Ford | |
AllianceBernstein 40th Strategic Decisions Conference | |
May 30, 2024 | |
9:00 AM EDT | |
Toni Sacconaghi: | Welcome, everyone. We're super excited to have Jim Farley, President and CEO |
of Ford, join us again this year at our conference. I'm Toni Sacconaghi, | |
Bernstein's IT Hardware and Electric Vehicles analyst. And I'm joined by Daniel | |
Roeska who is our U.S. Autos and Auto Parts analyst. We're going to do this | |
jointly together. Again, thanks very much for having us, Jim. | |
Jim Farley: | Thanks for being here. |
Toni Sacconaghi: | Jim, you were here last year and the year before and we're indebted to you for |
your participation. Maybe we could just start by your reflecting on what are the 2 | |
or 3 things that have happened in the auto industry that you believe are most | |
notable or have changed your thinking over the last 12 months. | |
Jim Farley: | Thank you. And hi, everyone. Good morning. It is a milestone to be here. There |
are a few things that have become extremely clear that were not clear a year | |
ago. The commoditization of the affordable EV cost. The supply chain connected | |
with that has become very clear. Batteries are, the chemistry formats are being | |
commoditized. The kind of design requirements for profitable, affordable EV. The | |
customers' interest in multi energy solutions that are more complex than just a | |
single hybrid system. That includes EREVs and increased diversity of PHEV | |
applications. The software roadmap for attached services has become much | |
clearer relative to the commoditization of ADAS. And how quickly the operating | |
domains for standard ADAS features, the pricing power of that being | |
commoditized, has become much clearer. The talent war has become much | |
more clear. | |
I come here at this moment in time like as a CEO much clearer about our | |
executional priorities and the way we need to make our way through this | |
successfully to be a great company is a lot clearer than it was last year. | |
Toni Sacconaghi: | And Jim, if I could follow up on that, what are the strategic or operational |
imperatives that result out of that? Because you said a lot of really interesting | |
things there. One, the commoditization of costs. Two, kind of the roadmap for | |
software and services. Maybe you could talk about what are the either | |
operational or strategic responses or changes given that increased clarity? | |
Jim Farley: | Let's take them one at a time. There's just natural law is emerging. Natural law in |
attached technology, like the software and attached services, that comes from | |
tech which was new to us, that natural law. The natural law in our business of | |
cost. You're going to hear every CEO talk about the EV transition and all they're | |
going to talk to you about is cost. Or that's what they should talk about. | |
Strategically, that requires a legacy company like Ford to completely disrupt the | |
engineering, supply chain and manufacturing standards. And so, it turns out we | |
were maybe smarter than we actually intended to be with our skunkworks | |
because the way they're working is completely foreign to the standard operating | |
procedures of Ford. And that was actually not something to celebrate. It was | |
1 |
Jim Farley (Cont'd): | actually required for fitness for cost. |
To use a completely different supply chain, to totally change the design | |
standards for our EV components, to go -- to vertically integrate and make the | |
sourcing decisions to a lower part of the supply chain, all those things are | |
actually required now to be fit. It's not something that maybe a year ago we were | |
like, hey, this is going to be really different. Now I know all those things are | |
required for excellence. On that strategically, basically taking our skunkworks | |
team and turning them into the standard for industrial fitness. | |
On the software side, it requires a laser focus with the best talent, laser focus on | |
leading the latest, the best, most customer-focused software deployment. I | |
believe that the China consumer experience digitally is far beyond the West. | |
What Huawei and Xiaomi have done inside the vehicle is far beyond what we can | |
see with CarPlay and Google Automotive Services. That is the natural law now in | |
terms of great software. | |
Strategically, how do -- you must have the talent in the company to give the | |
customer that functionality on the software side, but do it in a way that's | |
compliant with the standards in the West. And that, strategically, it's not about | |
updating your electrical architecture or having a great software team. That's | |
necessary. Sufficiency or winning comes from strategically having the talent who | |
