Marchionne attempts to square the circle of cost versus technology ownership

Fiat Chrysler Automobiles (FCA) and Google have recently announced a partnership to expand Google's self-driving test fleet. FCA and Google engineers will work together to integrate Google's self-driving technology into the all-new Chrysler Pacifica Hybrid. The two companies will co-locate in a facility in southeastern Michigan, United States to "accelerate the design, testing and manufacturing of the self-driving Chrysler Pacifica", according to an FCA press release and comments posted to Google's blog.

There are currently several strategies being employed as automakers move into the autonomous space. Apart from developing the technology on their own (including Ford's autonomous test fleet and Toyota's USD1 billion investments in the space), OEMs can also can leverage advancements being developed by Tier-1 suppliers. They can acquire start-up companies (like GM's acquisition of Cruise Automation), and they can partner with Google, and license its technologies. IHS expects different OEMs to approach the solution in different ways, and with this announcement, FCA is clearly signalling that it is likely to leverage a relationship with Google for access to the technology.

The announcement is interesting when looking at FCA's CEO Sergio Marchionne’s recent comments regarding who owns the technology in the automotive industry. In January, Marchionne warned the adoption of electric car technology risked continuing a process that he called “disintermediation”, where the primary development of new vehicle technologies are handled less by OEMs themselves and more by suppliers. The last decade has seen a gradual move of R&D activity from OEMs to suppliers, a trend that intensified following the 2008 financial crisis, when suppliers took the brunt of industry pain. Reorganisations and portfolio realignments in the intervening period have encouraged many suppliers to be stronger and more focused on maintaining a competitive advantage in specific product sectors.

Speaking to Financial Times in January, Marchionne said “If we start losing any of that […] we will not be able to hang on to any proprietary knowledge and control of that business […] we won’t be manufacturing the batteries. We won’t be manufacturing the electric motors that are part of that powertrain.” He went on to say that current carmakers retain primary control of making vehicles’ powertrains only.

However, this partnership is in line with Marchionne's views on the capital-intensive nature of the automotive industry with many OEMs working on essentially the same projects. FCA will look to partnerships for access to technology where it does not have either the resources or the expertise to develop on its own solution, as compared with developing in-house core competency. The approach is in contrast of several other automakers who are developing their own systems, or who will lag access to the technology because of lack of resources. For FCA, the project gives access to technology with less investment − though it is not indicated when (or if) this project would lead to specific projects for other vehicles in the FCA stable.

FCA's interest is expected to include not only access to the technology and engineering development, but also the opportunity to sell autonomous vehicles later, whether that proves out to be as a contract provider to Google or through its own dealer network. For FCA, the move has potential to get them closer  and faster to the technology, incurring less expense than would otherwise be impossible.

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