How Ford (F) is Adapting To A Rapidly-Changing Industry

Getty imagesGetty images

The automobile industry is experiencing its biggest disruption yet and each player has felt the heat of it. The Blue Oval is no different. Here’s how Ford Motor Company (F) is responding to the changes that are underway and why buying it may be a good idea.

Focus on commercial vehicles

In 2018, Ford announced its plans of “building a winning portfolio and focusing on products and markets where Ford can win.” The company decided to focus on trucks and commercial vehicles instead of traditional sedans for North America. Ford projects that by 2020, almost 90% of its portfolio in North America will be trucks, utilities and commercial vehicles.

Ford already has a has a strong presence in the medium and heavy-commercial vehicles market in Europe. The company recorded its best commercial vehicle sales volume in 25 years, selling 380,900 commercial vehicles in Europe in 2018. It now holds a 14.1% market share in the European markets, its highest level since 1995.

The global commercial vehicle market is expected to witness significant growth in the coming years. According to a report, the global commercial vehicles market size was valued at $1.32 trillion in 2017 and is estimated to expand at a compounded annual growth rate of 7.1% from 2018 to 2025.

Ford is collaborating with OEM players in this segment. In January 2019, Ford and Volkswagen confirmed their intent to develop commercial vans and medium-sized pickups for global markets beginning as early as 2022. The two companies have a strong commercial van and pickup businesses around the globe and are looking to “share development costs, leverage their respective manufacturing capacity, boost the capability and competitiveness of their vehicles and deliver cost efficiencies, while maintaining distinct brand characteristics” through the alliance.

In March, Ford signed a memorandum of understanding on a significant restructuring of its Ford Sollers joint venture in Russia, focusing exclusively on growing its commercial vehicle business moving forward.

Ford is working actively on connected and autonomous vehicles

Ford first shared its plans for the autonomous space in 2016. It then planned for a a high-volume, SAE level-4 capable autonomous vehicle in commercial operation by 2021 in a ride-hailing or ride-sharing service. Over these years, Ford has expanded its research in advanced algorithms, 3-D mapping, radar technology and camera sensors.

To work in this segment, Ford collaborated with Velodyne, SAIPS, Nirenberg Neuroscience LLC and Civil Maps.  In 2017, Ford announced a $1 billion investment in Agro AI during the next five years to power the company’s initiatives in autonomous vehicle development.

In March 2018, Ford unveiled Co-Pilot 360, one of the most advanced suite of standard driver-assist with features such as automatic emergency braking with pedestrian detection, blind spot information system, lane keeping system, rear backup camera and auto high beam lighting.

Ford is working on wireless communication technology. In January 2019, Don Butler, executive director, Ford Connected Vehicle Platform and Product wrote that Ford is committed to deploy cellular vehicle-to-everything technology — or C-V2X — in new vehicle models in the U.S. beginning in 2022.

“With plans to roll out 5G cellular networks underway, C-V2X can complement the sensors of self-driving cars. While these vehicles will be fully capable of operating without C-V2X, the technology could add to its comprehensive view from the LiDAR, radar and camera sensors.”

McKinsey estimates that the first at-scale commercial operations for self-driving taxis could be available as early as 2020-2022. In the near term, it projects that the advanced driver-assistance systems (ADAS) technology will be important as the market prepares for full autonomy. The market for ADAS could double by 2021, reaching $35 billion in revenue.

Ford has already teamed up with Walmart and Postmates to explore the option of delivery of everyday goods such as groceries, diapers, pet food and personal care items using self-driving vehicles.

Electric is the way forward

With projections that electric vehicles will overtake their gasoline counterparts in terms of cost advantage and performance in the coming years, automobile manufacturers are making huge investments to launch variants of electric vehicles.

In early 2018, the company raised its commitment to $11 billion with the plan to release 16 fully electric vehicles within a global portfolio of 40 electrified vehicles by 2022. In April 2019, Ford invested $500 million in Rivian and partnered to work together to develop an all-new, next-generation battery electric vehicle for Ford’s growing EV portfolio using Rivian’s skateboard platform.

IHS Markit forecasts that sales of vehicles with an electric propulsion system will reach 1.28 million units in the US in 2026, compared with just less than 200,000 units in 2018.

Final word

No transformation can be undertaken without some pain. In terms of numbers, 2018 was a disappointing year for Ford. Currently, the company is in the middle of restructuring operations across Europe and South America while looking at China with a fresh perspective.

Ford recently unveiled its transformation blueprint with a mission to bring together the “Best of Ford” and the “Best of China,” something which is easier said than done in the backdrop of a trade tensions. Ford is simultaneously working on its financial fitness and is looking to cut-costs by $25.5 billion by 2022.

With stable revenue, sound dividends, innovation, and adaptability, Ford has immense potential to reward investor who believe in its ability to pull off its mission.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks , Investing Ideas , US Markets
Referenced Symbols: F

More from Prableen Bajpai



Prableen Bajpai

Stocks, Technology, Blockchain

Research Brokers before you trade

Want to trade FX?