The Ford-Google deal will equip vehicles with many of Google’s services, including using Google Cloud to create a system to send customers messages about maintenance opportunities. Morgan Stanley believes that the sale of monthly subscriptions to such services could bring Ford $ 5 billion in revenue a year.
The new partnership between the largest American automaker Ford Motor (F) and one of the world’s leading cloud computing leaders Google (GOOGL, GOOG) could create a large synergy and create a new revenue stream for Ford, according to Adam Jonas, automotive analyst at Morgan Stanley.
The companies announced their six-year partnership earlier this week and Ford named Google Cloud as its preferred cloud provider. In pursuit of its digital transformation goal, Ford will leverage Google’s data analytics, artificial intelligence (AI) and machine learning (ML) services in areas such as product development modernization, manufacturing management and supply chain management.
According to the press release, “Beginning in 2023, millions of future Ford and Lincoln vehicles at all price points will run Android with built-in Google apps and services.”
In particular, the new Ford vehicles will be equipped with the Google Assistant voice assistant, Google Maps and access to Google Play applications. In addition, the in-car Android operating system will allow Ford and third-party developers to build their own apps, Google said, and the companies said they will implement data-driven business models that will bring real-time notifications to customers, such as preventive maintenance requests.
Mobile phone vendors have been updating products remotely for years, but automakers (other than Tesla) have been slow to adopt such methods.
Ford CEO Jim Farley said he is trying to transform the automaker from focusing on a single deal – selling a car – to finding ways to maintain a steady stream of revenue from its customers.
“Our growth as a company will come from more than just auto sales,” Farley said in an interview shortly before becoming CEO on Oct. 1, “it will also come from services.”
Morgan Stanley analyst Adam Jonas said the prospect of monthly subscriptions for advanced features in Ford vehicles could bring the automaker huge revenues and profits. The analyst estimates that the number of Ford cars around the world is about 75 million, and if each of them generates $ 10 per month in the form of a subscription, it will bring $ 9 billion in revenue. If the margin is 55%, the company will make a profit of $ 5 billion per year.
A new source of income of this magnitude could double Ford’s $ 43 billion market cap and spike the company’s stock to $ 25 from about $ 11 now.
Jonas believes Ford’s partnership with Google for cloud services and the rollout of the Android operating system to millions of vehicles is a step in the right direction, as the industry is “in the early stages of a deep transition to recurring revenue and recurring business models.”
Ford shares, which are up 62.3% in the past six months, are up 4.6% from Monday to Wednesday’s time of writing.