Why Google's Fiat Chrysler Partnership Should Matter to Investors

By Markets Fool.com


Image source: Alphabet.

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Last year, the tech buzzword du jour might have beenthe "Internet of Things." If the first few months of 2016 are any indicator, self-driving cars seem to be in pole position for this year's new, new thing.

Recently, tech colossus Alphabet Inc.'s Google announced a partnership with automaker Fiat Chrysler to produce an inevitable byproduct of the coming shift to autonomous vehicles -- self-driving minivans.

Soccer moms worldwide, rejoice!

Chrysler plus Google
In a press release last week, Fiat Chrysler announced it had reached an agreement with Google to expand Google's self-driving test program to include the Chrysler Pacifica minivan. The deal is significant for investors as it marks the first time Google has agreed to directly collaborate in its self-driving vehicle efforts with a major automobile manufacturer. Specifically, Google and Fiat Chrysler will jointly design and outfit roughly 100 Chrysler Pacifica minivans with Google's proprietary self-driving technology, which should effectively double the company's current self-driving vehicle fleet.

According to John Krafcik, the CEO of Google's Self-Driving Car Project: "The opportunity to work closely with FCA [Fiat Chrysler Automobiles] engineers will accelerate our efforts to develop a fully self-driving car that will make our roads safer and bring everyday destinations within reach for those who cannot drive."

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Potential safety benefits have been heavily emphasized when automakers and tech companies argue the case for autonomous vehicles (AVs), and this announcement is no different. The press release notes that roughly 33,000 car-accident deaths occur in the U.S. each year, an estimated 94% of which happen because of human error, andself-driving vehicles could prevent some of these deaths.

Image source: Fiat Chrysler.

To help the collaborative effort, both Google and Fiat Chrysler will relocate their respective engineering teams to a presently undisclosed location in southeastern Michigan, which, for those without a map handy,is roughly the location of Detroit.

Still figuring it out
Investors cheered late last month when several well-regarded tech websites published articles claiming Alphabet was "close" to spinning out its self-driving cars from X (its secret project development arm), into a stand-alone piece of the company's "Other Bets" reporting segment.

The same reports suggest that divisions classified as stand-alone Other Bets are expected to be on track to generate revenue, the implication being that Google's Self-Driving Car Projectmight also meet this criterion. I don't necessarily buy this line of reasoning. Alphabet has publicly stated that, as of the end of 2015, only three of its (at least) seven Other Bets generate meaningful revenue, though the number of total Other Bets could be considerably higher.

From an analyst's perspective, things are less clear when discussing the financial implications for the companies involved. Case in point: both Alphabet, and Chinese search power Baidu, which also has big plansin AVs, have publicly statedthey have no idea how their eventual AV business models will function.

At this point, investors are left to presume, as the companies themselves appear to be doing, that there's money to be made in self-driving cars, even if no one can pinpoint the exact method of monetization yet.

Though it doesn't necessarily inspire a lot of confidence, this assumption seems fair. Leading global consultancy Boston Consulting Group estimates the self-driving automobile market will create a $42 billion economic opportunity by 2025. More broadly, the auto industry generates trillions of dollars in revenue every year.

So while the Google-Fiat Chrysler partnership should help accelerate both companies' AV development efforts, we could still be a way off from seeing the potential financial impact from tech's next big thing.

The article Why Google's Fiat Chrysler Partnership Should Matter to Investors originally appeared on Fool.com.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fools board of directors. Andrew Tonner owns shares of Baidu. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.