Ford's History and Electrification Transition | A series of cases in the automotive industry

Guide

Guided by global carbon reduction goals, new energy technologies are constantly evolving, and the automotive industry is changing as rapidly as the wind and clouds. Whether it is at the policy level of regulatory agencies or the technical design and strategic transformation of car companies, the overall innovation of the automotive industry is endless, and the game between gasoline vehicles and new energy vehicles continues. A series of cases in the automotive industry are now launched, aiming to explore the future trend of the industry by combing through the changes in industry rules and the transformation and development of car companies.

In this issue, we focus on Ford Motor. Founded in 1903, Ford creatively introduced the method of assembly line batch processing into automobile production, greatly increasing automobile production and reducing prices, so that automobiles have entered thousands of households. After nearly 20 years of dedicated production of the famous Model T, Ford began to diversify into more and more models of its own models and overseas markets, actively acquiring a series of sub-brands in the face of increasingly fierce market competition. Due to the historical baggage of high pensions and medical benefits, as well as the sharp decline in sales of high-margin models due to the rapid rise in oil prices after 2005, Ford had to sell the sub-brands it had acquired and finance it through mortgages. In 2008, Ford experienced a crisis on the verge of bankruptcy, and after several years of recovery, in 2018, it once again encountered the dilemma of declining sales and declining performance. Will these efforts allow Ford to continue its past glory? Everything remains to be seen.

【China Financial Case Center Text: Yi Junya Editor: Xie Binbin】

Part 1 The Founding and Early Development of Ford Motor

1.1 Founding of Ford Motors

In June 1903, Ford Motor was founded in Detroit, USA, and its founding team included more than ten investors in addition to Henry Ford, who was the main technical person. With the help of Henry Ford's technical talents, Ford successfully developed the first Model A car with the support of shareholders' funds, and this simple driving model was well received by the market, selling more than 1,700 units within 15 months of its production, which favorably supported the subsequent company's research and development.

Between 1903~1908, Henry Ford and other engineers developed 19 different models, including 2~6 cylinders, chain drives or shaft drives, etc.; Of these models, the smaller, relatively inexpensive ($500) Model N led the way, while the $2,500 Model K sold poorly. This market performance laid the foundation for Ford's early development thinking, which was to produce high-quality and affordable Volkswagen model cars. Guided by this line of thinking, in 1908 Ford designed and produced the Model T, which was relatively cheap (about $825) and relatively reliable (it could drive on dirt roads that other cars couldn't pass), and the model was produced more than 10,000 units in its first year, which was all the rage.

The Model T helped Ford capture the early U.S. auto market. By the end of 1913, Ford had produced about half of the U.S. auto market, and market demand continued to expand. In order to further increase production capacity, Ford has innovatively adopted an assembly-line approach to mass production in automobile manufacturing: production is divided into several stages, each worker is fixed in one position and is responsible for only one link, and the process uses a conveyor belt to transport semi-finished products to the next worker. The results of this strategy have been remarkable. However, due to the difficulty of concentrating on the long-term work spirit of workers and the low efficiency of some workers due to various reasons, the assembly efficiency of the entire assembly line has been affected, and the pass rate of Ford has also been reduced. To solve this problem, in 1914 Ford announced a minimum daily wage of $5 (almost double the minimum daily wage at the time) and reduced the daily working day to eight hours. As a result, Ford has been able to recruit more and better workers, and workers have improved their efficiency and quality under shorter working hours and better pay, making Ford's assembly line assembly efficiency far higher than that of its competitors. The increase in efficiency also led to a steady reduction in the price of the Ford Model T, from $825 per vehicle in the early days to $290 per vehicle. At the same time, Ford also pioneered the system of authorized dealers, allowing professional dealers to help sell cars.

Until 1927, the Model T had been in production for 19 years and sold more than 15 million units, but American consumers were tired of the Black Model T. Wealthy customers want to own high-end cars that are more luxurious and perform better; The average customer tends to buy a used Model T for a few tens of dollars, or through the auto finance subsidiaries of other auto companies to buy the car in installments (Ford is against auto credit and installments); Other customers with unique needs also want to own more models, and these segments are being met by Ford's competitors, and Ford's market share in the U.S. is being eroded. After 1927, Ford stopped producing the Model T and instead produced and sold the Model A. While the Model A was equally popular, consumer demand was diverse, so Ford introduced the first V-8 engine in 1932 to meet the needs of the higher-end, more powerful market.

