Ford presented an updated strategy for the investor community on 14 September. The company spent a significant amount of the presentation looking at the mobility side of what it calls the new "auto and mobility" company.
IHS Markit Perspective
- Significance: Ford presented an updated business plan to the investment community and media on 14 September, including outlining how the company expects autonomy and changes in demand for personal mobility to impact the business.
- Implications: The opportunity of speaking to the investment community allowed Ford to communicate the strategy it has developed for future growth, particularly on autonomy and electrification − and outlining why these are important in positioning Ford for long-term growth.
- Outlook: Most automakers are looking at how to incorporate trends towards a 'sharing economy', including an accelerating change from consumer preferences for owning to sharing vehicles, into their strategies so their businesses remain viable, healthy, and profitable. However, Ford has presented one of the more cohesive and ambitious plans. Ford's management has built a strategy based on automotive manufacturing, which it is best at, while incorporating its goals based on expected future mobility trends into the corporate culture. Risk remains − among the biggest risk is current common assumptions about the successful implementation and adoption of autonomous vehicles − but the plan presented is robust.
Ford's senior management outlined to investors the automaker's updated business vision and strategy at a conference yesterday (14 September), including remarks from executive chairman Bill Ford and president and CEO Mark Fields. In this report, we look at Ford's plans for accessing part of what it estimates is a USD5.4-trillion transportation market, beyond the traditional automotive market worth USD2.4 trillion.
Ford's updated strategy for the core business (outlined in a separate IHS Markit report) will help the company continue to meet the demand for traditional, non-autonomous vehicles, which the automaker estimates will still make up 80% of sales in 2035 and generate the revenue needed to invest to support growth. However, it is the mobility side of the business that Ford expects to provide future opportunities for expanding revenue generation. According to Ford, today traditional automotive revenue totals about USD2.4 trillion globally, and Ford takes about 6% of it. However, the company believes there is USD5.4 trillion in revenue in other transportation services. Ford currently has 0% of that revenue − and wants to change that ratio. Ford plans to get involved in what it calls emerging ecosystems, through internal development, partnerships or acquisitions. Ford identified 11 elements in these emerging ecosystems: sharing, connected telematics, vehicle swap, pay methods, predictive and sustainability services, grid-link, vehicle charging, driver management, enterprise data solutions, vehicle management, and financing, all areas it sees as drivers of success. From Sync 3 and FordPass to the company's recent purchase of Chariot and participation in Motivate and a series of research projects and pilot programmes, there is evidence across the company of its efforts in this direction.
Ford is working on technology platforms to support both ownership and shared usage models − changing the group's management and business model from focusing on how many vehicles it builds and sells, to how it can also provide the services surrounding vehicles and mobility. Specifically, Ford is working on connectivity, data/yield management, autonomy, and financial technology platforms to drive its efforts here. Eventually, Ford wants to look at the potential for vehicle management as a service, saying that it believes that the addressable market may reach USD100−400 billion between 2025 and 2030, compared with a connected telematics services market amounting to USD25−50 billion during the same period. Additionally, in expanding the company's field of business vision, Ford believes its mobility orientation will range from walking, biking and autos to shuttles and buses − but the company will stay out of the aerospace and spaceship industries.
In the autonomous vehicle space, along with the revenue potential from commercialising the vehicles and technology, Ford wants to get into transportation as a service (TaaS) and vehicle management as a service (VMaaS). As the driver is eliminated, Ford estimates the approximate cost per mile of TaaS to drop from USD2.50 per mile to about USD1.00 per mile with autonomous vehicles providing TaaS. While acknowledging that it is too early to be certain, the company sees the opportunity for the change to result in an even larger vehicle fleet, with vehicles seeing much higher use and needing to be replaced at a much faster pace than today. Initially, as with other automakers, Ford expects the autonomous deployment will be in geo-fenced areas, with corridors. Ford expects that its position as a leading OEM in autonomous vehicles will enable it to lead commercialisation of the vehicle type.
Ford has also already announced elements of its plans to lead development and application of fully autonomous vehicle technology and to develop a business around it. By 2021, the company will have Level 4 (according to the SAE standards organisation's definition) autonomous vehicles available for ride-sharing and ride-hailing fleets, with Fields recently saying he believes sales to private buyers could begin in the middle of the decade. During the presentation, Ford stated that it believes autonomous vehicles might account for up 10% of all vehicle miles traveled and 20% of vehicle sales by 2030, compared with 2% and 5%, respectively, in 2025.
Electrified solutions are now part of the core vehicles business, and there is an expectation that autonomous vehicles are most likely to use electrified powertrains. Accordingly, Ford plans to become a top player in electrified solutions, and has already announced plans to invest USD4.5 billion in electric vehicle (EV) technology. Ford believes the cost of ownership of EVs will decrease, on scale and technological advantages, while the cost of ownership for internal combustion engines will increase, on regulatory and rising fuel costs. Ford expects EV adoption will increase as barriers come down − EV costs will come down, the number of offerings will go up, infrastructure will improve, and consumer education will improve and drive demand up. Ford believes the cost of battery cells, a significant issue so far, will go from USD120 in 2020 to USD95 in 2025, and then to USD85 for an advanced lithium-ion battery and USD75 for a post-lithium-ion battery in 2030.
Ford recognises it has many traditional automotive business strengths, but also that it needs to continue to build several new capabilities. The new capabilities identified for investors include user experience innovation; business model innovation; data and analytics, software talent; and agile mergers and acquisitions team. Ford's strengths today include world-class vehicle platforms; automotive grade quality and reliability; technology development and engineering systems integration; manufacturing at scale and complexity; and global distribution, financing, and customer service.
Outlook and implications
Most automakers are looking at how to incorporate trends towards a 'sharing economy', including an accelerating change from consumer preferences for owning to sharing vehicles, into their strategies so their businesses remain viable, healthy, and profitable. However, Ford has presented one of the more cohesive and ambitious plans. Ford's management has built a strategy based on automotive manufacturing, which it is best at, while incorporating its goals based on expected future mobility trends into the corporate culture.
Much of the forward plan for mobility and transportation as a service fundamentally sees the greatest benefit for when autonomous vehicles are part of the conventional landscape, but there are also sharing elements that can and will be implemented sooner. While the overall strategy increases the company's business portfolio and revenue opportunities, it does so in a manner that keeps the company tied to the business it started with: vehicles and automotive manufacturing. Unlike some other business expansions in Ford's history, and that of other automakers looking to grow revenue through adding business, there is logic to the structure here, and it does not take the company far afield from its basic purpose of helping move people and goods.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.