Feb 15
The Innovator’s Solutions— Ford Edition
Should Ford spin-off its EV business or not? Maybe only time can tell what’s the “right” way to organize, and how well they execute. Nevertheless Ford has to either innovate to thrive or stay on the track to decline. So what could be “the Innovator’s Solutions” for Ford? Let’s explore a few changes that are happening & how they may affect with the decision.
Direct customer relationship
In Jan. 2022, US inflation hits the highest in 40 years with 7.5% growth of CPI. New & used car prices have been key contributors since COVID. More cars have been sold above MSRP. It was just 3% in Jan. 2021, and jump to 82% in Jan. 2022. Now, Ford & GM have to thread to withhold the supply of popular models & hope dealers will “play nice”.
Dealers have been the major channel for consumers to buy cars in the US. Even today, only 32 states allow Direct-Sales for EV. When cars are oversupply, middlemen provide convenience & even incentives for customers to buy any car on their lot. However at undersupply, even many may of them may absorb the risk & cost to keep the long-term customer relationship. Others may need to take the profit to survive. After all, it’s just business. So, the question is what else Ford can do about this fundamentally?
Event just to compete, Ford needs to create Direct-Sales channels like what Tesla & other new EV startups do. Ford can even double down to create a proper build-to-order model. By focusing on the professional customers, Ford may have unique opportunities to innovate the business model. For example, Ford may be the “Dell of e-trucks”. So, Ford brand is less likely hold hostage if there are such alternatives. But there is a catch. It complicates Ford’s current relationship with the dealers & may backfire on its main business. Sure, it’ll be better if Ford can do both. The difficult part is how to isolate the new from the old.
V2G
On Feb. 2, 2022, Ford & Sunrun announced the partnership to accelerate the adoption of zero-carbon solar energy by plugging in F-150. Vehicle to Grid(V2G) can improve the efficiency of the smart power grid & even save cost by flatting the duck curve. Ford’s trucks may be in the unique position to bootstrap the ecosystem to a critical mass by A) connecting commercial Ford truck fleets and B) aggregating its suburban customers. Which may remove the barriers to commercialize V2G services. The secret sauce may be how to make them “aggregately smart” to flat the duck curve while maximizing the utility of EV. But this can be very different from just making & selling the cars as Ford is good at for 119 years.
Stop the bleeding
The chip shortage made a -700K dent to Ford North American car production in 2021. In February 2022, Ford plans to stop assembly at 8 plants in North America because chip shortage continues. As Murat Aksel, head of procurement for Volkswagen Group put it: “Because of a 50-cent chip, we are unable to build a car that sells for $50,000.” So, what could Ford change to avoid falling into a similar trap again?
Ford may try to increase supply, reduce complexity & build resilient capability by owning SW/its destiny. More importantly, Ford has to fully embrace modern & generic chips instead of the legacy & custom-made chips. Even this may cost millions, it’s better than spending billions on new fabs to build old chips, as Intel CEO, Pat Gelsinger suggested. Such fundamental changes are different from what Ford’s current resources, processes & priorities optimize for. Therefore, Ford may have a better chance by starting from a clean slate.
Full Disclosure
The opinions stated here are my own, not those of my company. They are mostly extrapolations from public information. I don’t have insider knowledge of those companies, nor a whatever expert.
