Ford’s Big Gamble On Self-Driving Cars

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What's going on here?

American automaker Ford warned on Thursday that its profits in the current quarter would be lower than it had previously forecasted, partly because of its big new investments in self-driving cars.

What does this mean?

Ford said on Thursday that “investments in emerging opportunities” are a big reason for its lower profit guidance. It also noted that its earnings in 2017 would be slightly dented by lower sales and higher commodity prices, but Thursday’s big news was largely about the size of those “investments” – which relate to Ford’s efforts to develop autonomous cars.

Why should I care?

The bigger picture: Big corporates are on the hunt to buy startups.

Large companies in America have been looking to cash in on the growing appetite for self-driving cars, a dream from the Jetsons era that now seems just within reach. Even Intel, which has never been a major player in the auto industry, purchased Mobileye for $15.3 billion earlier this month so it could get its hands on the chips needed to build self-driving cars. For its part, Ford has spent $1 billion to essentially found its own startup focused on self-driving cars (headed up by former employees from Uber and Google).


For the stock: Ford wants to tackle autonomous driving itself – and that’s expensive. (tweet this)

Other automakers are partnering with Silicon Valley to co-develop autonomous driving (e.g. Fiat and Google), but Ford’s got a mind to do all the heavy lifting itself. Of course, that’s a pretty expensive proposition. If it works, it could pay off in a big way (since Ford would essentially own its own technology). But the risk is that Ford will end up spending a lot more money without seeing the same success as its competitors, who by partnering up are benefitting from the shared expertise of two different industries (tech and auto).

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Investors Get Excited About Clothes

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What's going on here?

Next, one of the UK’s largest clothing retailers, reported on Thursday that its profits had dropped for the first time in eight years. But, given that its stock price shot up 8%, investors appeared relieved that the news wasn’t worse!

What does this mean?

Next put out a gloomy report to investors on Thursday: it said that its sales had declined in 2016 and that sales would remain weak through the start of this year (before, hopefully, picking up somewhat later this year). It also didn’t have much good to say about the UK economy, which accounts for over 80% of its customer base. Next’s CEO said he was worried that British consumers will continue spending less on clothes this year, and that the trend might get even worse if inflation keeps going up in the UK.

Why should I care?

The bigger picture: A weaker currency is typically bad for importers.

Thanks to the pound’s big drop in value in 2016, Next reported that it’s been increasingly expensive to import garments from abroad, which caused the price of its clothes to spike by 4%. Virtually any company that imports goods (or supplies) and sells its products domestically is hurt when the value of its home currency falls – which is one reason why changes in the values of currencies have such a significant impact on stock prices.


For markets: Despite the tough environment, Next has some redeeming qualities.

For one, most of Next’s stores are on relatively short-term leases, which means it can close stores more quickly than its rivals if it needs to cut costs. Also, Next’s stock was down about 50% over the past 18 months prior to Thursday’s results: investors are well aware of the challenges it faces. Finally, it did not cut its profit forecast this year, suggesting that Next’s future prospects aren’t as bad as some investors had feared. All of that probably helped the stock jump more than 8% on Thursday.

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