Ford CEO: Income from connected cars to boost earnings

Ford Motor Co.’s new President and CEO Jim Hackett expects Ford’s ventures into self-driving cars and the massive amounts of data they generate will become profitable enough to help carry the automaker through the highs and lows of automotive sales cycles. And, he said, they will boost earnings and value for the automaker.

“The price-earnings (ratio) of our industry is really not deserved at all,” Hackett said in an interview with Paul W. Smith on WJR radio Tuesday morning, commenting on how traditional auto companies are undervalued compared to startup ventures like Silicon Valley electric-car maker Tesla Inc.

“(Auto companies) generate tremendous value for shareholders,” but investors don’t appreciate that, he said. “The long-term fix to that though, is that inside of our industrial businesses will be digital businesses, businesses that today have (ratios) a dozen times more than ours. And I think the vehicle business will always be the larger portion, but the digital businesses will not only add earnings power, but they’ll be anti-cyclical. Because when we have a recession, while maybe the vehicle sales will drop, people will still use them, and we’re going to earn revenue around use in the future in a really profound way.”

Ford hasn’t gone into detail on how a vehicles’ technological systems could generate revenue, but the company is investing heavily to boost manpower and technical capabilities to sell and market a deluge of data expected to be collected from self-driving and connected cars.

Those investments include building a new data center as part of the company’s 10-year transformation of its Dearborn campus, and building $60-million new offices in downtown Dearborn to house 600 people from its global data insights and analytics team.

It will be Hackett’s job to tidy the table set under former CEO Mark Fields’ watch, Ford Executive Chairman Bill Ford Jr. said during a press event Monday. Ford and Hackett contend the company has the right pieces in place in the areas of electrification, mobility and autonomy for future success. And they said the company needs to communicate more clearly to the public and to investors what it is doing.

Ford also stressed that the company needs to be quicker in making decisions as it develops robotics, self-driving technology and creating components with 3-D printing.

Autonomous, company investments

Under Fields, Ford said in February it would invest $1 billion over five years into artificial intelligence company Argo AI to develop the brains for the company’s autonomous vehicles. In August 2016, the company announced four investments and partnerships it said would help it with its self-driving vehicle development, including investing $75 million in Silicon Valley-based Velodyne, a LIDAR (light detection and ranging) sensor company. Ford wants to have a fully self-driving vehicle without steering wheel, brake pedal or gas pedal in 2021 for ride-sharing or ride-hailing purposes. The carmaker has said it wants to sell 100,000 or more a year of those vehicles.

Further, the Ford Smart Mobility subsidiary in 2016 also invested into Zoomcar, an India-based car rental company similar to Zipcar. Hackett oversaw that part of the company prior to being named CEO, and he said Monday that part of the company will soon grow to 600 employees. Ford also acquired San Francisco-based Chariot shuttle service in September.

Marcy Klevorn, Ford Motor Co.’s vice president of information technology and chief technology officer since January 2015, will take Hackett’s place leading Ford’s Smart Mobility unit.

“We’re going to be marrying her with mobility because it’s so much of the importance of digital services in its future,” Hackett said Monday.

The Dearborn-based automaker has reiterated it will keep its previously stated goals of investing $4.5 billion into electrification by 2020. It is investing $1 billion into autonomous driving to put a self-driving car on the road – without steering wheel or control pedals – by 2021 for ride-hailing

But industry analysts and Wall Street investors are waiting to see if actions live up to Ford’s promises. Some analysts believe Ford lags other automaker and tech competitors in developing self-driving vehicles and mobility options.

“They have been so closed, and they roll out the mobility theme and the emphasis on mobility, yet frankly they haven’t shown us anything,” said Jeff Schuster, LMC Automotive senior vice president of forecasting. “The appearance from the outside is that they aren’t in a position of leadership.”

Turnaround strategy

Analysts say Ford appears to trail Tesla Inc. and Uber Technologies Inc. and rival General Motors Co. in “disruptive mobility.” Schuster said even if all of Ford’s investments and projects are progressing steadily, the company is behind General Motors Co., Google’s self-driving Waymo spinoff and others that have rolled out new developments and partnerships in recent years.

Yet, Schuster said Hackett’s comments Tuesday about the potential payoff from the forward-looking investments seem in line with a company that is making short-term sacrifices to reap future benefits, though the reality of a profitable and fully integrated mobility segments could still be well over a decade away.

“If their promises are true, then they should be in a position of strength,” he said, though “that’s a long lead time.”

James Hodgson, senior analyst of smart mobility and automotive for ABI Research, said Hackett will give Ford help in turnaround strategy. And he said Hackett’s time with Ford Smart Mobility has him tuned into technology trends that Ford needs to take advantage of so it can secure its future relevance in the personal mobility space.

“This ultimately would mean leveraging connected, electrified and autonomous vehicles to offer consumers mobility as a service,” Hodgson said. “Depending on the length of his tenure, the measure of Jim Hackett’s success will be how well he manages the decline of Ford’s legacy business of selling cars to consumer as a product, in favor of the more sustainable approach of offering the use of Ford cars as a service. In the short term, he needs to convince the market that Ford is serious about realizing this vision.”

But Schuster cautioned falling victim to the same pitfalls that helped trip up Fields.

“(Hackett) is going to have to push the envelop in the development of the mobility strategy, but at the same time not take his eye off the current market,” he said. The contemporary auto industry exists in two markets: today and the future.

“If feels like (Ford) was leaning too far in the future without substance,” he said.

ithibodeau@detroitnews.com

Twitter: @Ian_Thibodeau

Jim Lynch and Melissa Burden of The Detroit News contributed