Companies Focus – The Global 11 Automakers - Q2 2014 Results (thus far).

As promised, as a successive adjunct to previous detailing of Q1 positioning, below are the summaries and investment-auto-motives analysis of recently availed Q2 reports.

Provided relative to the respective release dates of:

Herein -

Daimler: 23.07.2014

GM: 24.07.2014

Ford: 24.07.2014

Hyundai 24.07.2014

To Come -

Honda 29.07.2014

Renault 29.07.2014
Peugeot 30.07.2014

FIAT-Chrysler 30.07.2014

Volkswagen 31.07.2014

BMW 05.08.2014

Toyota 05.08.2014

[NB all too typically reporting inconsistencies exist at the line-item level between IR releases, executive announcements (indeed sometimes within) and chart presentations. An infernal reality which obviously clouds exactitude; often seemingly deliberately so.

Thus investment-auto-motives endeavours to pin-point the most convincing figures and statements].

Daimler -

Unit Sales 628,900 vehicles [+4%] (Cars,Vans, Buses, Trucks, Financial Services]

Revenue €31.5bn (from €29.7bn) [+4% yoy]

EBIT €2.5bn (from €2.2 billion) [+12% yoy] exc special items

Net Income €2.2 billion (from €4.6 billion) ['normalised' post €3.2bn EADS sale]

EPS (ord) €1.97 (from €2.65)

Net Liquidity €12.7bn (from €11.3bn) [YE2013]

Operating C-F €1.45bn [calculated as EBIT – (H1 CapEx / 2)]

Free Cash Flow €0.8bn (from €3.5bn) ['normalised' down by €2.2bn by EADS sale]

Headlines:

- Non-cash EBIT effect from Tesla equity hedge instrument

- Sale of half interest in Rolls Royce Power Systems (to RRPS)

- Manufacturing JV with Renault-Nissan in Mexico. (Extending technologies and package development relationship across premium (ie Merc-Infiniti), compact size and micro and citycar (Smart-Twingo) segments.

- “MercedesMe” city-centre brand-store roll-out.

- H2 launch of C-class and Smart (2 door and lwb 4 door)

By Division:

- Mercedes Cars: sales +3% yoy globally, USA +7%, China +13%, pan-European gains, with high margin new S-class providing boost to 7.9% Ros (vs 6.4 yoy). Costs included new model launches, technology research plant capacity expansion and FX headwinds of strong Euro. Revenue €17.8bn (+9%) and EBIT €1.41bn (+35%)

-Vans: sales +9% yoy globally. Revenue €2.5bn (+2%) and EBIT €0.242bn (+18.6%) with RoS of 9.7% (vs 8.4%). Strong demand in NAFTA and Europe countered by incurred launch costs of Vito and V-class models and € FX effects. EBIT promoted by €61m gain from reversal of impairment charge relating to Fujian-Benz JV of China.

- Trucks: sales +2% yoy globally, NAFTA +18%, Europe -7% (due to previous pull-forward sales of Euro VI emmisions), Mercosaur generally down but Brazil market-share up. Revenue flat yoy at €8bn, EBIT €0.455bn (+5%), Ros 5.7% (vs 5.4%). Tailwinds included freduced warranty costs.

- Buses: sales +2% yoy globally (for both bodied and chassis-cab types). Revenue €1bn (+11%), EBIT €0.05bn (+85%), RoS of 4.8% (vs 2.9%). EBIT gained from greater model mix of fully built ex-factory buses and general operational efficiency efforts.

-Financial Services: Revenues €11.5bn (+12%) with contract volumes +5% to €88bn, EBIT €0.336bn (+5.3%). This division beneficiary of the growth in Tesla shareholding by Daimler.

Announced Outlook:

“Confirmed outlook for full-year: significant growth anticipated in unit sales, revenue and EBIT from ongoing business...We are growing profitably, our strategy is bearing fruit. We are steadily continuing along our path. Supported by our product offensive and the successful continuation of our efficiency programs. FY2014 expected as significantly better YoY.

Analysis:

The company previously suffered more than German peers (VW and BMW) up to late 2013 or so, given the its comparatively thinner segmental coverage directed at premium (M-B) and niche (Smart). Furthermore, the vitally important fact that the unusual cyclical dynamics of the pan-global contraction scuppered its typically counter-cyclical business model: spanning cars, vans, trucks and buses. Now though “later in the day” compared to previous recessionary rebounds, Daimler has started to fire upon all cylinders across all business divisions, gaining from the generally rising global economic tide (tho' Latin America still awaits).

The less conservative, sportier styling previously introduced since original CLS and with AMG influence means that M-B now sits squarely between the still retained teutonic of Audi and the more aggressive BMW. To this end M-B has achieved its ambition in attracting new popularity. Record M-B car sales highlight the migratory trend for new customers drawn from German brands and elsewhere., aswell as all new premium buyers drawn directly. 

However, Smart still poses a dilemma, specifically that of pricing strategy. The new models have indeed matured but they do not constitute a premium comparison to equal Mini, as Daimler states. Though priced accordingly lower than Mini, given smaller product dimensions and performance capability, so as to maintain notionally unique market space, the high expected retail price and small price gap between new 2 and lwb 4 door models means that whilst seemingly making sense on paper (to energise Smart's overall business case, not compete head-on with Twingo, and direct clients to the large car for brand ladder loyalty) the real world market dynamics look likely to scupper that theory (so missing projected lifetime volumes). 

The attempts to cross-breed its premium cars appeal into business and leisure vans continues as the space efficient 'white collar' exec-MPV contiues to gain broader appeal amongst specific users types after the success of the London tailored Vito Black Cab and similar V-class elsewhere. 

The smaller, but still relatively heavy payload Citan, has extended the range of vans. Such moves reflect not only the need to enter new segments, but also seemingly a new “over-engineering” ethos; presumably to regain its partially lost perceived quality lead in the 2000s; so feeding into residuals and new model pricing elasticity. Furthermore since 2010 the large Sprinter model has been brought back into the Daimler fold in the USA and Canada, re-re-badged as Freightliner (after contract manufacture for Dodge). Thus it appears the oft overlooked issue of vans – their strong profit margins given lesser trim/feature content - is again in the spotlight as a prime contributor to Daimler's overall corporate performance, even if over-shadowed by the Cars division's own strong sales improvements. 

Whilst the Euro VI regulations partly advanced and partly retarded the timing of European truck purchases, crating a Euro-vacuum in H1, now that the US economy appears in steady growth mode, Daimler's Freightliner (and other brands) truck division will be adding stronger income.

In short it appears that as of today – though by historical standards belatedly – Daimler is at last hitting its stride; assisted by its leaner structure since the disposal of EADS interests.

