Ford CEO Jim Hackett, along with key members of the management team, have delivered an update on the company's forward strategy. This report focuses on the details of the strategy on mobility products, markets, and operations.
IHS Markit perspective
- Significance: Along with CEO Jim Hackett, Ford's heads of mobility, Marcy Klevorn; global markets, Jim Farley; and global operations, Joe Hinrichs each spoke about projections on forward strategy at an investors' event on 3 October.
- Implications: The strategy's focus on profitability is clear, after a rethink of Ford's strengths and weaknesses in terms of products as well as production and where there are opportunities for revenue from mobility products.
- Outlook: The executives provided details of several new elements in the strategy. Ford aims to develop electrified, autonomous, and mobility solutions that are profitable and sustainable ‒ the direction all automakers are looking to go in ‒ although Ford could appear late to the game in seeking to deploy some technologies or solutions. Being first is still not the most important consideration for Ford.
Ford's new CEO, Jim Hackett, outlined the company's future strategy on 3 October, along with the other members of his senior management team, at an investor's meeting. IHS Markit has explored key elements of Hackett's strategy in a separate report. In this report, we explore the strategy as laid out by Ford's heads of mobility, Marcy Klevorn; global markets, Jim Farley; and global operations, Joe Hinrichs.
Mobility and connectivity
Ford's president of mobility, Marcy Klevorn, talked about the company's approach to software technology. The core of the approach will be for Ford to work with flexibility and partnerships to develop software technology. Klevorn sees where core services supporting customer solutions will ultimately become commoditised. On these solutions, Ford now has a new partner, Autonomic, to work with to develop solutions for core services such as identity, telemetry, notifications, inventory, payments, routing, data analytics, mapping, device management, and vehicle telemetry. Ford wants to develop customer solutions delivering differentiated products in areas such as fleet management, FordPass, dynamic shuttles, transportation as a service, micro-transit (such as, non-emergency medical transport), and digital services. The commoditised core solutions will be a bridge between the car and the cloud. Ford is focusing on developing its own solutions for the ways in which consumers will interact with the vehicles, while partnering on the supportive data and software.
Ford also announced that it is making a major move into in-vehicle connectivity, acknowledging it is late in doing this. By the end of 2019, 100% of US new cars will be built connected, and by 2020, 90% of Ford's vehicles globally will be built with the technology.
Product portfolio, powertrain, and autonomous vehicles
Overall, Ford is reallocating USD7 billion in capital investment from cars to sport utility vehicles (SUVs) and trucks. Reducing car nameplates will contribute to reducing spend in this segment, while the new investment will bring the North American Ranger in 2018, the EcoSport to North America in 2018, the all-new Bronco in 2020 and three other new products, including a battery electric vehicle (BEV) SUV. While there was little specific discussion on future investment in Lincoln, the success of the brand in recent times was noted.
Although there was far less detail on this subject than in last year's presentation to investors, Ford president of global markets Jim Farley provided some detail on four key areas. Ford plans to accelerate investment in utility vehicles. He said that Ford will leverage "where we are really strong. For example, in North America, we will be developing new nameplates in the authentic off-road capable category" (such as introducing the all-new Bronco in 2020). In Europe, Ford will stress the stylish, urban products. In China, the brand will expand utilities in the value products, especially the C-plus size, as well as more three-row, seven-seat products. Additionally, Ford is looking at a potential partnership with Indian automaker Mahindra & Mahindra on emerging-market utilities.
Under Hackett, the One Ford strategy seems largely to have been dropped, in favour of products more directly tailored to specific markets ‒ but products that are also consistent with Ford's strengths. On commercial vehicles, Ford aims to build on its leadership with the F-Series, Ranger, and Transit ‒ and will also use these products as key elements of its mobility services businesses. The Transit will also see more variants, and electrification in Europe.
On cars, Ford aims for a shift to profitable sub-segments and "value partnerships". In developed markets, Ford will reposition its vehicles with a focus on lower volume but higher revenue. Ford's production investment will also be rationalised, with the single-plant solution for the next-generation Focus highlighted. "We will build it only in China and compete here in the US with lower volume, but move the vehicle upmarket and compete where we're really known, such as the hatchback subsegment," said Farley. In Europe, the Active and Vignale lines are examples of the shift; the Fiesta and Focus will be positioned upmarket there as well. Developing markets will see new value cars and more partnerships, such as with Mahindra in India, Zotye in China (low-cost BEV), and JMC in China (Yusheng low-cost utility).
