Ford Motor Company (NYSE:F) said this week that it will begin testing fully functional self-driving cars in California next year.
What's going on
Ford said it has received a permit from the state of California that allows it to test self-driving cars on public roads. The company's "Research and Innovation Center" in Palo Alto will begin testing a fleet of Ford Fusion Hybrid sedans equipped with prototype self-driving systems at some point in 2016.
California is one of four states that allow automakers to test self-driving cars on public roads. Florida, Nevada, and Michigan are the others; it's unclear whether Ford has plans to test its self-driving Fusions in any of those states.
Part of a larger Ford high-tech push
Self-driving cars are one part of Ford's "Smart Mobility" plan, first announced by CEO Mark Fields at the Consumer Electronics Show in January. The plan also includes efforts to develop more advanced vehicle connectivity, data collection, and what Ford calls "mobility," its term for concepts related to car-sharing.
Ford's facility in Palo Alto has rapidly become a center of high-tech development for the Blue Oval. Started initially as a 15-person office, it now has over 100 employees, Ford said, 80% of whom were hired from technology companies.
Isn't Ford way behind on self-driving cars?
While Tesla Motors (NASDAQ:TSLA) has made a lot of noise with its "Autopilot," a limited self-driving system that CEO Elon Musk has taken to describing as a "beta test," most automakers (including Tesla) have far more sophisticated and reliable systems under development. Ford is among them.
The traditional automakers (and their suppliers) are much further along with this technology than many investors realize. Giant auto supplier Delphi (NYSE:DLPH) has been a leader in this development; Delphi-based systems are expected to come to market over the next year or so on General Motors and Volkswagen Group vehicles. VW's Audi unit has already begun testing its self-driving prototypes in California.
Fields has said that Ford isn't aiming to be first to market with a self-driving car, but that it will be ready to offer a robust system once consumer demand materializes. I don't think Ford needs to be first in order to thrive in the future market for self-driving cars, and I definitely don't think Ford is planning to give up on its traditional vehicle lines any time soon -- but it will need to be ready. This announcement makes it clear that Ford's work is proceeding. For Ford investors, that's good news, but not surprising news.
But what about Google and Apple?
The Great Googly One has been famously testing its own self-driving cars since 2009. But Google -- or rather, Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) -- has made it clear that it's aiming to offer a self-driving car service, a competitor to Uber rather than to Detroit. Google doesn't want to get into the (high fixed cost, low-margin) car-making business; it wants to provide the technology, harvest the data, and own the ride-sharing business instead.
Apple is said to be (maybe!) interested in building a car of its own. But your humble Fool has argued that it's much more likely that Apple is developing its cars not for sale to consumers, but for a premium car service of its own, one that integrates seamlessly with Apple's other technology.
In time, automated ride-sharing services may compete with the idea of individual car ownership, to Detroit's detriment. (Alternatively, Ford may decide to offer a service of its own.) But that's not looking like a near-term risk to Ford and the other established global automakers.
So, what does this mean for Ford investors?
Fields has made it clear that Ford will strive to be a major provider of "mobility solutions," even as self-driving cars, car services, and the like transform the traditional car business. That's what the "Smart Mobility" initiative is all about. This announcement is another step down that path.
For Ford investors, it's a sign that Fields is keeping the company on top of fast-moving technological shifts, and that Ford is preparing to compete in the higher-tech near future. That's not something that will move the stock in the near term, but it should provide some comfort for investors looking out over the next several years.