GM -

Unit Sales 1.5m GM globally / 2.5m inc China JVs

Revenue $39.6bn (+1.3% yoy)

EBIT (adj) $1.4bn (-20%)

Net Income $-0.5bn (-140%)

EPS (ord) $0.11 (-85%)

Net Liquidity $20.9bn

Operating C-F $-0.3bn (EBIT - $1.7bn Capex)

Free Cash Flow (adj) $1.9 (-27%)

Headlines:

- continued strong N. American sales

- average sales price up $3,000 (model mix effect)

- countered by increasing incentive offers in Q2

- heavily undermined by substantial compensatory recall costs

- 22m vehicle in Q2 of 29m to date,

- $1.2bn recall charge for Q2 ((plus $1.4bn in Q1)

- issue affects rental car company fleet demand

- record China deliveries

- improved market-share across Europe

- S. America seeing “core improvement”

By Division:

Geographically – GMNA revenue $25.7bn (+10%), EBIT (adj) $1.4bn (-30%) [$1bn recall charge], GME revenue $6bn (+7%), EBIT (adj) $-0.3bn (-200%), GMIO revenue $3.6bn (+12.5%), EBIT (adj) $0.3bn (+200%), GMSA revenue $3.2bn (+6.6%), EBIT (adj) $-0.1bn (-200%), GM Financial revenue $1.1bn, EBIT (adj) $0.3bn (flat)

Outlook:

GM views the majority of the ignition problem recall as having been absorbed in H1 2014, though a further $0.874bn may be the cost of recalls over the next decade for vehicle on the road today (presumably then maintaining a cash reserve of 87.4m per year for possible additional costs).

Analysis:

GM's emergence from Chapter 11 saw the new entity competitively placed well ahead of the VM crowd, able to gain from the then magic mix of N. American economic green shoots and little laden with the financial corporate legacy baggage that affects nearly all auto-makers. Though thereafter because of the previously faltering EM economic picture, and reactionary nature of the S&P 500 dynamic of American exposure to world markets, its share price was dragged well below its initial IPO price, the speedy progress of US re-strengthening allowed GM to take full advantage in recent years, seeing its sales and profit performance rise to new levels as domestic and international peers continued to struggle.

Such unhindered GM advancement has been seen in its p/e valuation level, near 19x/20x of late as often less sector informed investors – often institutionals (placing a certain level of monthly accrued client funds into supposed 'safe bets' – failed to recognise the true vehicle market dynamics behind the corporate rhetoric, and specifically GM's true competitive capabilities as its counterparts re-gained strength across N. America, China, Europe and elsewhere. Critically – well recognised by investment-auto-motives - given the company's historic major share of the US marketplace, even though corporate GM was reborn, the new entity would be much reliant upon replacement sales amongst its old pre-Chapter 11 customer base: from fleets to rental companies to SME's to private buyers; typically patriotic and loyal to GM brands. This a wide spectrum of buyers who themselves had been forced to defer new purchases, and so continue to run older vehicles, given the effects of the financial crisis.

The announced recall of 29m vehicles primarily centred around various ignition key / barrel faults the possible consequences of which are very concerning, and span back over a decade and seemingly affect all vehicle types. Having seen the new GM 'go gang-busters' since rebirth, yet recognising that during the previous 2000s decade product quality levels had demised (as GM sought to appease a largely domestic investor base comparing “smoke-stack” to “dotcom returns”), it was considered likely by investment-auto-motives, that a very widespread product quality issue might eventually arise given the inevitable flash-point of enormous scale volumes undergoing ongoing cost-down engineering exercises on ”invisible” components and those common items with apparent commodity functionality.

The immediate H1 toll of the recalls is plain to see upon the (herein unfortunately phrased) Q2 key figures, with as seen, the expectation of lower remedial costs over the coming years.

There is a silver-lining however.

That is the near fact that GM ostensibly has a captive replacement audience and market. Various factors interplay to effectively maintain much of its historical customer-base. As recalled vehicles are brought into dealerships, so sales-people will inevitably convince those still paying 3, 5 and 7 year contracts that the time is right to part-exchange old “faulty” vehicles for all new. This exercise will be promoted by the fact that any migratory (away from GM) will invariably find that a competitor dealer will pay only a poor exchange value for the traded-in 'faulty' vehicle, given that it will cost the dealer the price of recall repair (even if “at trade” cost) and will inevitably be required to affix a lower forecourt re-sale price given the model's now engrained reputation and the fact that the the GM vehicle is being sold by a foreign branded dealer. GM dealers however will be tempted to offer improved part-exchange values as part of their own incentive packages, will be able to retro-fit new ignition barrels and other necessary parts quickly on incoming vehicles and command higher re-sale values given that the cars are sold by official dealers.

However, this is a drawn-out process, which though no doubt adroitly scheduled by GM, is still reliant upon consumer behaviour patterns; so more a case of steady replacement flow rather than stampeding sales over Q3 and Q4.

Thus as GM presently suffers from exceptional recall costs, with immediate and short-term stock-price, the 2015 mid-term appears much improved.

Ford -

Unit Sales 1.66m (down 17k yoy)

Revenue $37.4bn (down $0.5bn)

EBIT $2.6bn (down $0.044bn)

Net Income $1.63bn (down $0.2bn)

EPS (ord) $0.32 (up $0.02)

Net Liquidity $10.4bn

Operating C-F $2.6bn

Free Cash Flow $0.6bn

Headlines:

- all geographies profitable except S.America (first European profit in 3 years)

- independent US product quality survey gains (JD Power)

- new Escort model and Lincoln launch in China

- record China deliveries

- started Transit van production in Kansas City

- new engine plant in Brazil

- agreements with German works council on (overhead sensitive) Fiesta

- share repurchase programme

By Division:

- Automotive: wholesale sales contracted by -1% yoy, revenues $35.3bn (vs $36bn) , EBIT $2.17bn (improved $0.66bn yoy and $1.25bn qoq), operating margin 6.6% (vs 6.4%). Profit drags from S. American division ($-0.295bn) and 'Other Automotive' aspects, primarily net interest expenses.

Geographically: N. America wholesales down -5%, revenues down -1.5%, operating margin +1%, EBIT +3.4%. S. America wholesales down -22%, revenues down -33%, operating margin down -19%, PaT down -300%. Europe wholesales flat, revenue up +10%, operating margin up 4.6% (to 0.2% profit, from previous loss), PaT up 105% (to $14m profit, from previous loss). Middle East/Africa wholesales down -5.7%, revenues down -8.3%, operating margin up +80%, Pat up +77%. Asia-Pacific wholesales up +20%, revenues up +7.4%, operating margin up 0.6% (to 5.5%), PaT up +22%

- Financial Services: EBIT $0.429bn (down $0.022bn yoy and $0.033bn qoq)

Outlook:

Re-confirms FY automotive revenue, EBIT of $7-8bn, and operating margin, with improving guidance on free cash flow. This gained from global growth of 2.5-3% with improved N. America at 2% (after weather induced slow Q1), S. America still stagnant, Europe with 1% growth (UK at 2.5-3%), Chin's soft landing at 7.5% and India improving beyond present 5% given election result.

