This Could Be Big for Fiat Stock
Sergio Marchionne, CEO of Fiat Chrysler Automobiles NV (NYSE:FCAU), recently reported that his company delivered sharply higher earnings. The results, which exceeded expectations, did not produce a matching response from Fiat Chrysler stock. Fiat’s debt overshadowed its performance, but Fiat stock’s future performance will receive a little financial “get-up and go” from Alphabet Inc (NASDAQ:GOOG).
During a conference call with analysts, Marchionne said that the group remained committed to reducing debt, maintaining its goal of getting below five billion euros in 2016.
Marchionne insists that the number of players in the sector will decline. New standards and new technologies require major investments, which few companies can tackle alone.
But Fiat has ambitious plans. Fiat Chrysler will likely continue to pursue a major partnership with the likes of General Motors, which already rejected the idea last year. Meanwhile, under the radar, Marchionne announced a more interesting alliance, which should boost Fiat’s market value considerably.
Indeed, Fiat could soon confirm the signing of a major deal with Alphabet, the former Google. Fiat will have access to Google’s autonomous driving and related technologies. It will use this technology in a forthcoming version of the Chrysler “Pacifica.” Fiat confirmed the advanced stage of the negotiations with Google to The Wall Street Journal. (Source: “Fiat Chrysler, Alphabet in Partnership Talks,” The Wall Street Journal, April 28, 2016.)
Marchionne, like many, has long understood that Fiat must remain open to new technology and innovation while focusing on its core. Rather than venture into IT and software, Fiat plans to build the actual vehicles, while Google develops the software to run them. So confident is Marchionne about Fiat’s strategy that he predicts Fiat could even take on Tesla Motors Inc (NASDAQ:TSLA) with a car to compete against the latter’s “Model 3.”
The reason is not that Fiat has the same technology; rather, Marchionne suggests Tesla’s Model 3 is too ambitious to be feasible. At an announced $35,000 starting price, the Fiat boss sees little room for profit margins: “If (Musk) can show me that the car will be profitable at that price, I will copy the formula, add the Italian design flair and get it to the market within 12 months,” stated Marchionne. (Source: “Fiat Chrysler CEO’s Just Challenged Tesla’s Elon Musk,” Fortune, April 15, 2016.)
Google is one of the leaders in developing self-driving (driverless) technology. Its proprietary software allows a car to “talk” to pedestrians, easing its adoption in urban areas. This past January, at the Consumer Electronics Show (CES) in Las Vegas, Google was supposed to have signed a deal with Ford Motor Company (NYSE:F). (Source: “Ford in talks with Google to build self-driving cars,” Automotive News, December 22, 2015.)
As it happens, rather than Ford, Google was negotiating with Fiat at CES and discussions between Fiat and Google have been ongoing for months. John Krafcik, a former Ford manager who now heads Google’s autonomous car division, and Marchionne started talking shortly after CES. The negotiations in recent weeks are said to be in the final stages. (Source: “Pacifica minivan focus of FCA-Google talks to build self-driving cars: Reports,” Windsor Star, April 28, 2016.)
Fiat is trying to grow and take advantage of new technologies with the lowest possible investment. It wants partners to help reduce production and development costs. Fiat Chrysler has long signaled its openness to discuss alliances with technology sector giants from Google to Apple. Given the current price of Fiat (FCAU) stock—and the fact it has been rising about two percent as the Google rumors continue—the company is heading for a new 52-week high, surpassing its current $10.92 share price.