Initially announced in May 2016, Fiat Chrysler (FCAU) has been working with Alphabet/Waymo (NASDAQ:GOOG) (GOOGL) in advancing autonomous vehicle development. This has, thus far, looked as if FCA was the junior and interchangeable partner in this cooperation, simply supplying Alphabet/Waymo with a few hundred Chrysler Pacifica hybrid minivans for conversion. Still, from that announcement until the product was described by Alphabet-Waymo in full bloom, FCA stock doubled from $5.50 to $11 (May-June 2016 to January 2017).
To be sure, Alphabet’s Waymo’s explicit strategy is to be open to working with as many automakers as possible, trying to become the “Intel (INTC) inside” to the automotive industry. It has already announced that it is working with Honda (NYSE:HMC) to develop future product along these lines: Honda and Alphabet Inc.’s Waymo Enter Discussions on Technical Collaboration of Fully Self-driving Automobile Technology.
A key reason why I believe that we have not yet seen the end of this FCA-Alphabet-Waymo cooperative story is that I stumbled over a set of cars being driven in public – and then parking briefly at a gasoline station – while conducting some sort of testing. I can tell you that this was not in California, Michigan or Arizona. I can also tell you that all of these Chrysler Pacifica minivans had Michigan license plates – but again, this sighting did not take place in Michigan.
One of these Chrysler Pacificas was a Waymo-equipped car. It was just like the ones Waymo has been driving in public for approximately a year, which has already been seen and discussed extensively in the media as well as by Waymo itself at the Detroit Auto Show last January.
However, this convoy consisted of other Pacificas and other FCA vehicles (including RAM pickup truck support vehicle and seemingly purely civilian Pacifica support vehicle), and included multiple other Pacifica test cars as well. These additional Pacifica test cars were both the plug-in hybrid kind as well as the gasoline-only non-hybrid kind.
These Chrysler Pacifica minivan test vehicles – a hybrid one, which was following immediately behind the fully decked-out Waymo sensor version, and a gasoline-only one – had smaller sensors along the roof. Instead of that giant “ski rack” or “Christmas tree” sitting on top, these sensors were fairly discreet – but still visible to the trained eye.
I did not get the best look at all sides of these cars for a long period of time, and I was doing my best to not get noticed anyways. I did see them mostly from the back and the side, from about 5-10 yards away – before, during and after a stop at the gasoline station.
These cars looked to me like the engineers had minimized sensor equipment, but one cannot be completely sure, because the whole purpose of such minimization is to make the sensors (almost) invisible as they would be hidden behind body surfaces. Some were not completely hidden, others could have been.
So why are these not simply Alphabet-Waymo cars, used to test a next-gen Alphabet-Waymo system without any help from FCA?
For starters, these cars all had Michigan license plates and were not in a place where Alphabet-Waymo normally is seen testing cars. Again, this wasn’t in California, Arizona or Michigan.
Secondly, the convoy of support vehicles were exclusively FCA vehicles. If this test was not being conducted by FCA, why wouldn’t these vans and trucks be made by Ford (F), General Motors (GM), Daimler/Mercedes or some other automaker, perhaps Toyota (TM) or Nissan? Not impossible, but extremely unlikely.
There are of course an almost infinite set of other possibilities, even if they are somewhere between barely less likely and extremely less likely. Here are two examples:
FCA and Alphabet-Waymo are simply testing nothing new, but doing some special test of already deployed equipment in a new geography. Possible, but given the circumstances probably less likely.
FCA has borrowed an Alphabet-Waymo autonomous minivan in order to work with another company such as Apple (AAPL), Avis, Hertz or Uber in their autonomous car efforts. Possible, but given the circumstances probably very unlikely.
Besides, when it comes to Apple, it is at least having a very public meeting with another legendary electric car designer, Henrik Fisker, at its headquarters in Cupertino, CA: Why Is Apple Checking Out Fisker’s Emotion? Not that such an exploration would be mutually exclusive. Over the last three years, it’s been well reported how Apple met with both Magna and BMW to discuss efforts in next-generation automotive technology and manufacturing techniques and arrangements. Apple has also used both FCA and Ford test vehicles, including for Apple mapping purposes.
No, in this case as well as in many others, it is by far the most logical and realistic to analyze what I saw using Occam’s Razor: It has the highest probability of being what it seemed to be: FCA traveling, either alone or with Alphabet-Waymo staff joined in the cars (some of the Chrysler Pacifica minivans had three people in them) for the purpose of evaluating next-generation sensors and other equipment necessary for autonomous vehicles, including testing the performance for a very long cross-country exercise in autonomy.
Such next-generation sensors would be a lot smaller than the ones Alphabet-Waymo-FCA showed and put into traffic during the last year. This is of course natural and would be only a variant of Moore’s Law, where computing equipment of almost all types shrink by about half every 18 months.
What does this mean for the companies involved?
For FCA: This would mean that FCA’s status as Alphabet’s first and preferred vehicle partner may remain intact for a second-generation vehicle type, again based on the Chrysler Pacifica hybrid but with improved and smaller sensors.
For Alphabet-Waymo: This would mean that Alphabet-Waymo has found the relationship with FCA to be fruitful, as Alphabet-Waymo, like the most eligible bride in the village, could pick almost any partner for autonomous car development.
For Tesla (TSLA): This would mean that a formidable competitor is taking root beyond what Alphabet-Waymo disclosed at the Detroit Auto Show in January, and that it will not stop with the vehicle that’s been seen testing primarily nearby Waymo’s headquarters in the recent months. Something more impressive appears just around the corner.
For the other automakers: Well, I’m lumping in so many players in this category that of course the comment must be a bit general. What it means is that whether the automaker is primarily focused on internal development (Mercedes, Nissan, GM etc) or whether it is also partnering with Alphabet-Waymo (Honda), it is clear that nobody will be able to rest as the FCA-Alphabet-Waymo partnership will likely be taken to the next level within only months from now. FCA looks to be working with Alphabet-Waymo to raise the bar on autonomous driving yet again – soon.
Prediction: What will FCA do?
Based on the composition of vehicles, what they had attached to them in terms of sensors, and where they appear to be going when seen testing, I believe we could be only a few short months away from FCA being able to announce a next-generation step forward in autonomous car development. Such a step forward looks likely to continue to involve Alphabet-Waymo, as it seeks to go to market in the coming years with a better product than any that Tesla, General Motors, Nissan, Mercedes, Ford, Volkswagen-Audi, Volvo, Toyota and Hyundai will be able to bring to market in that time frame. That’s clearly their objective, and it’s not clear to me that the market is understanding this.
I don’t think this is 7-12 months away, but closer to just a few short months. And it may involve a cross-country trip, not too different from what another much more media-saturated company has in mind for the fourth quarter of 2017.
Impact on FCA’s valuation: Should be positive.
FCA stock has been under a severe cloud since early-mid January, when the EPA publicly raised the diesel issue for a Jeep and RAM pickup truck model. The stock has hovered near the $11 level. For the stock to do significantly higher, the market will likely want to see certainty as to the resolution of the U.S. diesel dispute.
However, if and when that happens, I believe that an advancement in terms of FCA’s autonomous driving product – a next-gen Chrysler Pacifica hybrid – could be a major reason to buy this stock. For a company this large, with this profitability, this growth, and this balance sheet, the current valuation is a joke – as long as the diesel issue is resolved favorably, and especially with the kind of autonomous driving advancement that I am hereby predicting to be only a few short months away.