Analysis:

Compared to the level of external governmental assistance and new ownership assistance of its Detroit peers, Ford has been forced to apply commercial and industrial logic more coherently so as to emerge from the after-effects of the 2008 crisis.

In historically typical 'Fordian' manner, it has used the opportunity of corporate metamorphosis to try and gain greater competitive technical and so customer perception advantage via the deployment of smaller capacity engines and advanced aluminium materials. The similarly surprising and unsurprising fact was that this has been most notably directed at the F-series pick-up truck, before presumable application on cars. This undoubtedly done because the it maintains F-series' own 'built tough' advertising distinction (with “military grade”, yet the high margins and scale volumes of America's #1 pick-up allow the procurement costs of the more expansive material (than steel) to be more easily absorbed into the new F-series business case given the near assurance of relatively predictable through life sales volumes.

Although Ford has stated that it seeks to remove itself from lower margin fleet and rental company sales, the fact that GM products have been tainted by the recall, means that Ford has greater opportunity to provide the (F-series induced) perception of technically advanced products to rental companies, so giving them an 'added value' appeal to their customers. (Serendipity saw the UK arm of Enterprise Car Rental highlight the transatlantic spelling of “aluminium” as its advertising ploy”).

With GM product quality now questioned by private and corporate buyers, compared to the apparent hi-tech appeal of Ford's far better aesthetically brand-unified vehicle range, and the fact that replacement and potential Chrysler buyers are still somewhat weary of what they see as foreign (Italian) engineered platforms re-skinned and re-badged as “American” means that the presently Ford is viewed as enjoying a top podium place in the presently very income critical US market.

Hyundai -
(previously for H1, now amended to include Q2)

Unit Sales 2,358,000 (+2.6%) (Cars, Vans, Trucks)

Revenue 
H1 KrW 44,402bn (-0.3%)

Q2 KrW 22,753bn
EBIT 
H1 KrW 4,026bn (-5.8%)

Q2 KrW 1,074bn

 Net Income 

H1 KrW 4,378bn (-5.1%)

Q2 KrW 2,350bn

EPS (ord) unstated

Net Liquidity KrW -23.6tr

Free Cash Flow KrW 366bn

Headlines:

- sales beat market growth in S.Korea with new model introductions (inc Hybrid variants)

- new Genesis and Sonata sedans in US spurs interest, low US sales incentivisation vs domestics

- new i10 citycar and ix35 c-segment cross-over sustain flat European sales levels

- Korean, China, Czech, Turkey, Russia and Brazil plants grow production output

- US and India plants production decrease

- larger car and cross-over models growth alters model mix

- strengthening of Korean Won [+5.1% vs US$ and +0.9% vs €] created FX headwind

By Division:

Vehicles: revenue KrW 36,193bn (-1.4%)

geographic sales split: China 545k units (+9.6%), USA 364k units (+0.9%), S. Korea 346k units (+6.2%), Europe 212k units (+0.2%), Elsewhere 892k units (-1.4%).

Finance: revenue KrW 5,389bn (+5.3%)

Others: revenue KrW 2,820bn (+3.9%)

- increase in COGS (cost of goods sold) of +0.8% countered by reduction in SG/A overhead costs of -2.7%

Outlook:

None officially provided in H1 reporting, but previous May investor meeting highlighted various strengths, including: previous performance in trough of global economic cycle, balanced sales growth, diversified vehicle portfolio, superior performance vis a vis peers, plus strategically: value growth leading to volume growth, improving cost structure and increasing eco-technology deployment.

Analysis:

Hyundai has taken great advantage of the post-2008 value-price driven environment to strengthen its place on many levels amongst its previously comparatively esteemed counterparts.

Whilst not the most technically advanced VM the company has undertaken global growth in a rational manner - as did the Japanese decades previously – the main distinction being the ability to create a worldwide manufacturing footprint – whereas Japanese firms took longer - so as to off-set specific regional economic cycles and to better off-set the FX effect upon the Korean Won; as seen recently by its 5% appreciation vs US$.

Moreover, as seen by strategic S. American actions in expanding capacity and production in Brazil, Hyundai seeks to also exploit regional down-turns to grow local market share, yet also hope to avoid local price-wars by growing perceived brand quality to equal or even better the more established local brands. This done so with ambitious exercises such as the more up-scale Genesis large sedan (and sub-brand) relatively earlier than the Japanese were able to, in reaction to the new global demand for affordable luxury amongst the older (now price discriminating) western middle-classes and the new set of EM middle-classes.

However, as seen by the Q2 figures, whilst Hyundai rode the 'affordability wave' since 2008, both the returned strength of American, Japanese and European brands have dented its expansion ambitions, with slightly reduced volume sales and revenues. This well countered by a targeting of internal costs so as to maintain leading profitability margins.

Though investment-auto-motives expects to see Hyundai's continuing constraint in the European arena given re-strengthened national players and associated entry-level brands. But the ability to take advantage of GM's near-term weakness in the USA indicates that Hyundai should maintain market traction in this critical region over the short-term. Whilst also continuing its brand and sales offensive in a somewhat pro-Korean, receptive China.

The well recognised need for Hyundai is to build brand and pricing power in the US before a) GM returns stronger, b) Ford creates an new intermediate/ near premium brand persona in blue oval with efforts such as the Vignale moniker (presumably sharing Lincoln technology), c) FIAT-Chrysler is able to create a similar workable proposition, and d) the Japanese seek to re-deploy Acura and Infiniti.

Doing so expediently, with perceptional brand trickle-down from Genesis into mainstream Hyundai will perhaps be the most important strategic and so earnings issue to monitor.    

Companies Focus – The Global 11 Auto-makers - “Coupled Ratios” Assessment - : Q1 Positioning Before Q2 Reporting.

This weblog returns to the previously established practice of assessing the general investment attractiveness of the eleven major auto-players head-quartered in the US, Europe, Japan and S.Korea.

Awaiting European Traction -

At a time when broad European economic traction has been questioned once again via the fragility of Portuguese banks and the reinvigoration speed of the 'TLTRO', it is undoubtedly desired that Germany's win of 'Brazil 2014' will buoy further internal economic confidence amongst businesses and consumers so as to assist Europe en mass.

Like the Germany vs Argentina final itself, this process will continue to be drawn-out given the overall complexities of the situation, ranging from the need for competitiveness policy reforms to serve sovereign debt structures, to the need by the European banking system itself to critically assess the operational and sector-competitive capabilities of the myriad of large and SME companies.

Whilst the best-run firms have been self-sustaining from 2008 onward, it seems that the all too problematic 'zombie' status of many throughout various supply and value chains will inevitably be eventually subsumed through merger and acquisitions and asset divestment, when TLTRO and possibly enlarged EU QE measures filter downward.

Stocks As Primary Instruments -

In the meantime, whilst awaiting the liquidity feed, equity stake-hold investment demonstrates itself as the prime economic instigator. In doing so the black, red and gold colours of the German national flag provides the appropriate metaphor. Cultural history posits that these colours represent the journey from darkness, through fire and into light.

