Navigant Research Blog

Ford Takes the Exit Ramp from the Car Business

— May 1, 2018

In many respects, the company that Henry Ford built more than a century ago moved America from the cart to the car (this October will mark the 110th anniversary of the Model T). Today, Ford is undergoing another transformation as the transportation market continues to morph. During its 1Q 2018 financial results, Ford confirmed that its North American vehicle lineup will include only two cars from 2020, the iconic Mustang and the new Focus Active—and even the Focus is morphing into a crossover-style vehicle.

More than 90% of Ford sales in the next decade will be pickup trucks, utilities, and commercial vehicles. Despite the change in the shape of the average Ford vehicle, the company is committed to improving energy efficiency in addition to operational efficiency. In part, that means adding electrified propulsion options to just about every vehicle it builds—from the Mustang to the F-150 and every new SUV.

Until now, Ford has just taken token stabs at the battery EV (BEV) market with vehicles like the defunct Transit Connect Electric and slow-selling Focus Electric. Even its hybrid systems, which are second in sales only behind Toyota, are only available on three nameplates: the soon to be discontinued C-Max and the midsize Fusion and Lincoln MKZ sedans.

Changing with the Times

However, that’s all about to change. At the New York International Auto Show in March, Lincoln revealed a concept version of its upcoming Aviator SUV with a plug-in hybrid drivetrain. That vehicle is expected to share its hardware with the next generation of one of Ford’s best-selling vehicles, the Explorer. The upcoming Bronco, Escape, and other models will also be available as hybrids.

In addition, Ford is committing to BEVs with a new dedicated platform rather than just conversions like the current Focus. This will enable much improved packaging and performance and a better cost basis. Starting with a performance crossover BEV in 2020 to be built in the Mexican plant that currently builds the Fiesta, Ford plans to launch 15 more BEVs globally in 3 years. While six of the BEVs will be available in North America, many of rest will likely be optimized for the Asian market, where Ford has formed partnerships with Zotye in China and Mahindra Group in India. Some of them may even be cars.

These vehicles will likely represent the bulk of Ford’s business for many years to come. But Ford is also working to build its mobility service business into something that is commercially viable and profitable as soon as possible.

Surviving Today’s Crises

The first three generations of Fords to run their eponymous company, Henry, Edsel, and Henry II, surely wouldn’t recognize this new enterprise as the one they built up over more than 7 decades. But during their tenures, Ford also faced several existential crises and survived—albeit without quite the radical product changes today’s business is facing.

It seems that almost everyone running a car company today is cursed to “live in interesting times.” Today’s company leaders, including the founder’s great grandson Bill Ford and CEO Jim Hackett, will have their work cut out for them to rebuild Ford for a new generation and move travelers from the car to whatever comes next.

However, there is precedent for a company to make similarly shocking moves while transforming into more of a services company. IBM exited the PC business in 2004 that it helped to found to focus on supercomputers, software, and services. And that paid off: within a few years, the company was generating even higher revenue and profits.

 

Blockchain Takes a Step toward Maturity – Event Horizon 2018: Part 1

— April 26, 2018

Over the past decade, I have attended many conferences discussing utilities’ use of technology. Event Horizon is a tech event like no other. It had dry ice, loud techno music, light shows, and was located in an old Berlin power station. Most striking of all was (my approximation of) attendees’ average age, which was well below 40. More traditional energy events rarely go beyond a passing reference to climate change; at Event Horizon, the issue dominated the first morning’s key notes. Distributed energy resources (DER) integration was cited heavily as a way to avert environmental disaster; blockchain—in many guises—will help integrate DER.

Event Horizon was organized by the Energy Web Foundation (EWF), whose founding partners the Rocky Mountain Institute and Grid Singularity were highly visible on the show floor and in the keynotes. However, there was a good mix of other organizations not affiliated to EWF. The event served as a bellwether for blockchain’s maturity, which I sum up in five observations:

Rampant Investment in Blockchain Overshadows Utilities’ Reticence

Blockchain hype is at its peak. One presenter believes over $1 billion of investment capital has been raised by energy-focused blockchain startups, the majority of which was raised through initial coin offerings (ICOs). However, utility spend on blockchain is far lower. I believe this is limited to a handful of larger utilities, which have created small blockchain teams within innovation centers to test a handful of use cases.

