Ford Is Pouring Billions Into Digital Transformation

Source: Business Insider, Nicholas Shields
Photo: Ford AV

Ford will invest $11 billion in a corporate restructuring to digitally transform itself over the coming decade, Bloomberg reports . The US auto giant is hoping the investment will help fortify its revenue through new products and services when individual vehicle sales slow — which is widely expected to occur by 2030.

Such offerings already include its Chariot shuttle-based ride-sharing service and will grow to include the mobility service it plans to launch with its autonomous vehicles (AVs).

The restructuring will also include investments in electric car tech, which should ease the transition to AVs since self-driving systems work better with electric drivetrains than internal combustion engines.

At the center of this transformation is a $4 billion investment Ford will make in a new self-driving business unit over the next 5 years. Dubbed Ford Autonomous Vehicles LLC, the segment will house all of Ford’s autonomous driving efforts moving forward, including engineering and systems integration, business strategy, and fleet management.

Ford Autonomous Vehicles will be based in Detroit, only a few miles from the company’s Dearborn, Michigan headquarters, and will be spearheaded by Sherif Marakby , a longtime executive who has led Ford’s and Uber’s autonomous driving efforts.

Ford’s efforts are the latest indication of the massive investments legacy automakers need to make to transition from product-centric businesses to service-centric ones.AlixPartners estimates that global automakers will spend $255 billion on R&D for electric vehicles (EVs) by 2023, and another $61 billion for AV technologies. German auto giant Daimler revealed earlier this year that it spent a record $10.8 billion on R&D last year.

That’s up 15% from 2016 and is largely due to increased investments in electrification, digital technologies, and mobility services. Additionally, Daimler expects flat earnings growth for this year due to these continued investments, and potential losses as it weans itself off of generating the majority of the revenue from its consumer business from individual vehicle sales. Though Ford’s investments aren’t as high as Daimler’s on an annualized basis, they still illustrate that carmakers need to commit huge sums to evolve their businesses.

However, it’s unclear when — and to what extent — these investments will start to pay off for Ford. PwC estimates that legacy automakers and suppliers captured about 70% of the global auto industry’s profits in 2015, but it expects that figure to fall to only 50% in 2030 as new entrants like Waymo and Intel scale up their businesses, narrowing the playing field for legacy players.

Worse yet, most industry observers don’t consider Ford — which plans to commercialize its AVs in 2020 — to be a leader in the self-driving car race, as it trails companies like GM, Daimler, Waymo, and arguably Uber and Lyft. If Ford doesn’t move aggressively with its electric, autonomous, and mobility efforts, it risks losing out on some of the dwindling profits available to legacy players in the future.

https://www.businessinsider.com/ford-corporate-restructuring-digital-transformation