can take that new standard, the best global standard I believe, and execute it | |
with a Western software tech stack. It's totally different. Strategically, it's a totally | |
different thing. And of course, this is all caught up in geopolitics, or will be, which | |
makes it all more difficult or interesting, depending on your point of view. | |
I think what I keep coming back to is the natural law that you have to have great | |
cost fitness and quality fitness to even have the right to compete. And that's | |
being defined not by here in the U.S. It's defined by China. | |
Toni Sacconaghi: | If we just -- clearly the -- I mean you haven't directly said it, but you've alluded to |
it in several of your comments, the standards being set by the Chinese, both from | |
a cost perspective and from a technology perspective, are really challenging or | |
pushing the industry. I think even 2 years ago, you were the first to say like the | |
toughest competitors were the Chinese. Before that was well known, I remember | |
you saying that 2 years ago. Does that just make it so much tougher for everyone | |
else? And how do we think about the global automotive industry like 10 years | |
from now? | |
Jim Farley: | Well, first of all, I think everyone said it. You guys have said it. The community |
that watches these stocks have all said it, that it's natural law. Like in the '20s | |
when the Model T came along, it's natural law that with price collapsing, you get | |
industrial fitness. That's what's happened in China. And I don't really see it as | |
difficult. I mean look, you have Leapmotor with Stellantis. You have BYD and | |
Toyota working together in China. You have VW working with Xpeng. You have - | |
- I mean Geely and -- I'll just go down the list, right? Whether -- the question is, | |
do you want to delegate that capability to someone else? Or do you want it - | |
develop it in your company? That's the strategic choice. | |
And as far as difficulty is concerned, I think this is just natural law. Like you don't | |
have a choice. If you want to be the best in the world -- so the way this could | |
probably play out is, it's starting with exports today. Into Europe, of course | |
Mexico, and a lot of other markets. You look at the Thai market in ASEAN, you | |
look at Mexico, you look at Europe, and already, not just in EVs, in ICE as well, | |
2 |
Jim Farley (Cont'd): | those brands are really becoming dominant. 21% of the Mexico market is |
sourced in China now. We all could drive to Mexico today. It's not far from here. | |
Why does that matter? It matters because of the supply chain. The supply chain | |
is there. The supply chain will be in ASEAN. The supply chain will be in Western | |
Europe -- in Eastern Europe. The supply chain will be in Africa. The supply chain | |
will be in Mexico. | |
And that's natural law I guess in a way. | |
And so, I think what you'll see is companies either moving off their internally | |
developed Gen 1 EV platforms because there's a new standard and it's more fit. | |
Or they will have, like Ford has done, a skunkworks team that tries to take | |
advantage of that opportunity and build the fitness in the company. I believe for | |
Ford, after what happened with Mazda, after what happened with Kia and all the | |
lessons we've had, we need that transfer function. | |
Daniel Roeska: | How do you, in your mind's eye, see your relationship with the supplier networks |
for Ford? You just mentioned going down the tiers a bit, but we've heard from | |
other OEMs that in this transition they find sometimes their suppliers aren't | |
moving fast enough to the new kind of skunkworks standard. What role do you | |
think, or how would you like suppliers to shape up in the next decade? | |
Jim Farley: | I mean it's going to take care of itself. It's natural law. What I mean by that is, I |
keep saying that, but it's like when we have a CEO of a part for our skunkworks | |
team and they are looking at even a non-EV component, well let's say an | |
inverter, a silicon carbide inverter, and we want to make money at $25,000 or | |
$30,000 cost, so we have to have like completely new cost delivery. And when | |
we quote this supplier or that supplier, we always start with the challenger. And | |
that automatically creates fitness. | |
And it's interesting because our current suppliers often own the design, our | |
design, the design of that part. What we're finding with the challenger suppliers is | |
they're willing to actually give us the IP of the part, the design of the part itself. | |
And then we work with them on the technology roadmap to make it better, and | |
then when we go to our traditional supply chain, we have the design fixed, we | |
know it fits a future technology roadmap for that challenger supplier. We have our | |
