Sabtu, 04 Desember 2021

Ford Lamborghini

Ford Lamborghini

Ford

Ivan Klaric Hacker Noon profile picture

Note: this post is an adaptation of an essay I did as part of my MBA for the Strategy & Practice module (a variant of which you can see here ).

Image from here.

There are few companies in the US that represent the classic rags-to-riches American dream as much as Ford does. I previously wrote about their early differentiation failure, but this time I wanted to explore how they are doing today. Since Ford is a global company operating in multiple segments, the focus of this essay is a strategic analysis of Ford Motor Company in the New Light Vehicle US market (passenger cars, SUVs, light trucks).

The industry is brutal and bound to get worse

Minimum Efficient Scale (MES) of production is very high, leading to high capital requirements. Smallest mainstream producers sell just under 300,000 units per year, in line with Huang's estimate of MES for automotive manufacturing at 250,000–300,000 units (link). This makes new entrants rare and typically narrowly focused on niches. It also explains why Tesla only became profitable after reaching ~300k annual production rate.

Switching costs are close to zero and cars cost a lot of money, making buyers price sensitive and often delaying purchases in recessions. Car manufacturers successfully defend against this with branding — roughly half the population consider themselves loyal to car brands. Still, the industry is dominated by consumer tastes — Henry Ford's famous quote on Model T color options simply wouldn't work today. This is well illustrated by the dramatic difference in consumer tastes between Europe and the US or the fact that ~15% of Americans considered buying an electric vehicle in 2018, up from ~0 only a decade ago.

Another force increasing market pressure is market saturation — vehicle ownership and distance-driven rates in the US appear to have peaked around 2006.

Faced with a stagnating market, driven by price sensitive customers, with no opportunities for collusion due to limited market power and regulatory scrutiny, car manufacturers' returns on invested capital are unsurprisingly low: PwC's 2017 research indicates only 5% industry-wide return on capital, below their cost of capital.

An industry-wide shift towards electric vehicles is going to require a massive capital investment to maintain the minimum efficient scale and build out the necessary charging infrastructure. Heavily indebted companies will not be well positioned to do this and face an existential threat as a result.

How is Ford positioned to deal with this?

The following diagram illustrates industry strategic groups (see this spreadsheet for details on sources). Manufacturers are plotted against two dimensions: average selling price, and the number of brands. Number of manufacturer's brands is used to estimate whether the manufacturer is pursuing a broad strategy or a narrow one. Size of the bubble represents market share.

FCA, GM, and Honda appear to be pursuing cost leadership strategies where competitive rivalry is typically strongest, due to price being a key decision factor. Ford seems to have avoided that battle and we next explore how.

Out of 2.58M vehicles Ford sold in the US in 2017, 1.1M were pickup trucks (see annual report for details). This is an excellent segment to differentiate in: trucks have a higher average selling price, lower emission requirements, and consumers favour US brands in the truck segment — over 85% of truck sales are by "big three" manufacturers. Additionally, consumers are increasingly shifting towards trucks — sales volumes overtook cars in 2012. Ford is a top player in this lucrative segment, a position strengthened by their $2.54B advertising spend in 2017, second only to GM. If we consider that GM has a broad brand strategy, Ford is probably the biggest automotive spender in advertising per brand.

To conclude, Ford is well positioned for current market conditions. We next consider key drivers of change in the industry and propose ways Ford could adapt.

Direct Selling

To capture more value, Ford should consider integrating their dealerships and sell directly to consumers. Franchising is required by law in most US states, but as Tesla showed, it can be done. Other manufacturers are likely to follow, putting Ford at a serious competitive disadvantage if they don't.

Autonomous Driving

With Waymo announcing start of operations for their self-driving taxi service, and with GM's Cruise subsidiary announcing 2019 launch, autonomous driving appears at an inflection point: self-driving taxi services could be common within a decade.

As a result, taxi prices will drop substantially, substituting car ownership for a significant fraction of the urban population. New vehicles demand will further drop but also structurally change the competitive environment: automated taxi services will dominate car purchases, increasing their bargaining power. When they become a significant fraction of Ford's sales, autonomous taxi companies are likely to try acquiring car manufacturers to vertically integrate. Similar to buses, end-consumers will care less what car brand they're driven in, killing Ford's brand "moat". Deloitte calls this scenario "Hardware Platform Provider" in their 2017 study, reminiscent of PC manufacturer's fate in the '90s.

Ford should therefore invest heavily in developing their own autonomous mobility service. They are working on it but doing it themselves might be challenging. If their lag behind the competition proves too big, they might consider investing in one of the existing players with which they aren't direct competitors. For example, FCA recently announced a partnership with Intel and BMW.

Electrification

A key technological challenge in electric vehicles production is energy storage and charging capabilities. Battery production capacity needs to dramatically increase to meet the demands of the growing electric vehicle fleet.

A key strategic decision is whether to own battery production or to source externally. This depends on how will the battery supplier market evolve: will it consolidate, giving few key suppliers great bargaining power over Ford, or will all car manufacturers outsource battery production, thereby creating a large commoditized market where battery suppliers will not have a lot of bargaining power.

Only Tesla is currently pursuing in-house battery production: VW, GM, Honda, and FCA decided to source externally. Sourcing externally is a better choice in the short to medium term — it is less capital intensive, and most competitors are doing it as well, creating limited competitive advantage opportunities in battery production. Given Ford's high leverage, they probably can't afford doing it themselves, so a long term battery supply contract might be within the realm of feasible.

Another key aspect to consider is what are the "petrol stations" of the future going to be like. Should manufacturers build their own networks, or outsource that activity to others? Ford already struck a deal with Daimler, VW, and BMW to jointly build the charging network in Europe, but there is no news of a similar deal being struck in the US. GM outsourced their US charging network to evgo.

Similarly to battery manufacturing, Ford probably can't afford the massive capital investment this requires, and pairing up with companies that aren't their direct competitors like Daimler, VW, or BMW makes sense. Another candidate to partner up with could be oil companies — re-purposing petrol stations is less demanding than starting from scratch and oil companies have similar incentives to do this as Ford — survival.

To conclude, I think Elon might be right —things don't look good for Ford. While they're currently doing ok, they don't appear well prepared for the incoming industry changes. A recently announced VW alliance might be a step in the right direction to deal with these challenges (leverage your ally's resources rather than building your own), though it carries its own risks by becoming too dependent on VW.

Tags

# ford# strategy# economics# business# economy

Ford Lamborghini

Source: https://hackernoon.com/ford-21786477981d

Share:

0 komentar:

Posting Komentar

 
banner