An appropriate philosophical perspective for the necessary strategic and financial diligence today's raft of equity investors must undertake – from hedge fund to institutional to privateer. To ensure that the still relatively constrained levels of valuable liquidity are directed toward the best prospect companies.

Though the wide macro-environment still obviously has effect – from 'economic dashboard' growth indicators to the new unsettling of the Middle East – continental Europe seeks to reach its own “escape velocity” through relatively conventional fiscal means, so far without a major QE exercise.

The intended by-pass of such immediate economic pump-priming, which arguably over-serves financial community interests (and worrisome yesteryear memories), means that though guilty of creating short-term 'zombification', over the medium and long-term EU governments seek to create non-inflated economic conditions, which in turn places the topic of fundamental corporate valuations high on the re-invigoration agenda.

The Importance of Autos -

As seen with various refunding initiatives to date, such as the dual Chinese-French stakes in PSA, the automotive sector is of immense financial, technical and trade value to Europe. The sector consists not just of the obvious volume manufacturers, but a plethora of up-stream tier 1, 2 and 3 generalists and specialists across materials and the wide range of down-stream entities via distribution, retail and after-sales providers. Additionally, a spectrum of business and product service providers aligned with mass and niche firms, the former including those hi-value research firms 'creating tomorrow', often by translating motor-sport efforts into new mobility endeavours.

Classical Investing Over Pure Speculation -

Thus, whilst short-term traders may indeed await and hope that the 'Draghi Put' comes to fruition, thereby invariably inflating the DAX, CAC and other national indices, medium and long-term investors such as industrial holding companies and sector-specific private equity, have been scouring Europe for potential deals; with multi-fold valuation methods applied vis a vis situational context.

Beyond the review of present and past P and L statements, balance sheets and 'cash-book' statements, such a necessary “company fundamentals” driven approach spans the four critical areas:

A. Market Valuation

B. Profitability Levels

C. Liquidity Levels

D. Debt Levels

“Coupled Ratios” Analysis -

As is now well established, investment-auto-motives' creation of “Coupled Ratios” Analysis - used for the purpose of analysing the global eleven auto-makers - provides an immediate snap-shop of each company's relative health these four critical topics.

Done so via the mating of the two most popular assessment ratios per assessment criteria.

Hence:

A. Market Valuation Ratios : Price to Earnings vs Price to Book

B. Profitability Level Rations: Profit Margin and Return on Equity

C. Liquidity Level Ratios: Current Ratio vs Operational Cash Flow Ratio

D. Debt Level Ratios: Total Cash vs Total Debt

For various reasons – the focus on other important macro topics and micro case studies, and the range-bound 'barrel-roll' of US auto-equities (awaiting a Main Street derived corporate earnings catchup) – investment-auto-motives did not provide 'Coupled Ratios' analysis for Q3 and Q4 2013.

Furthermore, the provision of Q1 2014 is deliberately delayed given the impact of a lower winter auto sales impact in North America, the likewise slowing of what have been impressive UK and Germany sales, and the still deflated (though improving) picture elsewhere in Europe.

Contrast and Compare Q1 to Q2 -

So as to provide a better comparison for company specific and cross-sector positional performance between Q1 and a soon to be released Q2, the Q1 charts are provided herein, with resized 'investment windows' as appropriate to improved general economic conditions.

As is the norm, investment-auto-motives spotlights the number of appearances made by a specific VM within each 'investment window'. Those with the most appearances gaining most favour.

[NB to re-confirm, data is drawn from standard publicly available sources: market data intel companies and individual corporate accounts. In periods of poorer profitability and cash-flow creations such as Q4 and Q1 periods for some, limited transparency inevitably emerges. Thus if not stated openly within accounts or presentations, the standard basic formula of Operational Cash Flow is simplistically calculated as best possible: from EBIT – (Capex + Financial Investments)].

The attached chart presents the four graphs, with a depiction of how each VM has altered (or not) its respective position regards the eight overall measures.

Market Valuation Ratios -

Here it can be seen that the majority of companies saw their P/E levels rise over the previous months as once tentative investors continued to return with greater confidence into the 'common-sense' cyclical realms of capital markets.

This perhaps best seen with the near doubled p/e increase of Volkswagen. Whilst the same effect appears the case with Renault, it is far more likely that the substantial p/e level rise to 32 has been pushed up by more overtly 'early-bird' speculative monies awaiting the broad growth of the French economy from its present low base-line.

As can also be seen, other company valuations are being extended with such confidence, the p/e and price to book levels of Daimler, BMW, Toyota, Honda and FIAT crowded within or just beyond the top right hand corner of the 'investment window'.

Of these because of price to book levels Daimler and BMW sit just beyond the acutely conservative boundary (though still p/e relevant), whilst Toyota, Honda and (a re-entered FIAT) sit respectively well within and just on the margin. GM and Ford presently sit as theoretical outliers, GM because of its sector high p/e (near 20x) and Ford because of its sector high p/b (near 1.5x). The lack of useful PSA data means that it sits effectively 'undetermined' (as was), although for 'early-birds' the relatively recent French-Chinese equity take provides a form of investment assurance over the long term. Hyundai sits most central within the investment window, although its low p/e reflects its heavy conglomerate nature, so slow but steady upward progress made.

Profitability Ratios -

Mixed fortunes here as the previous high-flyer of VW stalled, sliding far to the margin of the 'window', whilst Hyundai's lower cost base and large cash cushion gave it comparative ability to better maintain its good profitability level, its RoE subsumed to profit margin; so near stationary position YoY. BMW and Daimler remained inside the window, though BMW saw greater profit improvement over the Q3 2013 to Q1 2014, as Daimler slipped a little. Toyota improved to align itself with BMW, with Honda also shifting into the 'window', albeit just onto the boundary. GM and Ford remained outside the “stock pen” with blue oval improving profitability over 'the General'. Renault saw a small decline, whilst FIAT's profit margin stayed static, but with a noted improvement in RoE.

Liquidity Ratios -

As regards liquidity generation, Toyota pulled far ahead of others in Q1 (Japan's “Abenomics” with a devalued Yen a strong tailwind). Thereafter in order were: GM, BMW, VW, Daimler and Hyundai.

Ford and Honda were set to eventually enter the 'investment window' but were presently sat beyond the margins. Renault saw improved liquidity levels YoY, unlike FIAT and PSA experiencing cash-burn.

Debt Ratios -

A story of cash depletion between Q2 2013 and Q1 2014 appears the case for most, an outcome of of necessary market incentives, reduced by present CapEx demands and extra-ordinary expenditure on high profile product recalls.

GM, Hyundai and FIAT shared the high-ground of cash reserves vs debt levels, all sat within the 1:2 arena. Renault slid YoY to a new position at the lower edge of 1:3, whilst VW improved cash levels to also sit within the 1:3 area. Within 1:4 were Honda and PSA. Whilst just beyond the boundary were BMW, Daimler Ford and tailing Toyota.