The North American Market Is Flailing

US-based ICOs led the world in 2016, but stalled in 2017-2018. CleanTech Group estimates $723 million of ICO capital was raised in Europe, $251 million in Asia Pacific, and $140 million in North America, which recorded the lowest growth of the three regions. This is not surprising, given the US’s lack of market reforms or competition, and its anti-renewables administration: the consensus on the exhibition floor was that North America is about 5 to 10 years behind the rest of the world. The money appears to be following activity; DER trailblazers New York and California may well catalyze the rest of North America into action.

ICOs to Be Replaced by Venture Capital

In a recent blog I discussed why ICOs worry me: they strike me as a way for naïve investors to part with their money. The volume of investment raised by startups is staggering, but it is important not to get too carried away. ICO funding is showing signs of drying up, with few new investors emerging and a lack of originality in startups’ proposed business models. As the industry matures, an increasing proportion of funding will come from venture capital.

Few Business Models Focus on Utilities’ Current Needs

Most blockchain startups are focused on peer-to-peer energy trading. Unfortunately, while I am enthusiastic for transactive energy’s future, it won’t really exist as a mass-market offering for many years. In contrast, a handful of companies—notably Electron and Spherity—presented uses for blockchain that resolve current issues that existing IT fails to address. The rest of the blockchain community should take note: pragmatic solutions tend to make the most money.

Nothing Dispelled My Antipathy toward Token-Based Business Models

Finally, I was disappointed to see so many startups with business models that “tokenize” energy markets. Essentially, this strategy attempts to merge cryptocurrencies with energy markets. Tokens may be useful when used in a system’s backend, but remain invisible to end-users. However, I believe regulators will put the kibosh on any business model that has the merest whiff of cryptocurrency. The world of Bitcoin is far too risky to translate into a workable model for energy customers.

 

Ford Goes All-In on Trucks, Utilities, and Hybrids

— March 16, 2018

At January’s North American International Auto Show, almost all of the significant product announcements were about new pickup trucks and SUVs from Ford, General Motors, and Fiat Chrysler Automobiles (FCA). Maintaining sales of those high margin vehicles will be crucial to funding the development and introduction of new and often pricey electrified propulsion and automation technologies. This week, Ford executives led a briefing at the company’s product development center where they provided more details on how they plan to handle that transition.

Core to Ford’s revamped product lineup is a range of new SUV nameplates as the company shifts away from passenger cars. The subcompact Fiesta will likely be discontinued from the North American lineup and Focus sales have dropped to a level where the next model for North America will imported from China. By 2020, Ford expects 86% of its sales in North America to come from trucks and utilities.

That doesn’t mean Ford is giving up on fuel efficiency. Quite the contrary. Ford intends to become the hybrid market leader in North America by 2021, overtaking Toyota. While Toyota is most associated with hybrid technology, Ford introduced the first hybrid SUV in 2004 and plans to leverage this position to offer hybrid or plug-in hybrid powertrain options on every utility model from the Ford and Lincoln brands. That’s in addition to the 300-mile range battery electric crossover it will launch in 2020.

Selling Performance and Power

FCA is branding its mild-hybrid system as eTorque on Jeeps and Ram pickups and marketing based on performance enhancement. Since most North American customers show little interest in green vehicles, Ford wants to appeal to them by using electrification to boost capability and speed. While most details aren’t yet available to the public, previous announcements give a clue as to where Ford is going. The automaker has talked repeatedly about its new F-150 hybrid having a power take-off capability that will enable contractors to get power for their tools without needing to carry a generator. Similarly, the upcoming Mustang hybrid will use electrification to enhance performance and efficiency.