Along with the change of models, Ford is also making changes to its "single product" strategy. In 1922, Ford acquired Lincoln and entered the high-end car market; In 1935, Ford founded Mercury Motors, which mainly produced cars in the mid-price segment.

1.2 Early expansion and World War II influence

After the start of World War II, civilian automobile manufacturers were requisitioned to produce military products, and during this period, Ford also provided the U.S. military with a large number of bombers, aircraft engines, tanks, destroyers, and other military supplies, thus forging a good relationship with the U.S. government and military. The production of military vehicles has also laid a good foundation for the R&D and production of Ford's follow-up trucks and other large vehicles.

After World War II, with the growth and prosperity of the American economy, American consumers wanted to get newer, larger and more powerful cars, so in the 40~50s of the 20th century, American automakers have launched new models one after another. In 1948, Ford introduced the "Ford 1949" model, which helped Ford regain the second place in the United States in terms of car sales, and helped Ford sell more than 800,000 vehicles in 1949, contributing more than $100 million in profits.

In the period since, Ford has launched a series of models that have been popular in the market, including but not limited to F-series pickup trucks, Thunderbirds, Mustangs, Mondeos, Taurus, Focus, etc. In addition to model innovation and manufacturing improvements, Ford also began to diversify its business after World War II, and its business gradually expanded into the fields of finance, insurance, accessories, electronics, glass, aviation and car rental.

In 1979, Ford acquired a 25% stake in Mazda, and in 1996 it increased its stake to 33.4%, making it Mazda's largest shareholder. A variety of Mazda models have also been popular in Japan, Europe, and the United States. Since then, Ford has embarked on the road of acquisition, gradually acquiring brands such as Aston Martin, Jaguar, Land Rover, and Volvo, in an effort to build its own sub-brand matrix.

Part 2 Ford's bankruptcy predicament, survival and rebirth in the subprime mortgage crisis

2.1 Bankruptcy distress in the subprime mortgage crisis

Due to the massive expansion, the heavy burden of huge pensions and medical funds, and the decline in sales of Ford's highly profitable SUVs and trucks due to high oil prices, Ford sold only 3.2 million vehicles in 2005, with a loss of $1.6 billion, and was downgraded by the two major credit rating agencies in the United States that year, turning it into a commonly known "junk bond". In 2006, Ford's losses reached $12.6 billion. After the change of executives, Ford developed a "One Ford" strategy, which planned to sell its unprofitable subbrands and streamline its own business lines. In 2007, Ford sold Aston Martin.

The subprime mortgage crisis of 2008 accelerated this strategy. The outbreak of the subprime mortgage crisis has had a significant impact on the real economy, and residents in the United States and other regions have greatly reduced their willingness to buy cars. In March 2008, Ford sold its Jaguar and Land Rover brands to India's Tata Group for $2.3 billion. In November of the same year, Ford sold its 20% stake in Mazda, from 33.4% to 13%, and by November 2010, its stake in Mazda had dropped to 3.5%. In June 2010, Ford sold its Volvo brand to Geely Automobile of China. In the fourth quarter of 2010, Ford ceased all operations of its mid-range RV brand, Mercury Motors, and transferred all its resources to Lincoln, a high-end car brand. In January 2011, Ford officially dismantled the Mercury brand. Through a series of sales and mortgages, Ford secured about $23 billion in bailout funds during the crisis, successfully surviving the crisis and surviving the bankruptcy crisis.

2.2 Developments after the subprime mortgage crisis

After the subprime mortgage crisis, Ford experienced a period of recovery in growth, with global vehicle sales of 5.52 million units in 2010, after which sales remained high and continued to rise until 2017, when they reached around 6.6 million units. According to Ford's financial report, its total revenue in 2010~2017 first rose from $135.5 billion to $166.4 billion (2016), and then fell to $145.6 billion (2017); Corresponding to the net profit, except for 2011, the net profit at other times was concentrated in the range of 4.6~7.4 billion US dollars.