Results -

Market Valuation Ratio:

The once closely positioned VW and Hyundai have separated over the past 12 months, as investor traction gained for Europe's biggest producer even as both company's profitability declined somewhat from previous strength. Hence the middle-ground of the 'investment window' has been hollowed-out (rather akin to mainstream car markets. Nonetheless, within investment bounds at Q1 were: VW, Hyundai, Toyota and Honda.

(FIAT, BMW and Daimler close contingents).

Profitability Ratios :

By Q1 2014 it was seen that Hyundai retained its leadership, with BMW and Toyota sharing near equal second place, Daimler stationary, VW on the window edge, and Honda similarly placed with VW when newly entering the territory.

(Ford set on a vector for later entry)

Liquidity Ratios:

Herein Toyota led, with GM, BMW, VW, Daimler and Hyundai

(Ford and Honda expected to enter over successive quarters)

Debt Ratios:

Here GM, Hyundai and FIAT demonstrate their conservative approach to self funding.

'Investment Window' Appearances -

Hyundai: 4

VW: 4

Toyota: 3

Honda: 2 (but approaching 3)

BMW: 2 (but approaching 3)

Daimler: 2 (but approaching 3)

GM: 2

FIAT: 2

Renault: 1

Ford: 0 (but approaching 2)

PSA: 0

Conclusion -

Herein for Q1 2013, Hyundai and VW continued to mark themselves out as the strongest candidate, but with the rapid advancement of Toyota in recent quarters.

Thereafter, the three most prevalent 'progressives' are: Honda, BMW and Daimler, themselves presently appearing twice but fast approaching the likelihood of thrice. So apparently offering greater near-term upside for investors given respective advancement.   

As seen, each of the 'premier trio' has had a different share price journey over the intervening 3 month period.

Hyundai, thanks in large part to its high profile sponsorship of 'Brazil 2014' and so expected 'share of mind' in real world car markets has seen its stock rise since Q1 in its usual steady manner from about E46 to E55, even with previous QoQ profit contraction.

VW has seen its share price move in a volatile manner, from E185 to top-out repeatedly at E194 and return recently back to E185. VW executives now doubt hoping the German World Cup win will provide new homeland consumer confidence and so sales impetus to break the E194 ceiling.

Toyota, previously much assisted by the BoJ's QE exercise, Yen deflation and subsequent accumulated cash reserves, now effectively armed for battle in the US market, hopes to see its share price continue to march upward from its low of $104 in April, now at $119.

To End -

Thus, as always stated by investment-auto-motives, the corporate fundamentals must be set within the context of the broader macro environment, with recognition of the often subtle internal and external forces which can help or hinder corporate performance.

A raft of inter-related dynamics exist beneath the surface of these seemingly clinical, graphically depicted numbers, yet the numbers themselves derive from the actual and perceived complexities of the internal corporate and external market worlds.

The investment mind obviously seeks to re-assemble such obvious and opaque informational strands to form tomorrow's picture, and the immediacy of Q2 2014.

Macro Level Trends – “Macro-Technologies” - The Google Car: True Auto-Mobile or Intelligent Parish Pod ?

The previous web-log highlighted the manner in which a new era of 'neo-capitalism' appears to be heavily orientated toward the ongoing deployment of 'macro-technologies', enabled by the web.  

This achieved by a coterie of typically Californian IT industrialists running mega-cap corporations, with immense personal fortunes and close Wall Street connections; who may today be viewed as the eco-socio-economic arbiters of the global, inter-connected 21^st century.

Technocratic Influence -

Just as Russian oligarchs weigh control over global raw material flows at the low-value end of the industrial supply value chain, so today American technocrats seemingly orchestrate the high- value end of the chain: with demand creation and satiation through web related hardware and software which subtly but powerfully alters the perceptional and behavioural dynamic of people and generations.

Thus it appears that the modern world, specifically the professional and leisure activities of its inhabitants, leads directly back to Palo Alto and the broader Silicon Valley; through the increasingly immersive screens of smart-phones, tablets and laptops. The entrenched “enabling” cyber-brands of Microsoft, Apple, Google, Amazon, Facebook et al, could be regarded as contemporary religions given associated faith and tribalism, with web links to the 'cloud' which itself resembles the on-highness of the god-head within ancient religion.

A Much Altered World -

The past 30-40 years has obviously seen massive socio-economic transformation via IT and the web, and as its cause and effect snowballed ever onward, so the pace of change appears to grow exponentially; the observations of Moore's Law seemingly spreading from the domain of the micro-chip into everyday life.

The outcome an increasing absorption of the individual, crowd and mass, as today the once far-flung reaches of academically prosed 'hyper-reality' morphs into 'augmented-reality' and so eventually simply experienced as the world's innate reality.

[NB This suggests that increased global urbanisation even nature itself (an ever more 'protected' entity) will ultimately become a designed experience for the masses].

Previous web-logs have illustrated the manner by which post-modern philosophy has sought to re-interpret the modern world given the influence of man's constant remaking of his world, with the topic of “hyper-reality” upper-most.

Technological Hyper-Reality -

This pertains to mankind's ever deeper creation of wholly manufactured perceptional experiences, especially prevalent from the very early 20^th century onward with the invention of basic cinematic film, thereafter the sound aligned 'talkies', the arrival of film-studio derived theme-parks, 3-D film, the spread of home-video and the arrival of the internet and mobile communication 'streamed' increasingly faster (2G/3G/4G) so as to provide personal on-demand consumption satisfaction downloaded from the virtual world and increasingly providing 'augmented reality'; whether a person be in work, personal task or leisure modes.

Resulting from the identification of such increased “hyper-reality” by the late 1960s post-modern theorists arrived at the notion that perceived reality had itself become so complex that the natural world had been subsumed by a man-made realm. A realm so detailed and convincing that it could be viewed as analogous to an (unfoldable) 'map' which had expanded so much in breadth and detail it meta-physically overlaid the natural world beneath.

Stated half a century ago, at a time when the dream of the internet was only embryonic, this man-manufactured 'overlaid map' has emerged from analogy to fact, on physical and behavioural levels, satellite, drone and vehicle technology has allowed Google to compile the physical via Google Earth / Google Maps, whilst correlated personal, crowd and mass movement (dynamic maps) has been captured via the self-provision of personal locational data.

Data Driven Commercial 'Bed-Rock' -

Early coastal located civilisations saw mankind seek to build dwellings upon local bedrock, recognising that temporary shifting sands / soils were not practicable, long-lasting solutions.

Now that the web is engrained into much of global society - as well recognised by (an arguably 'Big Brother'-esque) Google - the data gleaned from its web inhabitants could be said to have formed a new bedrock upon which a new era of e-commercialisation may be founded.

Hence, a prime topic over the past decade or so pertains to the opportunities and challenges of those new and extended business models, imagined and created far beyond the current conventions of: online communications (personal, select audience and mass), socialising (personal and mass), personal ordering/shopping, personal dating, personal banking etc.

