Why Tech Will Buy an Automaker

by Michael Keane

As the struggle and innovations continue to develop in the driverless car industry, the idea that a tech company will buy an automaker is becoming more and more real.  A few things come to mind in forming this idea. The first one that comes to mind is company valuation and cash balances. Many tech companies that are involved in the automotive space are sitting on a lot of cash.  The second area that indicates the probability of this idea is that there are already partnerships and smaller deals between the tech companies and the automotive companies. Another area that brings this idea to fruition is finding the answer to the question of “What does the future look like in the space and who is best capable to lead this move into the future.

If you look at the tech sector and the automotive sector in terms of valuation, you will see that it is entirely possible for a deal to happen. The following chart gives a quick snapshot of valuations of different tech companies involved in the auto space as well as a few automakers. You can see the cash balances and valuations of the tech companies actually put them in a favorable spot to make a bid. Tesla’s market cap and Ford’s is now basically equal.

Company	Valuation	Cash on Hand	Amount Invested in Auto
Alphabet	$600 Billion	$86 Billion	New Company named Waymo
Intel	$167 Billion	$5.5 Billion	Just made a bid for Mobileye
Apple	$753 Billion	$21 Billion	Undisclosed Amount in Software
Tesla	$45 Billion	$3.5 Billion	Full Electric Car Company
Ford	$47 Billion	$16 Billion	Auto Company
Fiat Chrysler	$21 Billion	$18 Billion	Auto Company
GM	$51 Billion	$14.5 Billion	Auto Company

Large partnerships are starting to abound between the two industries. Recently, Intel made a bid for Mobileye. Ford has been in partnerships with Alphabet. GM purchased Cruise Automation for more than $1 Billion dollars last year and has a partnership with Lyft. Mercedes Benz recently reached an agreement with Uber with regards to a driverless car. With all this smoke around, the likelihood of a purchase continues to get stronger and stronger.  

While in the past, someone might not associate tech with cars, today you just can’t get away from the connection. Driverless eco friendly vehicles are the future. Big companies are putting large fortunes in play to make this happens. There will be some hiccups and disasters for sure. But don’t be surprised if you wake up one morning, pick up your phone (instead of the tv), and find that a car company has been purchased by a tech company.

**Disclosure - KDK Fund, a client of KeaneVCC, owns shares of Ford. KDK Options, another client of KeaneVCC, owns an April spread options trade on Microsoft. **

Thoughts on Elon Musk's "Master Plan"

by Michael Keane

Some people have been heavily questioning the “Master Plan” of having all electric vehicles including large trucks created by Elon Musk. But there might be a misconception within that “questioning” thought pattern. For one,  notoriety might not matter to Musk. It may not be that Musk is looking to be the sole or primary supplier of the vehicles. He might know of other companies working on the issue and feels his vocal support of the project will give the industry a boost.  Ultimately, though, this is only a part of his master plan. It is well known that his true master plan is to see humans get to Mars and that means fuel.

Mr. Musk has clearly and regularly shown his indifference towards others opinions of him and his strategies. Part of the reason is that he understands that he is going after some seriously large issues and knows that a straight line to success is laughable but also that success is attainable. When you look at his history, it is full of both successes and failures. But there is always progress. When the project is successful, the progress is paradigm changing. A great early example is Paypal. Even when there is a failure (think projects for Tesla and SpaceX), there is still progress.

There are many small companies doing great work on creating this reality. But because of uncertainties, some companies are nervous about their own sustainability. Hearing positive comments and support from Mr. Musk gives a sense of inspiration to continue the hard work of innovation that currently going on in this space.

Environmentally speaking, there are few people that are driving the needle forward in getting the rest of us off of fossil fuels. This master plan seems to be the next step in the process. If you could have this as your legacy, wouldn’t you try and do the same. At the very least, we should be out in the marketplace supporting these missions in any way possible. This article is one of those ways.

With all of that said, the main master plan is what is probably driving all other master plans of Mr. Musk. Getting humanity to Mars is not easy. Especially from a private citizen like Mr. Musk. It is really something that he and his team are not afraid to take on other master plans in order to succeed in the Mars master plan. They have found success in driving down rocket costs and fuel is one major component of that plan.

Moving the process of electric vehicles is one major goal of Elon Musk. His announcement of the master plan for it undoubtedly will move the process forward. Will it end up exactly how his master plan expects? Probably not. But it will probably be darn close. It will probably be even better as now more people and visions will influence and be influenced by the announcement. Now is a great time to get that electric vehicle idea out and worked on!

Per disclosure, KeaneVCC’s partner KDK Fund owns shares of Ford. KeaneVCC has also recently written blog posts on the effects of the electric vehicle on the insurance, oil, and local taxing authority areas. You can find the link here.     