own quality standards which we have to actually study and verify whether those | |
are really required to be competitive. And then we'll see how good the traditional | |
supply chain is. | |
And we've learned a lot. I'm not going into the details of who is going to win and | |
lose out of that. That's not the purpose of this talk. It's just very interesting to me | |
that there's a new global standard of fitness. And that could be from mega | |
castings, unit castings, so something new, new technology like that where our | |
traditional suppliers actually aren't used to doing that work, to very ordinary | |
things like seats and IPs. | |
Daniel Roeska: | That sounds optimistic that you think the supply chain or parts of the supply chain |
will be able to kind of deliver the costs that you need -- | |
Jim Farley: | I do. Because fitness is required in China. |
Toni Sacconaghi: | But is the -- I mean you could view that both ominously, or excitedly, right? Only |
the fit will survive. I know we've talked in the past about you're seeing | |
3 |
T. Sacconaghi (Cont'd): consolidation going forward. Is that consolidation through people dropping out of the industry? Or these partnerships that you alluded to becoming stronger and there being consolidation from an investment perspective? Perhaps out of necessity or perhaps just to bolster up to be able to be stronger in this more competitive world? If you just think of industry structure, do you see fewer car companies? Do you see car companies, established car companies consolidating or not making it? How significant is this fitness threshold and does everyone pass?
Jim Farley: | No, I don't think everyone makes it through. And the most interesting case |
studies there, the ones in the short run, are the all-EV brands who don't have an | |
ICE profitable business, where the capital markets they're facing a lot more | |
challenging access to capital. Whether that's in China and the U.S., those are | |
kind of the most natural ones to look at, I think they have to get fit because they | |
don't have Pro. I have this amazing business called Pro. I wish everyone would | |
value it like it deserves to be valued. But they don't have that opportunity. | |
I think you're also going to see the state-owned enterprises in China, they're all at | |
different points, and so that's going to have to be rationalized. There's 53 million | |
units of install capacity in China and the local market is 29 million. And they built | |
that capacity probably partly for export, so I wouldn't call it overcapacity. But by | |
the same token, it's like incredible amount -- I mean that gap between the local | |
market and the total capacity is larger than the entire U.S. North America market. | |
It's larger than the entire European market. It's not small. | |
That pricing pressure is going to be there for the all-EVs. I think that will happen | |
in a lot of forms. But the most important part of this consolidation is talent | |
walking. Walking from one brand to another. That's the most exciting opportunity | |
we're seeing in this consolidation. Talent, good talent, wants to work for the best | |
companies with the best strategy and the best execution, and so what we're | |
seeing is talent changing. Changing teams, putting from one shirt to another | |
shirt. And that's happening right now in a large, large way. | |
There's another thing that's happening in China. Well, everywhere really. It's | |
actually happening everywhere where partial electrification is becoming more a | |
bigger part of the solution. I don't know if regulators, we're going to have to talk to | |
all the regulators because they really bet on pure EVs, but EREVs in China are | |
really the growing part of the EV market. And when you see reported new energy | |
vehicles, they include EREVs. And EREVs in the U.S. could be 120 miles of all | |
electric and they drive like EVs. They don't drive like combustion vehicles. You | |
get an EV and you have several hundred miles of range, you have no range | |
anxiety for a long trip. You don't have to rely on any chargers. And those vehicles | |
have half the batteries, so they're very profitable. And they're different than | |
PHEVs which are traditional combustion vehicles. | |
I think the other thing the fitness test is how quickly can some of the players | |
adopt these kind of in-between solutions that customers are really excited about? | |
A year ago, we weren't covering the cost premium for a hybrid with the price that | |
customers paid us. We are now. Many of our hybrids in the U.S. are now more | |
profitable than their non-hybrid equivalent. That was not the case a year ago. | |
Customers are voting. They like these in-between solutions. We still have a lot of | |
