Ford, GM, Toyota, Volkswagen, other companies, maintain a hefty cash reserve. And that's a lesson from the past. In the past, when economic downturns have happened, and profits swung to losses, automakers have responded by cutting future development programs, cutting their future product programs. The ones who managed to get through the downturn without cutting those are the ones who had the freshest product when buyers started to come back to the showrooms in the early stages of the recovery, and they were able to gain market share. This is why Ford surged early in the decade. The 2008, 2009 Great Recession happened, the economic crisis and all of that. 2010, 2011, GM went through bankruptcy. Even Toyota had to cut future product programs. Ford has brand new cars in the showroom, and they're good. And boom, all of a sudden, Ford's the belle of the ball for a while, and they made a lot of money through 2015 or so because they were out ahead of everybody because Alan Mulally and his team mortgaged everything they could to raise the money to keep product development going. That was a big lesson to everybody, and said, "Okay, we need a cash reserve in the $20 billion range, give or take, depending on the size of the company so that next time, we don't have to mortgage anything, we just have a bank account we can draw down to fund all this stuff."

Looking at, "Well, we can get to self-driving if we spend $10 billion more." For instance, conversations like that might have been happening in automakers over the last year or two, like, "All right, we're very late in the cycle here by historic standards. We have to hold onto the cash. At the same time, we feel like we might be in a race here. The first three or four companies to achieve what our friend Mr. Musk calls full self-driving may reap the share of the profits, at least in the commercial markets. We don't want to be behind, we don't want to be seen as left behind. At the same time, we've got environmental mandates to meet in Europe, in China, and so forth, and to some lesser extent, in the United States. We need the electric cars, we need the hybrids, and there's consumer demand for more advanced driver systems that are related to self-driving to enhance safety." So, the pressure is on to stay competitive with these technologies; at the same time, the pressure is on to maybe hold on to cash and not throw so much at things that aren't going to be profitable for years to come.

So, yeah, that is a motivator for coming together. There are storm clouds on the distant horizon. We don't know when they're going to get here, but there has always been a next recession. This is how it works. And some sense that maybe we want to get our costs down before the storm gets here so that we can have a better chance of staying in the black throughout, or at least breaking even, without having to tap those cash reserves if we can get the costs down. All of these conversations are happening. So, sure, this is driving people to say, "If we get VW in on this, yeah, they're a competitor, but we can structure it so that we're not going head to head in too many ways, and we can share the technology. We both save $X billion." Those kinds of deals are definitely getting talked about in a way that they weren't five years ago. This is all why.

Sciple: Yeah, it's a very much Boy Scout motto, be prepared. You can go full speed after EVs and autonomy; however, if you get caught by the downturn, and you're in a situation where you don't have the liquidity to ride through that, you're never going to enjoy the benefits of those investments. I tell you, if you asked me to take over as CEO of one of these auto companies tomorrow, that's a tough job, I don't know if I'd sign up for it.

Rosevear: It's a hard business to make money in.

Sciple: It's tough. There's a clear tension between what you have to do to keep up going into the future, as well as what you have to do to stay solvent in the near term, depending on how the cycle shakes out. And the cycle so difficult to predict, as we all know, we've talked about on the show a bunch.

Last thing I did want to talk about, and you mentioned it a little bit with Argo AI. We've talked about these partnerships between these major OEMs, major automakers, VW GM. But there is a role to play for these autonomous start-up companies. Aurora was that company you mentioned that had a partnership with VW. Just yesterday, I believe VW announced that they're not going to renew their deal with Aurora, they're going to sign on with Argo AI. However, just this week, Aurora announced partnerships of Fiat Chrysler, as well as extended their partnership with Hyundai. Not to go too deep into those partnerships, but what role going forward do you think, and how significant role going forward do you think, these independent autonomy start-ups will play? Do you think the major OEMs will pick and choose the ones they'll work with, and those will become little fiefdoms in the autonomy space? What role do you think these small autonomous start-ups will play?

Rosevear: Well, from Silicon Valley's perspective, wow, Cruise got bought out early for a lot of money. [laughs] How do we do that? [laughs] Wow, the Argo AI founders got a big investment that stands to make them very wealthy. How do we do that? Five years ago, all the talk was about disruption. These companies were going to come out of Silicon Valley and invent superior technology, and blow Detroit and Stuttgart and everybody else completely into historical oblivion. That didn't happen. I think everybody has watched Elon Musk and come to the conclusion of, "Wow, actually, manufacturing vehicles is really hard." [laughs] And then the Cruise deal happened, where this little company that had 35 or 40 employees, GM swooped in and took them out for big money. The Cruise founders are happy, they're still working at GM. The technology is moving along, it's making progress. Well, OK, if you're someone who has worked in artificial intelligence, and on problems related to self-driving cars, for several years, and you've become an expert, you've got a couple friends who are experts, you're going to be asking yourself, how do we get a billion dollars? [laughs] Right? Maybe we shouldn't be trying to beat them; maybe we should be trying to join them. Let's become the outsourced center of expertise for these companies that can be our customers, they can be our partners, we're open to a lot of arrangements.

