Mercedes-Benz and Nvidia Sign a Deal to Make Cars More Like iPhones

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Daimler, the maker of Mercedes-Benz cars, is forming a partnership with Nvidia to develop car computers and artificial-intelligence infrastructure for self-driving vehicles, the companies said.

The Benz-Nvidia pact aims to create vehicles that are defined by the software which powers them. That would position the companies to benefit as Apple (ticker: AAPL) has from the iPhone—a product that has been successful partly because of its operating system and apps built and sold on top of it.

If the companies successfully develop such technology together, it could generate a significant—if yet unknown—amount of revenue for Nvidia (NVDA) as the car industry continues to look to tech to remake itself.

“NVIDIA’s AI computing architecture will help us streamline our journey towards autonomous driving,” Ola Källenius, who leads Mercedes-Benz, said in a statement, “These new capabilities and upgrades will be downloaded from the cloud, improving safety, increasing value and extending the joy of ownership for all Mercedes-Benz customers.”

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The companies declined to disclose the financial details of the partnership, but whatever revenue it generates for Nvidia would likely be split between Nvidia’s two main revenue segments, which it recently redefined as Graphics and Compute & Networking.

In fiscal 2021, Nvidia is expected to generate $477 million from its automotive-related sales, down from $700 million, or 6% of full-year sales, in fiscal 2020. Auto sales were about 6% of the company’s 2016 revenue.

For Daimler (XE:DAI), Mercedes-Benz’s parent, the agreement may be a small part of a larger push to improve its flagging profits. The company has struggled with the broad shift toward electric vehicles. Returns on Benz sales have slumped as of late even though the company sold more premium cars in 2019 than its rivals. Analysts predict 2020 revenue of $92.36 billion from the Mercedes-Benz cars segment of Daimler, down from $102.47 billion a year ago, according to FactSet.

Representatives from both companies said technology resulting from the joint effort would begin to be deployed in Mercedes-Benz vehicles in 2024. The partnership isn’t exclusive and both companies are free to work with rivals on other sorts of technology to accomplish similar goals.

Details on what exactly would be included in the software package were sparse. The companies said that the automated driving capability would let people automate trips on regular routes. Beyond autonomous driving, representatives said that the software package would include future safety and convenience apps.

The two companies discussed an app-store like future, where car-owners would be able to pay for apps in cars and buy subscription services, all downloaded via wireless capabilities.

“Together, we’re going to revolutionize the car ownership experience, making the vehicle software programmable and continuously upgradeable via over-the-air updates,” Nvidia Chief Executive Jensen Huang said in a statement. Daimler stock has fallen 25% this year. Shares of Nvidia have advanced 63% in 2020. The S&P 500 was down 3.5% as of the close of trading on Monday.

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