work to do with regulators, because they're not there. | |
And that's another part of the consolidation. Can you -- do you have the | |
resources to offer customers this choice that Ford does? We're number 3 in | |
4 |
Jim Farley (Cont'd): | hybrids in the U.S., we're number 2 in EV, and we're the most popular ICE brand |
with vehicles like F150. Depends on the month, of course. That choice is super | |
important. Turns out, being a company, if you're open, you have the option. But I | |
believe partnerships will be huge. You're just going to see a ton of partnerships. | |
Toni Sacconaghi: | Just on the hybrid side, do you -- I mean do you view it as a 5 or 7-year interim |
solution? You mentioned policy regulators. Like do you think California is going to | |
change its view on hybrid in 2035? Or do you think Europe is going to change its | |
view? Or do you feel like this is a 5 or 7-year bridge? 7 years, you'll have lower | |
cost in terms of batteries, you'll have higher range, you'll potentially have solid | |
state batteries that the need for hybrids will go away. How do you think about | |
that? | |
Jim Farley: | That's a good question. I think we should stop talking about it as transitional |
technology on the powertrain side. I mean the first generation Prius, I was at | |
Toyota, it's 25 years ago. Ford launched a hybrid Escape and here we are talking | |
about the exciting hybrid market. It's 25 years old now. | |
Maybe PHEVs, traditional PHEVs that go 60 kilometers, 100 kilometers could be | |
a transitional technology. But I don't see hybrids. Why? Well, first of all, hybrids | |
aren't what everyone thought they were going to be. Hybrids used to be super | |
efficient powertrains. And although we have that on Maverick and it's super | |
popular, 35 mile per gallon small pickup truck, our fastest turning vehicle and our | |
lowest cost vehicle at the company in North America. But we also have Pro | |
Power Onboard for F150 hybrid which is now 25% of our F150 sales. Our | |
competitors, my competitors don't even have hybrid and I sell 25% of all F150s, | |
the second largest consumer product in the U.S. behind the iPhone in total | |
revenue, is hybrid. And why? It's not, even though the powertrain is very efficient | |
for towing, it's Pro Power Onboard, exportable power. That's what those batteries | |
allow you to do. Power a job site. Look what happened in Texas last week. | |
Power your home when there's a grid outage. People -- so hybrid isn't just what | |
people thought it was. It includes exportable power, so that's why I don't think it | |
will be transitional. | |
The regulator question is a bit different, because the big decision is going to be | |
EREVs. It's an electric vehicle but it has a combustion engine. But it doesn't | |
power the car. That is really a big decision for us as an industry and for | |
regulators. Is that an EV or isn't it? It has a smaller battery, but 95% of the trips | |
are going to be all electric. And then you don't have range anxiety and the | |
infrastructure is taking time to fill out, so it's a good solution. That's why it's | |
popular in China. That's why it's doubled its sales in China. We really like that | |
solution. | |
Daniel Roeska: | A few years ago, you made a big bet on the kind of EV/non-EV drivetrain |
segregation within Ford and you created kind of Model e and Blue. Now with the | |
discussion we just had, is that still as relevant to split it exactly that way? | |
Jim Farley: | Yeah, it's a good question. I think certainly the way we look at it is EREV, |
something with a plug, that's like a Model e product. Yes, it's actually more | |
important now that we did it. Not because we did it, but because of the focus I'm | |
seeing in the team. If you take the powertrain during this transition and you put it | |
in your businesses, let's say Pro and non-Pro, if we split it that way, I don't think | |
you would have the laser focus in a legacy auto company in getting this fitness | |
level. Because the pain is so high right now, the urgency is so high, that it's an | |
all-hands-on-deck company project now to turnaround Model e. | |
5 |
Jim Farley (Cont'd): | And if you have -- if you don't do that, some car companies will create CO2 |
benefits for the EV business. Actually, Ford did that to get the original funding for | |
EVs. We actually did that. We said if you -- we created a carbon trading model | |
inside the company to allocate the capital. That's a dangerous thing when you're | |
running a business. We don't believe that EVs should be subsidized. We believe | |
that we have to get to that fitness level as soon as possible. Because it will move | |
our company to a good company to a great company. I believe this is one of the | |