There's a limited pool of talent that can really do this. The number of people who can actually credibly, plausibly work toward developing self-driving vehicles is quite small. The market for their expertise right now is quite huge. These partnerships are ways for those people to say, "Okay, what's in my best interest here, rather than going and taking a job at Volkswagen, where I might make a couple hundred thousand dollars a year and get good benefits, but that's not the same co-ownership of a start-up that's a belle of the ball thing at this historical moment. I might make a lot more money." There are a lot of companies out there that have gone that way. There was one actually here in Massachusetts called nuTonomy. They got taken out. I don't have a lot of visibility into Aurora. I think VW kicked the tires and said, "We're going to go elsewhere." So, Aurora said, "Okay, that's opportunities for other people to come in."

And of course, FCA has a very good business selling pickup trucks, SUVs, and highly profitable muscle cars, in North America for the most part, and little cars in South America and in Southern Europe, mostly the Fiat's. Going way back to Chrysler days, their historical approach to technology is, "We'll buy it from a supplier," which has always hurt their margins. That's kind of what Sergio was saying about electric cars. "We'll buy it. Self-driving? We'll partner, we'll buy it." Maybe the new leadership at FCA is thinking, "Well, we need to be a little further out ahead." If we're going to ask, how significant is it that FCA is in here, what does it mean for them with Aurora, that depends to some extent on how Aurora's tech pans out. But it's both not surprising that FCA would do this, and a little bit of a change from past practice, where they might just wait to buy it from Aptiv or somebody. That might have been how Sergio might have thought about the problem three years ago.

Sciple: Yeah. I want to pull thread on a couple things you mentioned. I've had a chance to talk to a few folks who work on autonomy and the background there. It's interesting, you talked about the lack of talent in the industry. Some of the folks who have moved into autonomy, it surprised me, have come from the area of underwater mapping. You're navigating underwater, you can't get GPS access, you have to navigate some way, so you scan using lasers and radar and all those sorts of things. Obviously, that was not a giant industry; however, with the advent of self-driving, where you need a much more precise navigation apparatus than you could get from GPS --

Rosevear: Yeah! It's closely related to a level four self-driving car that's working off a digital map. [laughs]

Sciple: Yeah! So, they're these people that, the industry found them. I don't think they ever expected they'd be working on self-driving cars when they got their PhD to go into this industry; however, the industry has really grown on them.

One other thing you mentioned as well, after the Cruise deal, we saw a gold rush through this industry. We saw a lot of really aggressive timelines on when we're going to be rolling out level for self-driving. Obviously, those are backed somewhat by a need to raise capital to fund their operations. However, I think every one of those has been a mistake to date. I think every deadline we've had has been pushed back. Something to be aware of as we look at these partners. I think some people have been disappointed by the rate at which autonomy has progressed. But I think some of that is, the promises that you've gotten have been motivated by financial interests less than what is truly capable of being accomplished.

Any last thoughts before we close up, John, on what we're seeing in partnerships and autonomy and EVs going forward?

Rosevear: Electric vehicles will happen if the buyers show up. And if they get the costs far enough down, the buyers will show up. It'll take some time for everybody to get on board with this. People who think the whole world is going to electric cars in four years are going to be disappointed. They're going to be hybrids. We're going to be burning gas for quite a while. But, once the industry gets the costs down, once the scale is achieved, once regulatory incentives are in place, there'll be a lot more electric cars on the road. That's happening. There are no insurmountable obstacles to the technology.

I think, with respect to software for self-driving vehicles, there has been a real sense over the last year or so of, "Wow, this is a harder problem than we thought it was going to be." [laughs] I've heard from a lot of people who are close watchers of this or even experts involved in it, and I think a lot of people who came out and said, "We will launch our first self-driving vehicle in 2020" are now saying that they will launch something more like GM's Super Cruise or Tesla's Autopilot in 2020, and not really a true "take a nap while the car drives you to your next appointment" self-driving, or robot taxis where there's no driver at all ever. That stuff is, I think, further away than people thought even 18 months ago. That's another factor in all of these partnerships. People are saying, "Wow, we're spending $2 billion a year on this effort, hoping it would pay off by 2021. If we've now got to spend $2 billion a year on this effort, where we don't know when the payoff is going to hit, maybe we'd better bring some folks into this so that we can spread the costs around."

Sciple: Yeah. Definitely going to be a story to continue to follow. For my own part, I really hope we can accelerate this. I'm not a huge fan of driving in tight traffic. But it's clearly a difficult engineering problem. Some of the costs of these sensors have to come down. I think a LIDAR right now is $10,000 for a top-of-the-line one. From the folks I've talked to, they don't tend to be very durable over a long period of time.

Rosevear: The other side of that is, when I first started looking at this, they were $75,000. They've come a long way. That's a big drop. It's not enough, but, whoa, progress has been made. [laughs]

Sciple: John, I always love having you on. Always fun to discuss the future of transportation. I'm sure we'll have you on again soon to continue breaking it down. Thanks, as always!

Rosevear: Thanks, Nick!

Sciple: As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for his work behind the glass. For John Rosevear, I'm Nick Sciple. Thanks for listening and Fool on!