Ford Motor Co., like the rest of the auto industry, has a software problem: it is Elon Musk’s Tesla Motors.
Tesla has set the standard as the auto industry’s equivalent of an iPad on wheels, offering major software updates to improve vehicles.
On Thursday, Ford said it will invest $182.2 million in Pivotal Software Inc., a San Francisco-based software company expected to help Ford stay competitive as software and cars become one.
“As we look at tech and software and how it is opening whole new areas for us to provide experiences for consumers, it is important that we get a level of fluency” in software, said Ford Chief ExecutiveMark Fields.
Ford takes all competitors seriously, but Tesla caters to high-end consumers, Mr. Fields said.
Tesla’s premium vehicles are fast heading into lower-price markets. Its Model 3 shaved the Model S price in half, hitting with a $35,000 price tag that ran off with more than 276,000 preorders by April. The question is whether Tesla can deliver on time. The Palo Alto, Calif.-based auto maker on Wednesday reported a wider first-quarter loss on lower-than-expected vehicle deliveries.
For Ford, Mr. Fields said the Pivotal relationship gives the car maker access to “really advanced software development methods and cloud tech skills at a speed at which we wouldn’t be able to do on own.”
Software is playing a bigger role in car makers’ plans. It has become necessary to compete to provide cars that are more sophisticated and more automated but still operate safely, even when they drive themselves. Cloud-based wireless software updates promise auto makers to head off recalls and upgrade cars, extending their value.
The investment from Ford in Pivotal is part of a $253 million round that also includes Microsoft Corp. and vaults Pivotal’s valuation to $2.8 billion. Ford was already a Pivotal customer, and Ford Chief Information Officer Marcy Klevorn joins Pivotal’s board.
In March, Ford formed a subsidiary, Ford Smart Mobility LLC, and in April released FordPass, a collaboration with Pivotal that Ford says it will continue to expand.
FordPass includes a smartphone app that helps users with parking, car sharing, remote access to vehicles and other services. Ford ownership isn’t required to use the app, and Ford says that FordPass “aims to do for car owners what iTunes did for music fans.”
The Pivotal investment is also a coup for Microsoft Corp., which runs Pivotal software, called Cloud Foundry, on its Azure cloud. Ford in January announced a partnership with Amazon, Microsoft’s chief competitor for Azure, to let drivers control lights, thermostats, security systems and other parts of their homes from their cars through Amazon devices like Echo.
Microsoft’s other big Azure competitor, Google parent Alphabet Inc.,struck a partnership with Fiat Chrysler Automobiles NV on Tuesday to incorporate Alphabet’s self-driving car technology into 100 Chrysler minivans.
Ford is also opening new software labs in both the U.S. and Europe that the company says will be staffed with software architects, engineers and experts in user experience, all using Pivotal’s method of rapidly developing software.
As for Pivotal, the three-year-old company is headed toward an IPO but has no date in mind, according to Chief Executive Rob Mee. First quarter revenue was $86 million, up 56% from last year, and the company claims annualized recurring revenue as of March 31 of $115 million.
Current Pivotal investors GE, EMC Corp. and VMware Inc. also participated in the round, taking total funding in Pivotal to about $358 million. Pivotal spun out of EMC and VMware in 2013, taking software assets from both companies, and GE at the time invested $105 million in Pivotal for a 10% stake.
The investment is expected to close this month and is subject to regulatory approval.
First appeared at WSJ VC