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Ford's New AV Subsidiary Offers Opportunities for Investors

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【Summary】Ford’s new autonomous-vehicle arm is beneficial for investors, helping such individuals avoid exposure to long-term restructuring programs and decreasing stock performance.

Michael Cheng    Aug 18, 2018 2:00 PM PT
Ford's New AV Subsidiary Offers Opportunities for Investors

In the race to commercialize autonomous cars, some businesses are ahead of others. At this time, Ford is lagging behind its competitors, as it struggles to pivot towards the new direction the industry is currently moving towards.

However, it's still early and the leading US-based automaker isn't out of game yet. Like other car brands, Ford created a separate autonomous vehicles division (Ford Autonomous Vehicles LLC) that focuses solely on developing driverless cars. Additionally, it now has a concrete plan to incorporate the technology with a wide range of services, such as deliveries and ride-hailing.

New AV Division

Many individuals view Ford's new autonomous-vehicle subsidiary as a step in the right direction. With a handful of automotive companies aiming to bring driverless cars to public roads by 2021, there is still time for Ford to catch up. The business has committed to spending $4 billion on self-driving programs over the next five years.

Twenty-five percent of the allocated funds will go to Argo AI – a startup the company is investing in to streamline various aspects of development. Argo AI specializes in artificial intelligence products for vehicles. According to a press release, the two establishments will combine their capabilities to build Ford's L4 autonomous vehicle.

"I'm really excited about what I'm hearing and seeing in terms of interest with many credible entities," said Sherif Marakby, CEO of the newly formed Ford Autonomous Vehicles.

"This is complex work for any company, whether it's an auto company or a Silicon Valley company. It's bringing a lot of pieces together that nobody has brought together before."

Benefits for Investors

Ford's new autonomous-vehicle arm is beneficial for investors. By funneling its self-driving projects into the subsidiary, the likelihood of attracting investors is high. This is because activities are separate from the company's other ventures.

As a result, this setup would enable investors to minimize risks related to its core business. According to data from Bloomberg, the automotive company's stock has been taking a beating after Ford announced disappointing Q2 profits. To address the dip in performance, the business will inject $11 billion into a massive restructuring project that is expected to take five years to complete.

Such move does not guarantee Ford will come out the other end in one piece, as growth will likely be slow during the overhaul. For investors, the new self-driving subsidiary reduces exposure to such long-term risks, which should be avoided at all costs.  

"Everybody benefits from taking in third-party money," explained Neil Schloss, Chief Financial Officer of Ford mobility operations, in an interview.

"Your shareholders benefit because it's new capital that comes in to help fund additional investment you're going to make."

Interestingly, Ford isn't the only auto company creating a new division for its self-driving ventures and programs. General Motors pulled the same move and attracted SoftBank as a major investor for its subsidiary.

Daimler AG also did the same thing, by forming Mobility AG – a completely separate division from Mercedes-Benz AG and Daimler Truck AG (with products focusing on the commercial trucking sector).

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