BMW Throw In $1 Billion to Battle With Uber

If it’s one thing traditional automakers have, it’s fight. They don’t plan to go down to rising technology, and if they do, they’re going down swinging.

The latest plan?

German automakers Daimler (DDAIF) and (BMWYY) are teaming up and committing $1.1 billion to creating various mobility . The company’s joint venture is aimed at providing charging, parking and ride-hailing services, along with car-sharing and multimodal transport . There are tremendous changes hitting the auto market, and this Daimler-BMW partnership is the latest acknowledgement of such a change.

Some time ago, General Motors (GM) CEO Mary Barra said the auto industry will change more in the next few years than it has in the last few decades. With electric cars that can outrun performance cars and driverless solutions popping all over the world, it’s hard to argue with her logic.

It’s not the first partnership we’ve seen out of Germany either, with Volkswagen (VLKAF) (VLKAY) announcing a new partnership with Ford (F) last month. Notably, the German automakers are under fire right now thanks to a global trade spat that’s pinching both their top and bottom lines. However, that issue isn’t keeping these companies from investing.

Whether acknowledged or not — it’s clear that Tesla (TSLA) has pushed the envelope of electric vehicles. If BMW, Daimler, GM, Volkswagen and plenty of others pouring billions of dollars into electric drivetrains isn’t proof enough, Daimler and BMW working on charging services certainly is.

It helps answer the one question many press the auto industry over: How will users charge their cars? Third-party operators have been popping up all over the U.S. and Europe to provide these services, while Tesla has the Supercharger Network. Traditional automakers don’t have such a solution, individually speaking, but have invested in some of these third-party companies to help progress other networks.

BMW and Daimler's Mercedes are on the list for manufacturers with autonomous cars in California.
BMW and Daimler’s Mercedes are on the list for manufacturers with autonomous cars in California.

The ride-sharing area is the most interesting part of the pact. BMW, Daimler and others don’t plan to let Uber, Lyft and other global ride-sharing companies dominate the future of transportation. Perhaps it’s a fear for their business model or maybe it’s after seeing the massive valuations these companies are garnering. Uber may be valued at $120 billion for its eventual IPO — more than Fiat Chrysler (FCAU) , Ford and GM combined — while Lyft is being talked about at a $20 billion to $25 billion valuation, or about half the market cap of BMW.

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It’s not Daimler’s first foray into the area either. In 2017, the automaker acquired Beat, a ride-hailing service that’s been doing quite well in Latin America. This summer it announced it would work with Nvidia (NVDA) and Bosch to build out an autonomous ride-hailing service in the Bay Area. Now it’s working with BMW on ride-sharing, too.

At this point, it’s unclear what the German duo may have up their sleeve. While a noble effort, it’s possible that it may be too little, too late to catch up to other companies. After all, $1 billion is peanuts when we’re talking about an Uber or Lyft.

If Daimler, BMW or others had to absorb the operating losses that Uber and Lyft have posted over the past few years, investors would have a fit. Or presumably they would. The auto industry is experiencing a very interesting shakeup from the tech side, and short of timely and savvy M&A action — which Daimler-BMW hasn’t ruled out — catching up may be difficult.

What comes to mind? Most notably is GM’s acquisition of Cruise Automation for a reported $1 billion in August 2016, which has ballooned into a $14.6 billion valuation following investments from SoftBank (SFTBY) and Honda Motor (HMC) . Not only is GM touting a very brag-worthy acquisition, but it’s also well-positioned in the autonomous taxi race as well.

Ultimately, it’s unknown what Daimler-BMW will do next, but partnering up is the first step.

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