However, after 2018, Ford experienced another decline in sales. Its sales in 2018 fell from 6.61 million units in 2017 to 5.98 million units, and further decreased to 5.39 million units in 2019, and then gradually declined to 4.19 million units, 3.94 million units, and 4.23 million units in the three years of 2020~2022. The decline in sales was matched by a decline in performance, and Ford's net profit also fell from $3.68 billion in 2018 to -$2.15 billion in 2022. In fact, since 2018, Ford has successively sold some of its local businesses, sedan business, and South American businesses, but its competitiveness has not been significantly improved by various internal reforms.

The media believes that "old products and slow updates" are the reasons for Ford's decline. Some analysts believe that the slow product update has a lot to do with Ford's "One Ford" transformation principle - under the "One Ford" guidelines, Ford promotes the same model around the world, and the North American market is Ford's main market, so Ford's models mainly meet the needs and preferences of American consumers, and the preferences of consumers in other markets are not studied enough, so the competitiveness in other markets is relatively low. Taking Changan Ford in the Chinese market as an example, Changan Ford lacks great autonomy in the selection of models, and the introduction of new cars not only has the problem of "slow half-beating", but also some models have been complained about due to quality problems such as broken axles and oil leakage.

In order to cope with these problems, Ford is actively deploying in the fields of autonomous driving, mobility, and Internet of Vehicles. In addition to personnel changes, cost control is also Ford's top priority, and "layoffs, plant closures, and budget cuts" have become routine operations. In October 2017, Ford proposed a $14 billion cost-cutting plan. After 2018, the plan aims to double to $25.5 billion. The plan for massive throttling was not a one-time thing, and seems to have become a strategy that Ford often uses.

Part 3 Ford's Electrification Transformation Strategy and Implementation

3.1 Declaration on the Electrification Transition

In order to reverse the decline in sales and improve its competitiveness in the future electric vehicle market, Ford is making a strong effort to electrify the market. In July 2022, Ford announced that it plans to invest more than USD 50 billion in the research and development of electrification vehicles and power battery technology between 2022~2026. Ford aims to produce more than 2 million electric vehicles by 2026, including 600,000 electric vehicles sold annually in Europe. By 2030, 50% of Ford's global vehicle sales will be electric, and all passenger cars sold in Europe will be electric.

As one of the core plans of Ford, Ford launched the "Ford China Product 330 Program", which aims to accelerate the development of new products and market launch in the Chinese market, and enhance the market competitiveness of its products. According to this plan, Ford will launch more than 30 new models in the Chinese market in the next three years, covering the two major brands of Ford and Lincoln, of which more than 10 are new energy vehicles, and increase research and development efforts in autonomous driving.

3.2 Practical actions for electrification transformation

In order to make the electrification transition strategy a reality, Ford has made a number of efforts.

Internally, Ford struggled to reform. In March 2022, Ford divided its business into three separate segments: Ford Blue, Ford Model e, and Ford Pro. Among them, the Ford Blue business became the main body of the fuel vehicle business, responsible for the growth of the company's traditional fuel vehicle business, and provided vehicle hardware engineering and manufacturing support for other Ford business units. Ford Model e is responsible for the development of software, connected technologies and services for Ford's business units by introducing additional EV products and creating economies of scale. Ford Pro is responsible for commercial vehicles and related services.

In the context of the major restructuring of the business and the rapid transformation of electrification, Ford has carried out a series of large-scale layoffs. In 2022 alone, Ford laid off more than 10,000 employees in North America, India, Europe, and other places. Ford executives said the layoffs are part of the company's drive to reduce costs in its drive to electrify, while also creating a large number of jobs related to the electric vehicle business.

In addition to internal restructuring and layoffs, Ford is actively working with other companies externally to accelerate the transition to electrification. Ford has partnered with Volkswagen to produce its own SUV models with the help of its MEB electric platform; In addition, Ford and Volkswagen have invested billions of dollars in Argo AI, a self-driving company. However, the company later collapsed, and the investment did not have the desired effect.