most important things we've done, but it is one of the most painful things we've | |
done. | |
Daniel Roeska: | And if we zoom in on that and kind of just push out let's say the timeline on Model |
e and the progression a little bit, what are the building blocks from where you are | |
today to that future state? What is the 1-2-3 to get to that profitable Model e? | |
Jim Farley: | That's longer than 26 minutes, but the high hard ones on that would be -- look, |
we kind of shrunk the company around where we can make money. But to be a | |
vibrant company, we have to grow. And to grow, you have to have competitive | |
cost. You have no rights to grow unless you're competitive on growth, on cost. | |
But that's not the only fitness. That's the kind of entry ticket. | |
The first thing -- so inevitably, it's going to be this cost/quality thing to solve for. | |
But we know customers really well in work and in enthusiast iconic products like | |
Bronco and Mustang and F150. We now have the Maverick. We have now a new | |
Ranger. We have a new F150 coming out and we have a new Super Duty. We | |
are globally the number one in pickup trucks. We know pickup truck customers. | |
We know work. We are dominant in Pro. Not just competitive, we are dominant. | |
And so, the most important thing is to not launch in customer segments that are | |
generic for us. We go to the places where we can use the innovation and the | |
cost leverage to customers we know well. | |
Look at Maverick's success. It's I think the first downpayment on Ford growing | |
again globally. But we can do it globally, so that's one. Compete where you know | |
the customers really well. Because for software innovation, which we haven't | |
really talked about, and all the digital transformation of our industry which is most | |
exciting for me, integrated services, that's where you can win. Look at Pro. We | |
have 3/4 of our software subscriptions are on Pro. And I believe it's a marker for | |
the future industry. | |
The second thing is, we have to get to a radically different engineered product | |
with a different supply chain and manufactured radically more efficiently. And | |
that's a necessity. And the standard, again, is not global OEM. It's a different | |
standard and it's brutal. And it requires a completely different approach, at least | |
for Ford it did. | |
I think the next thing is, you have to have the talent on the digital side to | |
differentiate your product. You can't just look at the digital transformation as like I | |
can make some money. That's not sufficiency. Sufficiency is you have to win. To | |
have a winning mindset in software and digital, yes, you have to have an | |
advanced electrical architecture, it has to be competitive in cost, you can't have it | |
too expensive. But you have to have software that really differentiates your car. | |
When I look at China, I was there for the last 10 days, so it's very fresh in our | |
minds, all of our minds. The competition is so high in China for new energy | |
vehicles that you're seeing sub, sub, subsegments that you don't see anywhere | |
else. And many of those competitors see the digital experience so compelling | |
6 |
Jim Farley (Cont'd): | that you don't have to drive the car. That the experience inside your car is so |
compelling that it's your new third space. That is what you want in a digital | |
experience. You want movie projector for the second row. You want content. You | |
want ADAS to come to life in a way that you want. You want AI assistance in the | |
car. Why do you want that? Because Level 3 is going to give us time back. And | |
when we get Level 3, the car is effectively stationery, so that's the next thing. We | |
have to get our digital capability in the company differentiating. | |
And that's why Pro is important for the company. Because we can do it with | |
productivity. Customers will pay for 24/7 uptime and productivity. And that's what | |
we're learning as a company that I think a lot of OEMs aren't because we have | |
Pro. The biggest gift I believe for Pro is not just this year's profitability. It's that it | |
is showing us what fitness will look like in terms of growth and revenue power | |
and kind of derisking our revenue. That's what it's learning. But to do that in the | |
retail world, look at Microsoft and Apple. It's a different game to win in the retail | |
software business. Those are the key ones. | |
Toni Sacconaghi: | Jim, if I could just follow up, because you talked about sort of playing in |
segments that you know well. And you clearly have very established | |
competencies in certain market segments. But you also talk about doing really | |
well to grow. Are those implicit tradeoffs? And if you did have to trade off | |
