Recent studies and forecasts are predicting that autonomous vehicles will account for a majority of all vehicles on the roads in the not-so-distant future and the Ford Motor Company (NYSE:F) is betting big that those predictions are correct.
Many of the companies involved in research and development of autonomous vehicles focus primarily on moving passengers. Ford is developing its own driverless passenger vehicles, as well as building its own autonomous vehicle platform for the transportation of cargo.
In addition to being a much bigger market than passenger vehicles, the cargo transportation market might have lower barriers to entry and it might be more profitable. While purchase decisions are often made based on emotion and subjective preferences, the target market for cargo transportation vehicles are companies and businesses that are willing to invest in the new technology if they can reap efficiencies and cost reductions.
While Ford still intends to introduce fully autonomous passenger vehicles by 2021, the company sees the transportation segment as an opportunity to expand its revenue base and hedge against any potential downturns in the automotive market. McKinsey & Company released a study in October 2016 that stated autonomous vehicles will handle up to 80% of all consumer parcel deliveries in the next decade. Another study by Strategy Analytics also claims that the autonomous vehicles market could generate up to $3 billion in revenue annually by 2050.
Ford CEO Jim Hackett sees the new transportation platform especially beneficial to small businesses. In an interview with Business Insider, Hackett said, “For small businesses, this is a big advantage. They have been suffering. In retail right now, scale drives out the small retailers. Logistics equalizes some of that.”
While some companies work on automating the highway segment of cargo transportation, Ford’s platform also tackles the challenges of local deliveries and could be among the first to offer full-scale delivery solutions that businesses can use without the need for large capital investments in their own transportation networks.
Ford needs a new source of reliable revenue and earnings if the company wants to keep up with the financial performance of its peers. During trading on February 8, 2018, Ford Motor Company’s share price fell 3.07% from $10.79 to its closing price of $10.43. Additionally, the company’s share price is down 16.2% over the past 12 months.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.