On powertrains, Ford aims for a late pivot to BEVs. Ford will also be investing in hybrid EVs (HEVs) and plug-in hybrid EVs (PHEVs) on its highest volume vehicles. To accelerate development of a pure EV portfolio, Farley says that Ford will take a profit-driven approach, as well as use its partnerships with Zotye and others. The BEV product line-up will grow after 2020, however, although little detail on this was shared. Farley said, "We are looking to build a sustainably profitable BEV business, and that has profound impacts. We want to lean in BEV segments where we have a strong presence already… Also exploring lower-priced entries in the BEV business [the Zotye partnership in China]." Team Edison has the role of defining the product strategy for BEV. Farley said, "This team is intended to accelerate our development of BEV in two ways … will define lineup, especially in segments where we have great reputation and revenue power and an audience already that loves the brand, but also to define end to end business model."
Ford will first come to the market with an automated vehicle that provides strong opportunities for continued use throughout the day. Farley has ruled out starting the company's autonomous vehicle programme with a vehicle such as a compact hatchback or even the Ford Fusion the company has been testing autonomous technology on for a decade. Another difference between the new strategy and previous discussions on autonomous vehicles is that Farley said that the HEV is the right solution for a self-driving vehicle in the initial stages. This is driven by the fact that maximum utilisation throughout the day is difficult because of EV range, and that repeated high-speed charges drain the battery, according to Farley. He said, "Key to this is the business layer that sits on top of the tech. Ride-hailing but also moving goods and even serving content. Profit in AV is [in] high utilization, and the best model to do that is to have a diverse group of services to use the vehicle all day long." Farley added that Ford has deep experience with commercial, durable vehicles already. The partnership with Argo AI is on track; Farley noted the approach is to start with scalable and production-ready technology ‒ no research iterations, but straight to production-ready. Hackett said, "We don't want to use the customer as part of the development process … we are confident these guys get it."
Future of Ford factories and BEVs
Ford president of global operations Joe Hinrichs provided more detail on the vision that Ford has for its manufacturing processes. Going forward, the company is looking to leverage machine learning, artificial intelligence, 3D printing, and virtual factory technology to get to "manufacturing 4.0". While Ford is not quite ready to announce its BEV production plans, Hinrichs is working on the impact of these on its production facilities. He believes there can is significant opportunity for savings in just the final trim assembly area, including a 50% reduction in footprint, a 50% reduction in capital investment, a 30% reduction in hours per unit, and a flexible tooling process that is fully scalable and reconfigurable to support increased demand. He said, "This helps build up the business model to make BEVs profitable."
In terms of efficiency, Ford has developed a new process that reduces the time to develop a 'top hat' (body style) by 20%, creating a cumulative USD4 billion in savings by 2022. The change does not include any reduction in output and volume.
ord chief financial officer Bob Shanks provided an update on Ford's financial situation and overall direction. Shanks stated that several key targets remain the same, including the commitment to an investment-grade balance sheet and carrying forward the shareholder distribution strategy. In terms of growth, Ford has updated its analytically risk-assessed assumptions and Shanks said its forecasts are grounded in a more realistic analysis. The company still targets an 8% or more automotive operating margin, as well as a top-quartile total shareholder return. While, as Hackett noted, the return on invested capital (ROIC) was not above the cost of capital in some recent periods, the company will move to a formula to generate ROIC notably higher than cost of capital. The company's 2017 guidance is unchanged (see United States: 27 July 2017: Ford's revenue and net income improve, pre-tax income falls in Q2), and Ford will not provide an outlook for 2018 until January 2018.
Outlook and implications
The Ford executives provided more detail on the company's updated overall strategy, which has several new elements. Among these is an increasing reliance on partnerships to address emerging markets, as well as that the first Ford autonomous vehicle will use a hybrid powertrain, and the level of savings that production of BEVs has the potential to deliver. Ford's approach to focusing on partners for the nuts and bolts of software that enables mobility solutions, while also carrying out its own mobility services development, is an effort to ensure the company is developing solutions that will provide better return on capital and staying away from elements likely to evolve into more commoditised solutions. Ford's focus is also on developing electrified, autonomous, and mobility solutions that are profitable and sustainable ‒ the direction all automakers are looking to go in ‒ although Ford could appear late to the game in seeking to deploy some technologies or solutions. Being first is still not the most important consideration for Ford.
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