The willingness by virtually everyone to wholly participate in the web created world has (at the cost of oft over-looked privacy) been utterly stupendous as individuals, groups, SME's and large corporations, all seek to either positively promote themselves or at worst not become left-behind.

This unrivalled level of participation in the cyber-world, means that the world can be materially and philosophically re-invented, or at least cyber-evolved, so as to possibly extend the realm of a necessarily commerce-centric hyper-reality.

Deploying Corporate Cash Hoards -

Unquestionably since the mid 1980s, even with the 1999 bubble, the general 'tech sector' has been commercially prolific as both society's enabler and for specific firms recognised as the stars (recipients and benefactors) of modern capitalism.

The accrued massive cash reserves sat within tech firms' balance sheets has attracted increasing activist pressure so as to ideally return said cash to shareholders, or at least direct cash into rational new growth opportunities.

As of Q1 2014 these cash reserves verses debt (so net cash) stood at:

Microsoft: $87.67bn cash vs $23.48bn debt ($64.19bn net cash)

Apple: $41.4bn vs $16.96bn ($24.44bn net cash)

Google: $57.28bn vs $8.4bn ($48.88bn net cash)

Amazon: $8.67bn vs $3.15 ($5.52bn net cash)

Facebook: $12.63bn vs $0.39bn ($12.24bn net cash)

As is obvious, these five info-tech companies alone have an immense spending power of $155.27bn, with as seen Microsoft leader in absolute terms and Facebook leader in relative terms. With also as seen these two firms latterly expanding into newer operational arenas: Microsoft's ongoing technical integration with Ford Motor Co (as with the Sync system) and Facebook's acquisitions of Oculus (for virtual reality interactivity).

Shaping the Future -

In recognition of the quarter upon quarter cash-accruel trend, and the eventuality of massive cash hoards, many tech firm founders, shareholders and CEOs have since well before 2008 been exploring ways in which these mountainous funds may instead be invested into new products and service projects.

Projects which promise to fundamentally change the face of urban life through the subtle and not so subtle 'soaking-in' of new technologies into the innate socio-economic fabric of everyday life; now called 'the internet of things'. Most obvious that of public and private infrastructure under the broad remit of (sustainable and intelligent) living and correlated urban planning, with the ultimate ideal of the 'Smart City' moniker.

[NB This ambition influenced by the United Nation's Habitation section, with the UCLG attempting to create international standards].

External Exploration and Learning -

Given the risk potential of such an ambition to privately held and publicly listed enterprise, such technology leaders seek to absorb captured learning from similar attempts elsewhere. Such attempts typically by cash rich 'far-horizon' governmental policy-makers, such environments viewed as alternative new 21^st century icons instead of building ever taller sky-scrapers, a 20^th century icon.

Experiments of 'smart cities' have been ongoing for decades, perhaps the first proper that of Tsukuba Science City in Japan during the 1960s. However post the Kyoto Protocol effort of 1997 and partial ratification in 2005, various governments have sought to create such “future towns”. Ecologically conscious with at their heart - beyond building pollution constraints - intelligent transport networks. In many cases, and as an ideal, the town/city itself dedicated to a high-value, research-led, hi-tech manifesto. (So akin to Tsukuba and indeed the various remote specific research towns under the old Soviet Union regime)

In recent years it has perhaps been Abu Dhabi's Masdar City complex in the United Arab Emirates, which has offered the best learning. Though its development and expansion was slowed by the regional fall-out from the 2008 crisis, it has progressed apace, though still under—capacity, and continues to be utilised for the feasibility assessment, both of its system parts and its meshed whole.

Masdar was created as ''clean-sheet' planned city under the general direction of Foster and Partners, who like most blue-chip architectural firms, have long recognised the policy importance of urban planning across both EM and AM regions; with aspects of idealised 'clean-sheet' “e-enabled” new town planning to be retro-fitted as practicable into established and inevitably slowly decaying old infrastructures.

Masdar's eco-city credentials demanded that a new 'intelligent' mode of transportation be adopted. So its piloted a tailored version of a generic PRT system ideal; utilising automated vehicle 'pods' which are electronically, self-guided along specific pathways. (The term PRT has a broad definition in application but its ideology tends to use a primary non-stop route with secondary sidings for stop-off points).

However, the cost of the PRT system's extension was deemed uneconomical with instead supplementary travel within the city's walls provided by electric-powered small cars and buses.

Given the self-guided PRT and conventionally driven electric car programmes, it thus appears probable that the merged result – indeed ambition - at some future point is that of a self-guided electric car.

The Driverless Vehicle Ambition -

The concept of a 'driverless vehicle' is hardly new, long part of science fiction and presented as a research ideal by GM in its 1950s Futurama exhibition. The 1970s saw initial Japanese effort, but it was not until the 1980s that Mercedes-Benz's robot-car created from the pan-European EUREKA Prometheus project (1987-95) achieved major performance milestones in 1994/95

As a new century successor ambition to Europe's Prometheus effort, in 1994 the US government through DARPA offered $1m “Grand Challenge” prize-money for new entrants test efforts in Mojave Desert. This was part of its own robot vehicle focus. No course completions prompted a $2m prize for 2005 with various entrants and vehicle types successfully finishing. Re-run in 2007, but with an altered course to reflect the title “Urban Challenge”, requiring far more computational intelligence given the need to obey traffic laws; six teams completed the course. In 2012 and 2014 DARPA chose to focus on more specific technology challenges aside from the driverless ambition.

Thus since 2007, with the apparent proven ability to create urban-safe driverless vehicle control systems, research has continued with transition from the 'pure' to the 'applied', across academia, in-house within technology companies and as joint effort ventures.

The EV as Driverless Enabler -

Research projects to date using standard vehicles point to the fact that the complexity and cost of transforming the base engineering of ICE powered cars into driverless cars is high if not prohibitive.

Moreover, given the heavy computing power required, the electrical energy for which in mobile mode (laptop, smart-phone, tablet) is drawn from a lithium-ion (L-ion) battery, Silicon Valley entrepreneurs have long sought to create the ideal mobile battery-pack by way of the EV.

So, since 2003 we have seen a strategic push by Silicon Valley to reach this ideal 'mobile battery' product destination by way of the apparently eco-positive electric vehicle (EV).

Tesla Motors operates as an unabashed technology disruptor to the conventional internal combustion engine's undoubted primacy in automotive transport. Its business model has been planned as multi-faceted and growth orientated, as with manufacturing the firm using a typical progressive funding model from initial high price/low volume to eventual low price/high volume, the expansion of a battering 'super-charging' network, whilst also selling its zero-carbon credits to external VM corporations, and also seeking to sell or gain royalties from its e-tech IPR from external parties.