Electric and Driverless Vehicles (pt.2)

by Michael Keane

Electric and Driverless Cars  Part 2

Electric Vehicles

In a previous post, a couple of large issues that the transportation industry was outlined. In this article, the focus will be on how the energy, insurance and governmental taxing agencies will handle the growing use of electric vehicles. Will energy companies be able to pivot off of its reliance on vehicle gasoline for profit? Will insurance companies be able to handle the likely decreased premiums due to vehicles no longer needing protection against gas related incidents? Will taxing authorities be able to pivot off of the taxes received from gas?

Energy companies are in a very precarious position. They are finding that there is a glut of fossil fuel energy while at the same time a lessening of demand for it. A big and growing culprit of this is the expansion of the electric vehicle. With non-fossil sources of fuel Companies like Tesla, GM, BMW, and others have put in large resources to build out these vehicles. as alternative fueling grows, so does demand for the vehicles. This increased demand is bringing costs down into an area where the masses are able to participate.  

One possible rock to lean on during this time is the time period just as the automobile was becoming more and more popular. Energy companies faced a similar threat to their business as electric lights replaced oil in homes. The question becomes what is the switch they need to make. The larger companies should be able to absorb some of the trouble. But overall, margins are going to get squeezed.

In terms of insurance, there is one item that I can think of that should lessen premiums. That item is the removal of gas and oil (extremely flammable) from the vehicles. In an article by InsideEV’s (link here), information shows a large improvement when it comes to safety when comparing EV’s with standard vehicles. This could bring down the price of premiums.  One possible solution in the short term is to raise other parts of the monthly premium as the vehicles are generally more expensive and can be more of a steal target because of the newness of the segment.

Taxing authorities should already be figuring out solutions to this issue. The more electric vehicles that are registered in the state, the less revenue they will receive from taxes on gasoline. For example, in my home of Chicago, taxes on a gallon of gas are around $0.30 per gallon. I sure hope they are working on a plan that replaces this revenue. Because with more and more EV’s hitting Illinois roads, revenue is increasingly getting smaller and smaller. But there are alternatives like a flat annual tax on EV’s or an increase in taxes for electricity not generated by NFES. Also, promotion of these vehicles will increase the favorabel environmental effects which should offset some of the financial loss. There aren’t too many administrations who end of badly for making their area cleaner and healthier for their constituents. If you have or plan to buy and EV, reach out to your local office holders and remind them of the benefits for the area.

There are more than a few issues facing the oil, insurance, and taxing authority agencies when it comes to handling the increase of EV’s on the road. But there are ways to continue profitability and success while embracing the change. It is very important not to have blinders on or have your figurative head in the sand at this moment. Acknowledge what is, and plan and act however needed.  

Electric and Driverless Vehicles

Electric and Driverless Cars

By Michael Keane

There has been a large progressive move within the car industry in the last decade when it comes to power and ease of transporting. Both of these issues will have a major effect on energy (oil especially), insurance, and local governments  This series of articles will focus on the effects of the moves on these particular industries. It is very important that these industries get ahead of the situation to avoid trouble.

This blog post is the first in a series to cover this topic. It will briefly cover the topics and possible solutions with later posts going into more detail on each topic and solutions to that particular topic. Awareness of the issues at this point is paramount for all involved (industries, customers, etc.) so that nobody can claim ignorance for when a tipping point regarding organizational survival comes upon them. Per disclosure, KeaneVCC has clients who have investments in the car industry, software industry, communications industry, and a bond portfolio that includes local governmental municipal bonds.

At this point, the move to electric vehicles is rolling along well. This past month, Tesla introduced the Model 3. The company has reported that there have already been over 400,000 orders for the car, which indicates a new level of scalability. Nissan, GM, BMW, Toyota, Ford and others are also currently in the market with vehicles.  The prices of electric vehicles are showing up at affordable levels. Competition is growing in the industry and seems to be creating a ceiling on prices. The loss of gas revenue should be a clear red flag for the oil companies. Are they going to sit back with their heads in the sand or will they understand that progressive industries adapt? Government taxing authorities should also take notice as to what the effect will be for them.

To expand on the manner, the movement towards driverless cars is increasing. Leaders in the car, software, and and other industries are committing large amount of resources to this effort. At this point, driverless vehicles have racked up over 1 million miles in planned trips with varied levels of success. Ancillary industries are watching and planning carefully on the progress. Industries that should be paying particular attention are Insurance and local governments. Revenues for both will be affected heavily if driverless cars are adopted.  

**As always, this blog is to be read as opinion. Please do your due diligence before acting on any information read here.**