In the field of batteries, which are key technologies for electrification transformation, Ford is also actively cooperating with giants in related fields. In September 2021, Ford announced a partnership with SK Innovation, a South Korean battery factory, to jointly invest USD 11.4 billion (including USD 7 billion from Ford) to build two "mega plants" in Tennessee and Kentucky to produce electric trucks and batteries. Later, Ford announced a cooperation with CATL to invest US$3.5 billion to jointly build a factory to produce lithium iron phosphate batteries. However, the plan was suspended in the second half of 2023, with Ford saying that the reason for the suspension was that it did not yet have the "capacity to operate the plant vigorously." However, some industry insiders believe that the current ongoing strikes by the United Automobile Workers (UAW) against Ford and other automakers may be one of the factors contributing to the suspension of its plans.

The United Auto Workers (UAW) organized workers to go on strike on September 15, 2023, as the three major automakers, General Motors, Ford, and Stellantis, could not meet the demands of auto workers for wage increases, increased unemployment insurance, and medical insurance. On October 25, 2023, Ford and UAW reached a preliminary agreement to increase hourly wages by 25% over the life of the contract (over four years), while increasing the base hourly wage to $28 (a 68% increase) and the maximum hourly wage to $40 (a more than 30% increase). And with the addition of the cost-of-living allowance, the maximum wage is expected to increase by 33%. On November 22, 2023, according to Nikkei Chinese Network, Ford Motor will resume the construction of an electric vehicle battery plant in Michigan, the United States, after a two-month pause, but the production scale will be reduced by 40% from the original plan. Ford said in a statement that the battery plant's original annual production was reduced from 35 gigawatts to 20 gigawatts, which would reduce the number of electric vehicles the plant could supply from 400,000 to 230,000 per year, and significantly reduce the number of employees. According to Ford, the reduction is mainly due to the fact that the adoption of electric vehicles in the United States has not been as fast as expected.

3.3 Electrification transformation implementation effect and market evaluation

Although Ford is actively pursuing its electrification transformation strategy, the market is not optimistic about its performance. Taking the Chinese market as an example, Changan Ford currently has three new energy models on sale, namely Ford Frontier EV, Ruiji Hybrid, and Ford Electric Horse Mach-E, of which Ford Electric Horse Mach-E is Ford's first pure electric SUV model in the world and is a representative work of Ford's electrification transformation. However, in the Chinese market, which accounts for more than 6% of the world's new energy vehicle sales, Ford only has a real sales volume and market presence of the Mach-E. According to statistics, after its launch in April 2021, Mach-E's sales have failed to exceed 100 for many months; After 2022, its sales began to improve, but most of the time the monthly sales only hovered around 400 units, and the annual sales volume was less than the monthly sales of some new automakers. Even compared with traditional fuel car companies, Ford's electric vehicle sales in the Chinese market lag far behind those of General Motors, Volkswagen, BMW and other companies.

In the U.S. market, Ford performed slightly better. The company has three pure electric models on sale: Mach-E, F-150 Lightning pickup, and E-Transit van, among which, the F-150 Lightning pickup truck has become the best-selling electric pickup truck in the United States, and the Mach-E is also regarded as a benchmark model with Tesla Model Y. In 2022, Ford ranked second in the U.S. electric vehicle market, but its market share was only 7.6%, far lower than Tesla's 65% in the first place. In addition, sales of Ford's F-150 Lightning electric pickup truck will also be further affected by the imminent mass production of Tesla's electric pickup truck Cybertruck.

In the European market, Ford's performance is also not satisfactory. Its pure electric model sales in 2022 will be 25,000 units, ranking 11th in the market ranking, behind Volkswagen, Tesla, Stellantis Group, Hyundai, BMW, Geely and other companies; Compared with the 350,000 sales of the Volkswagen Group, which is the first place, there is a huge gap.

Overall, based on the data analysis of 2022, Ford ranks 18th in the global sales of new energy vehicles (including hybrid models), and 8th in the total sales of all models. However, for this large-scale traditional car company, strict control of financial management and cautious and slow pace of transformation may be the foundation for its century-old development. How to gradually improve its competitiveness and maintain the advantages of its established car companies in the new energy era is a problem that Ford is still exploring.

Resources:

[1]https://auto.sohu.com/36/65/article210116536.shtml

[2]https://www.stcn.com/article/detail/1044569.html

[3]https://auto-time.36kr.com/p/2162547639988745