Beginning with the deployment electric motors within a Lotus sportscar chassis in its 'Roadster', the to the provision of L-ion battery-packs for volume manufactures' own limited series E production runs, to the creation and sale of the Model S, the showcasing of Model X and 2017 scheduling of the “Bluestar” higher planned volume model. More recently stating its intent to offer its electric power-train technology knowledge to new partners. Thus seeking to operate as both vehicle manufacturer and presumably licensee of what it sees as very specific (ie legitimately protectable) e-tech intellectual property rights. Furthermore, the promise that Tesla owners will be allowed to use the Tesla super-charging for free forever, appears empty given commercial realities or eventual possibility of the network's sale to an external enterprise.

[NB exactly what Tesla purports as its own IPR is unclear, especially given the long history of electric cars and the relative simplicity of the power-train and control systems, which conventional manufacturers have well understood for decades and deployed in their own hybrid drive systems].

Lastly, Tesla Motors has stated that it too has ambitions toward driverless models, which together with mention of an electric truck type vehicle provides obvious prompts toward fleets of self-guided delivery trucks in urban areas.

It is then a fundamental fact that Google and Tesla have a heavily vested shared interest – even if not formally stated - in targeting the mass adoption of small urban “infrastructure intelligent” electric vehicles.

Internal Exploration and Learning -

Thus the question set and topic explored is that of the time-frame and cost required to achieving true practicability for a self-guided (driverless) EV.

Such new-age travel ambitions have obviously been ongoing for some years, the epicentre being the Californian web of firms that wish to continue the e-based innovation path that has essentially constructed the 21^st century.

As seen, a raft of innovations from Google Inc demonstrates its intent to inter-connect ethereal web and physical worlds, indeed at every level of the physical, across: the Nexus smart-phone, Chrome laptop, Google TV interface, Nexus Q entertainment module, cyborg-type 'GoogleGlass' (augmented reality spectacles which prompt privacy concerns), the healthcare directed Google Contact Lens (as part of the [somewhat propogandist sounding] “quantifiable self” movement).

With of course the driverless concept 'GoogleCar' recently promoted as the apparently realistic future of urban mass mobility, from its 'sci-fi' roots.

This apparent watershed in automotive mobility was showcased in prototype form on May 18^th 2014 with the Driver-less 'Google Car'; the result of years of internal exploration and learning.

This vehicle stems from Google's original sponsorship of the research undertaken for the DARPA Challenge in 2005. That team was formed of Stanford University's own post-graduate academics (led by Sebastian Thrun, now at Google) together with Volkswagen of America's own Electronics Research Laboratory; both located in Northern California.

DARPA 2005 was the second running of the driverless car 'grand prix' from its origination the year before, with no successful completion. The Stanford-VW alliance chose to utilise a VW Toureg given its drive by wire control features and large internal and external dimensions and payload, for the carrying and fitment of a heavy five-fold sensing and analysing system: Gyroscopic / GPS / 'LiDAR' (combined laser and radar), Wheel Sensors and Video-Camera, plus the much smaller masses of the physical actuators required for robotic steering and gear shift. The team took first place.

Having learned much, the 2007 DARPA (Urban) Challenge was undertaken using a smaller but still spacious Passat Estate/Wagon. Compared to 2005 the very different “sophisticated interaction” requirements of a cityscape environment meant far greater sensing capabilities, with the need for regulatory 'road-craft' compliance necessitated heightened real-time analysis in data processing, thus adding greatly to previous learning. The Stanford-VW team took second place.

Thereafter Sebastian Thrun moved to Google so as to lead the next phases of development toward an eventual goal of commercialisation. The more advanced and yet technically simpler system of a LiDAR and Range Finder operated by software named 'Google Chauffeur' has been installed into various other models of test car (Toyota Prius, Lexus RX450h and Audi TT) which have had two then one passengers to physically intercede if the system fails. By April 2014 Google claims that such tests have covered 1.1 million kilometres without problems, stating that one 'at fault' incident was the result of human driver error, not the system itself.

But as of May 2014 a wholly new concept vehicle arrived: the urban friendly small driverless EV,

the 'Google Car', cosmetically unlike a standard small car, using a bubble shaped body, seemingly a colour-in-mould skin finish (like a personal e-device) and a friendly pet-like 'face' to provide personification and so immediate emotional attachment.

Vehicular Stepping Stones -

The Californian technology leaders seek to create what they see as the natural evolutionary step to the current use and thinking around urban personal transport.

That urban journey starts with the modern Micro-Car seen by French offerings by Aixam (long since a popular form of urban and suburban travel, especially amongst older drivers). Then onto 1998 and Daimler's launch of the modern micro-car, the Smart ForTwo (its platform used for various off-shoot models such as the Cross-Blade (ltd edition) and sporting Roadster, aswell as various concept models). The first modern clique of rudimentary, limited range but functional electric micro-cars arrived, the most famous/infamous being the G-Wiz, superceded by Renaults' Twizy.

[NB Polaris Industries of the USA acquired Aixam in 2013 as part of its own strategic intent for its own expanded electric vehicle range].

From the late 1990s on, western society witnessed the large demand and increased supply for mobility scooters, catering to the better independent mobility care for the disabled of all ages and (pre-2008) buoyant government social funding for the ever larger numbers of elderly and obese people.

With such historical demographic change (already experienced in Japan) plus the rise of single occupant households, vehicle manufacturers such as Toyota, Honda, Nissan, GM and Chrysler created motorshow concept 'pods', either wholly in-house of with parters such as Segway, so as to provide apparent glimpses of the shape of things to come.

This seeming convergent trend then towards eco and specifically electric mobility, tied to the ideal of greater in-travel productiveness - is what underpins the ideology of the Driverless 'Google Car'.

New Build Process Opportunities -

For the most part, the history of the automobile sector was to satisfy the previously ever growing western 20^th century demand for vehicles of all various types. Accordingly, the associative manufacturing model, and so general business model was around the generation of high volume and so low cost encompassed by the 'Budd' pressed steel method; a system still very much the case for what is now a highly global market, and wholly effective for the demand expansions across China, India, Brazil, Russia and EM elsewhere. Capital spend intensive, but very effective during long phases of GDP development, and indeed central to such prosperity.

However, for the west macro-conditions have undoubtedly profoundly altered since the 1960s heyday, with the dual effects of far greater eco-consciousness – influenced by California, but technically led by Japan and Germany –, what is seen as reduced car-demand by incoming generations (a function of their own disposable income levels) with reaction to changed transportation perspectives and methods – most obviously cycling and maintained public transport use within cities; albeit relative to the general decline of public-purse infrastructure spend in favour of private-sector spend.

As seen by the success and impact of Toyota's hybrid powered Prius and now near full hybrid model range, conventional cars have altered accordingly within the restrictive envelope that is the reality of the long new product development timespan. Other corporations include Jaguar Land Rover's now entrenched use of lighter aluminium structures, whilst Ford has adopted the same technology for the 2014 F-series large pick-up truck (a truck ostensibly using sports-car materials). Most manufacturers now well used to undertaking various non-core, but macro-associative, research and development projects in hybrids parallel and series), battery development, electric-drive motors, body structures, chassis systems and holistic alternative vehicle packaging; with of course progress determined by technical and funding restrictions. So the conventional car has itself leaped forward

However, with the unprecedented macro effects of the Kyoto Protocol and post-2008 western labour surplus, the auto-industry and its investors have also recognised the very real need to progress what historically has been called 'niche' engineering and manufacturing. So as to effectively locally develop, build and supply more targeted types of vehicle, typically urban specific.