profitability versus growth, what is more important to you over the next 5 years? | |
Is it getting that cost fitness? Dominating in the niches where you are and being | |
super profitable even if that means you don't really grow? Or is growth more | |
imperative? And how do you think about that tradeoff? | |
Jim Farley: | It's the first. It's the first. But it's an interesting predicament. Because if we |
compete where we have that advantage, you could argue that our fitness won't | |
have to be as high. And I think that's the dilemma. The key strategic bet for us is | |
to compete in those places, but at the low end. Because we can grow. When I | |
joined Toyota a long time ago, 40 years ago, we sold 400,000 small pickups. The | |
average small pickup in the U.S. -- and so why? Well, there were Civic and | |
Corolla customers then, but there were a lot of customers who said hey, this | |
pickup trick is cheap enough. It was called the 8100 truck, it was before the | |
Chicken Tax. That told me as a future executive that people really like pickups. | |
And if it's the same cost as a Civic or Corolla, there's going to be some | |
Americans who switch. We believe there's some growth there actually, but the | |
most important thing to get the fitness is you've got to force yourself to compete | |
at the low end. That's the hard part. | |
Daniel Roeska: | How do you see Ford's involvement -- |
Jim Farley: | Now I'm giving away a product plan. |
Daniel Roeska: | How do you see Ford's involvement in international markets? Going beyond the |
U.S., right? And the fitness -- | |
Jim Farley: | That's where the game is going to be played. |
Daniel Roeska: | The fitness in Europe and China probably looks different. You're just going back |
to Europe, so talk us through that a bit. | |
Jim Farley: | You know, Europe, our strategy -- well first of all, I think we're really fortunate that |
we stayed in China but we had a low cost, low capital strategy. That wound up | |
being actually really smart but maybe not totally intentional. We just didn't want to | |
7 |
Jim Farley (Cont'd): | lose a lot of money. We are making money in China now. A lot of people aren't. |
And in Europe, our answer is pretty simple. Like we believe the Pro business is | |
so strong there, and we're just kind of getting started, we really haven't gone on | |
the low end. We're just launching our low end vans now. And the attach rates for | |
services there are not as high and for parts, so its kind of a harder business for | |
Pro on the attach side. We think that that's a fitness test for us too. | |
We really believe Pro, and we'll do kind of niche iconic models there on the retail | |
side, Pro is our future there. And the Pro market is huge there, especially the | |
small van market where we've never been successful. Stellantis is very | |
successful, and they have huge industrial scale. I think Pro, we're just building, | |
VW's partnership is coming to life, we are now fully building the 1 Ton van with | |
them and the same for Amarok and Ranger and we're number one in pickup and | |
1 Ton vans. And we're just launching our new product, so we have a really strong | |
future in Europe. | |
I'd say the real interesting question is, in South America, Africa and South Africa | |
specifically for us, in ASEAN in Thailand where we have 2 plants and growing | |
Ranger business, all those places we've restructured dramatically to be | |
profitable. Which we are now very profitable. And yet the Chinese competitors | |
are coming in with ICE vehicles too there. And we have a choice between do we | |
grow and how profitable is that growth? Or do we stay where we are? | |
We think we have to futureproof that business. We think that just staying where | |
we are with Ranger and Everest could be a risk. We believe that the competitors | |
that we're seeing there in all those markets now are very fit and we don't want to | |
do what happened in many markets for Ford, so we need to compete in the low | |
end and we need to futureproof the electrification of those products. And we'll do | |
it smartly where we can make money and we'll be thoughtful about partnerships. | |
Toni Sacconaghi: | Jim, you had talked a little bit about having a software stack and a digital |
experience that's compelling and what you had observed in China. Ford Pro is | |
probably the best example in the industry of kind of beyond the box revenue to | |
use kind of the technology example. But how do you think about creating, and | |
more importantly monetizing the beyond the box revenue on the consumer side? | |
Jim Farley: | Okay. |
Toni Sacconaghi: | Because the Pro side, and you're welcome to share some of the numbers |
because they are pretty compelling and contribute to the outsized profitability of | |
