Even a whiff of a rumor that Apple Inc. (NASDAQ:AAPL) was considering buying Ford Motor Company (NYSE:F) would light a huge fire under Ford stock.
If you’re a Ford shareholder, it’s a nice dream to hold dear, but for now, it’s nothing but a fantasy. However, that could change in the next 12-24 months as both companies chart a course toward a world with autonomous driving systems and self-driving cars.
Two things brought me to my epiphany that Apple should buy Ford.
Apple’s Autonomous Driving Plans
First, let me just say that I’m not suggesting Apple must buy Ford to be a player in self-driving cars. That’s simply not the case.
However, once Apple decided to focus on developing the technology behind autonomous driving rather than building a self-driving car, every automobile manufacturer suddenly became a potential partner — Ford included.
“Apple has long been the wild card in the autonomous car game,” said Michelle Krebs, executive analyst for Autotrader. “Now we know Apple is all in, and, judging by its track record in other areas, it will be a force. Apple’s strategy to commercialize autonomous vehicles remains to be seen — will they partner and sell the technology or actually develop their own vehicles?”
The truth is, while Apple has committed significant resources to Project Titan since 2014, it still hasn’t fully green-lighted the commercial development of the autonomous driving system technology. That’s expected later in 2017.
Buying Ford would give it several key ingredients that it doesn’t currently have, and would be expensive to develop.
1. Actual vehicles, something it’s already said it won’t do on its own.
2. A dealership network to sell cars.
3. A robust and healthy Ford Credit which generated $1.8 billion in pre-tax profit in 2016 from $10.3 billion in revenue.
I could see Apple taking some of its flagship stores around the world — I was just in downtown Boston and the store there is three stories — and turning them into showrooms much like Tesla Inc (NASDAQ:TSLA). Only, they’d be better because, in addition to selling self-driving iCar’s, consumers would get the usual array of devices, products, accessories and services already available in the company’s retail stores.
Also, I can imagine Apple developing an online shopping site where you could build and buy the car you want, then have it delivered to your home or the nearest Ford dealership.
I get that Ford’s manufacturing currently isn’t designed to handle such customization, at least not without months of lead time, but it could give Apple a big head start in autonomous driving.
Ford Is Playing Catch-Up
InvestorPlace’s Vince Martin said it best in his June 22 article about Ford stock being expensive at $11.
“Ford already seems well behind in self-driving cars. With competition including Apple and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) plus other major car manufacturers, Ford seems likely to struggle to narrow that gap. Honda Motor Co Ltd (ADR) (NYSE:HMC) already has said it will have automated freeway driving by 2020, and full self-driving by 2025.”
Jim Hackett, who replaced former CEO Mark Fields, came over from Ford’s Mobility division. If anyone can recognize what a company like Apple could do to advance its timelines in autonomous driving, he’s the guy.
That said, I see Hackett as a temporary fix until management can find a real innovator (Apple fits the description) to fill the top job.
However, as a seasoned CEO of a Fortune 500 company, he’d be the perfect person to broker a deal with Apple. He understands the technology involved in self-driving cars and would be able to deliver the right price for those assets in addition to the rest of Ford’s assets.
If you own Ford stock, you understand how much of a hill it has to climb to remain competitive in a rapidly changing automotive industry.
Bottom Line on Ford Stock
In April, I pondered whether Ford could buy Tesla. Since then, Ford stock has gone sideways while Tesla is up 16%. That argument appears to be entirely off the table as a Tesla buyout would be too expensive for Detroit’s No. 2 automaker.
Apple certainly has enough free cash flow to make the deal happen, and while there are compelling reasons to make overtures to Ford, I don’t think it wants the baggage that comes with a legacy auto manufacturer.
Apple shareholders have become accustomed to those juicy margins. Ford would lower them significantly.
Unfortunately for Ford, it needs Apple, but Apple doesn’t need it.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
