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John Engle
John Engle
Articles (529) 

Toyota Hitches Itself to SoftBank in Self-Driving Race

The Japanese companies make common cause with an expanding joint venture

April 06, 2019 | About:

Despite being a decade or more away from actually hitting roads en masse, self-driving cars are all the rage in automotive circles. Several automakers have their own autonomous vehicle programs, while others have formed partnerships to co-develop the sophisticated technology. Even some of the big tech companies, usually far removed from such a capital-intensive industry, have embarked on their own efforts to win the race to the first road-legal self-driving car.

In a recent research note, we discussed the efforts by Toyota Motor Corp. (TM) to catch up to the leaders in autonomous driving. The Japanese auto giant continues to forge ahead, building partnerships and expanding the scope of its efforts.

The SoftBank connection

In our last note on Toyota’s autonomous vehicle program, we discussed its internal efforts to build out its capabilities to compete directly with current market leaders. But this is only part of the story.

In addition to its internal efforts, Toyota has also inked a massive partnership with another Japanese company, SoftBank (TSE:9434). Monet Technologies, as their mobility joint venture is known, was formed in October 2018. The Japanese companies infused $17.5 million into the venture to start, with plans to invest at least five times that amount over the relative near term.

More partners line up

Toyota’s SoftBank partnership has clearly raised eyebrows among other automakers. Several that have been lagging on autonomy have now thrown in their lot with Monet. Last month, it was announced that Honda Motors (TSE:7267) and Hino, a truck maker, would be taking stakes in Monet. This brings two more Japanese players into Toyota’s camp.

The logic is obvious, as Monet CEO Junichi Miyakawa has pointed out:

“The more automakers we can get to join the partnership, the smarter we can make our platform.”

Toyota and SoftBank have a lot of distance to cover. The more partners Monet has, the more miles it can run through its system and more resources it can bring to bear.

Looking beyond Monet

The partnership with SoftBank is at the heart of Toyota autonomous driving efforts, but it extends beyond Monet itself, as SoftBank’s Masayoshi Son said at the time of the joint venture’s launch:

“The mobility company is just the first step. There will be a second and third and I hope that the connection will deepen going forward.”

The extent to which the partnership has deepened became clear in March, when the two companies were reportedly seeking to invest $1 billion in Uber Technologies’ autonomous vehicle program. Uber is considered one of the major contenders in self-driving cars, so the move signals considerable confidence. It also gives Toyota and SoftBank access to this program, furthering their chances of being on the winning team when things shake out eventually.

Playing catch up

Toyota’s decision to partner with SoftBank appears wise. It is still playing catch-up with the leading players in the field of autonomy. Indeed, the field of leaders has been thinning out According to Navigant’slatest ranking of self-driving programs, only three companies can claim to be “leaders” in the technology, down from eight in their previous ranking.

Alphabet Inc. (NASDAQ:GOOG)'s Waymo holds a slight lead over General Motors (NYSE:GM) as of the end of 2018. Ford (NYSE:F) is the only other company to float above second-tier status.

Toyota is currently ranked in the second-highest tier, as is Uber (which moved up from third-tier since Navigant’s last ranking). To make it into the top tier of contenders, Toyota has a lot of ground to cover.

Verdict

Toyota’s strategy of combining a robust internal program with an expanding partnership with SoftBank looks wise in light of its current status and the resources of the leading players.

With years to go in this race, it is still anyone’s game. But the fact that the top echelon has been thinning out is indicative of diverging fortunes. Toyota appears to be playing it smart so far, but time will tell.

Disclosure: No positions.

About the author:

John Engle
John Engle is president of Almington Capital Merchant Bankers and chief investment officer of the Cannabis Capital Group. John specializes in value and special situation strategies. He holds a bachelor's degree in economics from Trinity College Dublin, a diploma in finance from the London School of Economics and an MBA from the University of Oxford.

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