Ford is not sharing many technical details of its next-generation hybrids yet, but most are expected to be high voltage systems that can also support plug-in capability. The automaker is already one of the top purveyors of plug-in hybrid systems; it has sold nearly 100,000 Fusions and C-Maxes with a plug since they were introduced in 2012.

Even the electric crossover will be targeting a more premium customer than something like today’s Escape or Edge. With hints of its 300-mile range and performance at the auto show, Ford President of Global Markets Jim Farley positioned this vehicle as a melding of the desire for crossovers with the passion the Mustang inspires in some customers.

So Why the Massive Shift from Cars to Trucks?

It’s all about the money. Farley explained that since the current-generation F-150 debuted in 2014, average transaction prices have jumped $6,700 while the new Expedition SUV that debuted last year is getting $11,000 more per sale. The F-150 alone generates $41 billion a year in revenue and a significant chunk of Ford’s profits.

In 2015, when Farley was still president of Ford of Europe, he discussed the burgeoning market there for crossover utilities, with many of the offerings being less truck-like. While details of the seven new Ford and Lincoln utilities are still under wraps, a similar segmentation is expected in North America, replacing many of the soon-to-be outgoing car models. It’s too early to tell if the automaker can overtake Toyota in total hybrid sales, but Ford is making a strong push.

 

Hidden Nuggets among the CES Glitz

— January 30, 2018

Sometimes surprises hit you slowly—hidden nuggets overlooked at first glance but demonstrating some hidden or potential value upon further reflection. Such was the case for several companies I met with at the recent CES trade show in Las Vegas. My colleague, Paige Leuschner, covered the major themes at CES in a recent blog: artificial intelligence, home healthcare, and Google everywhere. By contrast, the following firms captured my mind not for hogging the spotlight, but for showing real promise in several technology areas:

iotaBEAM

This startup aims to solve one of the difficult challenges in the Internet of Things (IoT) world—how to secure sensing devices that have limited processing power and run on batteries. Think of a sensor on a remote area of a plant that monitors heat or temperature. Most solutions protect the gateways that gather sensor data, but miss that first hop from the sensor to the gateway. The company’s patent-pending StarDust offering secures that first hop from the sensor with a patented technology that fits into tiny sensors and uses a fraction of battery power. The solution should appeal to many firms deploying IoT technologies, from utilities to manufacturers to healthcare providers.

Kerlink

This French company is no startup. It has been around since 2004, toiling away in the geeky machine to machine space. Lately, however, the company has been riding the strong interest in LoRa technology (also mentioned in a previous blog). Kerlink offers a suite of networking equipment for low power wide area networks (WANs), the type of systems that enable IoT connections at scale. The company announced a nice win during CES, a deal for an additional 800 base stations to be supplied to Proximus, a Belgian telecom company building out its own LoRaWAN IoT network. Kerlink appears poised to take advantage of several IoT use cases, including smart cities, smart buildings, smart health, advanced transportation solutions, and connected agriculture.

Royole

With a larger booth area, Royole was not nearly as subdued at CES compared to the two above. Nonetheless, it could be overlooked among the hundreds of other showy vendors. What caught my eye was Royole’s flexible display and flexible sensor technologies. Royole’s displays are as thin as 0.01 mm, which is about one-fifth the thickness of a human hair; and the company claims its displays are the thinnest in the world. The ultra-slim sensors can be embedded in furniture or the console of a car for controlling a chair or the dashboard electronics. One can imagine other applications for these sensors in an IoT-connected world, such as in clothing, walls, or medical gear. Founded in 2012, the company is poised for growth with the recent completion of its $1.7 billion production facility in Shenzhen, China.

To be sure, these three represent only a handful of the many companies not hogging the spotlight at CES. Competitors could surely surface and outmaneuver them, or the market could simply go sour on their products. The point is that CES is not only a place for the latest gadgets or products from the big brands, but also a place where the wallflowers can take the floor and show off their potential diamonds in the rough.

 

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