Ford. But how do you -- are you -- how do you think about beyond the box for | |
consumer? How does it manifest itself? And are you more or less excited than | |
you were like 2 or 3 years ago? | |
Jim Farley: | You won't let me talk about Pro. I really want to talk about Pro. |
Toni Sacconaghi: | No, no, I said you can talk about Pro. Throw out all the numbers. And then let's |
talk about consumer. | |
Jim Farley: | But your question was like no, let's talk about -- |
Toni Sacconaghi: | No, no, definitely. Pro is a great story to talk about. |
Jim Farley: | Yeah. It turned out -- actually, the parts business is as exciting as the software |
8 |
Jim Farley (Cont'd): | business in Pro. It's kind of -- it's a system, it's an ecosystem with prognostics on |
the vehicle now that we can make the vehicle predict its own failure. And a parts | |
business that's 30% plus margin and then a software business that's 40% to 50% | |
margin, it all kind of works together for productivity and uptime. And that's where, | |
of the 770,000 subscriptions, 560,000 are Pro, and it's all productivity software | |
from fuel car fraud to now we can control the speed of the vehicle, we can control | |
the access to the vehicle that the Telogis and the third-party telematics can't | |
compete with us. They don't have control over the vehicle. And now about 13% | |
of our EBIT on Pro is attached services. And we think it will be 20% in a couple of | |
years. And already, Pro is easily the most profitable part, 16% margin in the first | |
quarter and we see a lot of upside. | |
Let's go to retail. I think it's going to be pretty challenging. Maybe I think more | |
challenging than I thought. But I don't think it's so challenging that you can't build | |
a great business around it. It just -- what we've seen where ADAS is pervasive in | |
China, the lower operating domains, let's say hands free, no turn lane, that going | |
be commoditize maybe faster than I thought. And so ADAS is still a huge, I think | |
the largest profit pool in this first inning of consumer digital revenue for auto | |
companies. ADAS is big. It's really big because it has a lot of pricing power. But | |
what we need to do is make sure we lead on ODD, the operating domain. We | |
need to get to a Level 3, not like the Mercedes system at 35 miles an hour where | |
the car in front of you, but like 80 miles an hour on the highway as most | |
Americans will want it to be. And you give those kind of empty calorie miles back | |
to the customer in terms of time and you have an experience inside the vehicle | |
with content and productivity and all the other things that you could do at home. | |
You're like, wow, I've got all this time back and it's super productive for me as a | |
consumer. I think that's very compelling still. | |
But if you are -- if you were just buying your system from a supplier and there are | |
12 other car companies that offer the same digital experience, you will not have a | |
lot of pricing power. You have to be at the leading edge of the ODD and you | |
have to have kind of your stationary product experience so to speak so good that | |
people want to be in your car versus other people's brands. | |
I think ADAS is good. We're just starting with safety and security. OnStar has | |
been out there for many years, but it's a different tech stack. Safety and security | |
as auto retail I think has some pricing power, but I think that will commoditize | |
really quickly. And beyond that, I think this productivity kind of experience, | |
stationary experience, is a big thing. It's like all the pieces working together, from | |
content, productivity doing conference calls, all of that is going be -- like you have | |
to be a leader there. | |
And I don't think it gets monetized in like a connections prime payment you make | |
to Ford. Although we'll try. I don't think it's going to be like huge. I think you're | |
going to monetize it on your pricing for ADAS. | |
Toni Sacconaghi: | Is it your pricing for ADAS or is it just people want to buy your car? Because they |
know your ADAS is good, but they sit in the car and go, wow, this is so cool, like, | |
I've got buy this car. Or you charge little more for the car? | |
Jim Farley: | And how ironic is it that the monetization of that may be really low marketing |
cost? | |
Toni Sacconaghi: | Right. But the ADAS itself, you talked about Level 3 and I get that. We could go |
on a long trip, you can be super productive, and it could be fun, and you know. | |
9 |
T. Sacconaghi (Cont'd): How quick technically and regulatorily do you think we get to Level 3? And we talked about maybe you monetize through better sales of the car, but what do you think the pricing power is on Level 3?