Instead of centrally locating a huge pressed-steel manufacturing base to serve a single country, its neighbours and foreign exports, the system itself has been reverse engineered to 'go back to basics' in serving distinct geographical locations and user types.

As described in previous weblogs, this micro-orientated approach became obviously known as “micro-factory supply”, with the complementary adjunct of internal sales channels, elongated to “micro-factory-retailing”.

Various companies have been formed to explore this perspective. At one end of the product spectrum is Pheonix, Arizona based 'Local Motors', combing the artisan aspects of the US eulogised local workshop and the trend of web-enabled open-source design, with apparent philosophical edict of “global design, local materials and local energy” with strategically aligned local municipalities; presently located upon aboriginal land and offering the tubular framed on/off-road Rallye Fighter (a Baja buggy type car). At the opposite end of the product spectrum the outcome of the UK's Gordon Murray Design in Surrey, with creation of the T25 and sibling variants (later called 'Motiv'); a truly compact city car with a 3-seat, rear engine layout. Critical was the creation of the 'iStream' build process. The rights to the project reportedly sold to Japan's Yamaha in late 2013, with expected launch in 2017. Like the Arizona car, it uses as steel space-frame with composite outer panels.

The fact is that for all the communications hyperbole and trendiness, the basis of 'micro-factory-retailing' is simply that of yesteryear niche (limited edition) vehicle building, specifically that championed by pre-war Grand Prix cars (Auto Unions etc) and adopted for wider use by Italy's Carozzeria Touring in its client specials.

The system of largely hand-built vehicle frames and powertrain, chassis, electrical and trim installations, provides for the lowest vehicle company start-up costs possible, especially with (unlike Touring's use of specialist high-end components of the time) the use of off-the-shelf generic OEM parts from tier 1 and 2 suppliers.

[NB This same approach has been deployed for the establishment of local vehicle companies in 'pioneer investment regions', such as that seen in Mombasa, Kenya].

The fact is that the apparent “reverse engineering” of the modern auto-industry is little more than fall back onto well established and proven simpler lower cost and critically “CapEx lite” design and construction methods.

Nevertheless, it is this same system which investment-auto-motives believes that as a notional 'sector disruptor' is being investigated by Google, so that it can itself fund the home-grown creation of an unconventionally simple, 'function-first', driver-less town buggy.

Reformatting for a 3rd Urban Travel-Space -

As regards personal travel (ie non public transport), historically towns and cities had effectively two speeds, either by motor vehicle (fast) or walking (slow), with the intermediate functionality of the bicycle (per speed and comfort) typically heavily marginalised in most places besides The Netherlands and pockets of similar elsewhere.

However, climate control concerns regards vehicle pollution plus the promoted popularisation of the bicycle as short-hop, healthier, (necessarily so) low-cost travel solution, has increased provision for cycling routes in major cities over recent years.

This essentially created a new, and still growing, dedicated 3^rd travel space. A lane separated either physically or by (blue) colour demarcations from potentially very dangerous motor vehicles on standard roads and the risk of danger to pedestrians on pavements/sidewalks.

Though the lanes have been to date dedicated as “cycle lanes”, they would prove useful to other mid-speed apparatus which provide “intermediate speed” travel (say 10 – 30 km/h). In fact it is often the case that recognising their danger to pedestrians, where practical, mobility scooter users seek to use traffic-separated cycle lanes as the best suited pathway.

Given the impact of rising cyclist numbers and the now society entrenched use of mobility scooters, it seems advantageous that cycle lanes be fully utilised as more broadly defined 'intermediate lanes'.

As has been the case with inner-city planning policy, this largely achieved by re-apportioning space from that of roads and paths to cycle lanes.

This 3^rd space then offers a new travel zone for what could be a new mode of intermediate speed transport, typically named the “mobility pod”.

Small in foot-print and stature, enclosed, weather-proof and moderate comfort, such concepts effectively update the era of post WW2 affordable, low powered bubble-cars which faltered as they were not wholly suited to conventional road systems. Had a 3^rd space been made available their evolutionary rise and not fall may have been the case, but the fact was that automobiles and oil production were two of the pillars of the post-war economic boom, comfort and speed the two driving factors.

However, today whether as part of the economic decline of the west, or as part of its eco-leadership actions, the “intermediate lane” looks to become an increasingly important aspect of personal, urban, data-intelligent, transport networks.

This it seems is the unstated big picture thinking behind the Driverless 'Google Car'.

Conclusion -

It is suggested that Google's ultimate aim is to create a business model which is able to sell to today's automotive manufacturers a packaged system of data-rich, real-time information to enable the apparent dream of the safer, productivity enhancing driverless car.

This may indeed be the case.

However, it seems to investment-auto-motives that the natural path for Google is not to sell, lease or franchise its eventual driverless car capability, but instead seek to gain most value from users by operation the system itself.

To this end it is expected that Google and others will seek to create the conditions by which ecologically focused urban planners will naturally lean toward the advantages provided directly by Google.

To do so Google will be seen to continue to lobby international governments (presently 5^th biggest lobbyist) with soft-power assistance from Google.org, to invariably demonstrate how its commercial offering is the most direct and efficient plan to allay overtly high carbon footprint fears and the likelihood of not reaching 2050 climate change goals.

Thus it seems almost inevitable that Google will argue the point for its more or less full control of a new intra-urban / intra-suburban driverless vehicle system (at first spanning taxis and short-term rentals) so as to “ensure the climate change targets are achieved”.

Though the publicised driverless 'Google Car' was explained as only a rudimentary buggy – suggesting an evolution toward the package of the conventional car – the fact is that such a simply manufactured, lightweight and inexpensive buggy type car (cross-breeding the city-car, mobility scooter and motorshow 'concept pods') is the perfect vehicle type for flexible urban passenger movement.

To this end, given the convincing business case of low cost ((low capex, mid labour) local manufacture, and the highly profitable potential of leased private and public “e-cars” (running probably over e-upgraded, retro-fitted urban roads with per mile or per kilometre tolls), it would appear a commercial imperative that Google would infact seek to 'own the urban road' into the future. Possibly doing so through an array of sub-divisional and joint-venture companies, each providing a specific part of the value chain across the overall whole: from plug-in charge to travel charge.

From a simplistic strategic perspective then, for very good commercial reasons, Google Inc appears to be happily transferring from the information super highway to 'e-enabled' urban byway.

To this end, the driverless car will very probably be more network-intelligent, local parish buggy than conventional car, especially so if Google effectively re-configures the actual streets of a global-wide yet also intrinsically local real world 'Monopoly Board' given the hyper-real, overlaid world-map it has already created.