Jim Farley: | We're having that debate right now in the company, so it's an active discussion. |
Technologically, we always saw hands free as a technology gateway to ICE off. | |
We always thought that being a leader in hands free with BlueCruise, even | |
though technologically it's actually quite different roadmap, that that would be a | |
really big important winning marker. For our ability to win in Level 3, it's | |
BlueCruise. We have like 26 million hours now on BlueCruise. We know all the | |
disconnects. When do people disconnect? Is it lane change, lane centering? | |
What is kind of natural for humans or the car to do lane centering? Especially on | |
two lane roads with trucks and stuff. I'd say technologically, I'd be surprised if the | |
leaders in Level 3 aren't out in the market in 2 years in the U.S. So it's soon, it's | |
right around the corner. | |
Toni Sacconaghi: | And regulators approving that? |
Jim Farley: | Yes. I think we're having discussion in the company about what that means, but |
Ford has always been, I mean we're a 120-year old company, we know the | |
regulators really well. We want it to be a win for them too. We know this is going | |
to be good for customers and so we'll work really closely with the regulators to | |
make sure this is right, that it's not only safer than a human, but it's -- it works. | |
And it's important for us because our reputation is going to be on the line. We | |
see data privacy and the system working safely as like a differentiator for us as a | |
company. We want that to work well for regulators. | |
And no, I think it would be pretty hard to say no. I mean hands free is pretty | |
close, right? You've got lane centering, you've got proximity, I mean all the basics | |
are there. The next thing is just doing it at 80 miles an hour. And I think the | |
question is going to be the ODD expansion. When does snow, hail, rain, heavy | |
rain, when does the operating domain -- how do you prove an operating domain | |
is safe? That part is a little bit less clear to me. But I think on a sunny day in the | |
tristate area, I think in 2, 3 years there are going to be quite a few people pushing | |
that button right here and it's going to be a pretty big opportunity. | |
As far as pricing is concerned, it's a good question. I really don't want to get into | |
that. Honestly, we could spend a lot of time on it, we only have 7 minutes left. I | |
think that for a while it's going to be incredible pricing opportunity. I know when I | |
sold my Prius when I left Toyota, the HOV sticker was worth $5,000. I know at | |
least 16 years ago that people were willing to pay $5,000 to drive in the HOV | |
lane in California for a couple of minutes a day. How much are people willing to | |
pay to get 45 minutes back in their life? I think for a while it's going to be a pretty | |
good run. | |
Daniel Roeska: | Maybe take a step back. You talked about the capabilities and talent needed for |
that software journey. How do you set this up organizationally for Ford to deliver | |
kind of that pathway? What do you need to do to create the org and environment | |
for you to deliver that product? | |
Jim Farley: | We're way beyond the 8 players attract 8 players, but that's a necessity. It's |
safety critical. You can't just take someone from Apple and Google. You can't fire | |
an airbag from the cloud. Even though it may be more efficient. | |
Daniel Roeska: | You could, but it might be late. |
10 |
Attachments
- Original Link
- Original Document
- Permalink
Disclaimer
Ford Motor Company published this content on 30 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 May 2024 21:35:04 UTC.