Navigant Research Blog

Ford Makes $1 Billion Bet on Artificial Intelligence Startup as Recruiting Tool

— February 10, 2017

Electric Vehicle 2Over the past 4 years, Ford has made a concerted effort to move from also-ran status to vying for the lead in the race to produce automated vehicles. The latest move by the company is a 5-year, $1 billion investment in Pittsburgh-based Argo AI. The artificial intelligence startup will operate semi-independently while developing the virtual driver platform for the automated vehicles that Ford has promised to start producing by 2021. However, the deal seems less about acquiring technology today than acquiring new talent in the coming months and years.

Startup Power

Argo AI was founded in late 2016 by Google self-driving car program veteran Brian Salesky and Peter Rander, who led Uber’s automated car program until September 2016. The total investment of $1 billion will be parceled out over the next 5 years to fund the operating expenses of the company and to provide equity incentives to new employees in order to help with recruiting.

Ford plans to retain control of all hardware product development and manufacturing internally, as that’s where the automaker’s expertise lies. The Argo team, which has plans to grow to a staff of 200 engineers by the end of 2017, will work on developing the so-called virtual driver software platform that will control the vehicle. The software team will be integrated into the product development process as it moves forward with trying to make the system robust enough to be able to fully operate without a human driver. Ford has been developing its automated driving platform over the past several years to get its software platform where it is today.

The fact that Ford has gotten this far down the development timeline with a committed production date only about 4 years away does raise some questions. An investment of this size into a startup at this stage implies that there may be issues with the automaker’s in-house software platform. However, Ford chief technology officer Raj Nair emphasized during a conference call to announce the deal that Argo’s expertise will be used to further enhance what Ford has already built.

Attracting Talent

The existing engineers working on Ford’s platform will move over to the Argo AI team to become core employees of that company. As such, they will be eligible for the stock compensation plan that Argo is putting in place, which is typical of Silicon Valley startups. Since Argo has only existed for a few months, it’s unlikely that the company has built a complete system that would replace what Ford already has. Instead, it appears that Ford saw an opportunity with Argo to put in place a corporate structure that would enable it to tackle one of the thorniest issues that the auto industry faces in the race to deploy advanced technology: recruiting.

Traditional companies have long had difficulty attracting some of the top talent away from Silicon Valley, where they see startups as a potential pathway to a huge payday with an initial public offering. Many of those companies with limited funds pay employees with stock options that can be worth millions if the company succeeds and the employee sticks around. That doesn’t happen with regular Ford employees.

Ford CEO Mark Fields acknowledged on the call that an Argo IPO at some stage is a possibility if the company succeeds. Investing in what is essentially a brand new company with some proven leaders in the form of Rander and Salesky is an interesting new approach to the talent acquisition problem.

 

Ford Shifts Production Plans to Support Electrification Push

— January 3, 2017

In December 2015, Ford announced plans to invest $4.5 billion to introduce 13 new electrified vehicle models by 2020. The company provided no additional details at the time, but a big piece of that plan just became clear as CEO Mark Fields made a major investment announcement at the Flat Rock Assembly Plant near Detroit on January 3.

Ford has been criticized in the media for a seemingly lackadaisical approach to introducing plug-in electric vehicles (PEVs) over the past several years; however, this criticism is only partially valid. Unlike its more PEV-aggressive competitors Nissan and GM, Ford has avoided building dedicated PEV platforms to date—but that will soon change. The Focus Electric BEV has been called out for being merely a compliance car to meet California zero emissions vehicle mandates. Ford has been focused on pushing the plug-in hybrid variants of the Fusion and C-Max, which have been among the best-selling PEVs over the past 2 years.

Changes to an American Classic

According to Fields, Ford’s powertrain lineup will look very different by 2020. The best-selling vehicle in America for nearly four decades, the F-150 pickup, will be available with a new hybrid system that is expected to retain the towing and payload capabilities that customers in this segment expect. A rear-wheel drive hybrid system will be available for the truck and will also be applied to Ford’s most iconic car, the Mustang, when it gets its next update in 2020.

With the overall market shift away from cars toward utility vehicles, it has been a struggle for automakers to sell PEVs in volume. With that in mind, several of the new electrified vehicles will be SUVs, including the next-generation Explorer, which is built in Chicago. The police interceptor variant of the Explorer outsells the Taurus sedan by more than two to one, and the new generation will be Ford’s first hybrid with a turbocharged EcoBoost engine.

Big Plans for Flat Rock, Michigan

In addition to the Explorer hybrid, Ford will build a new, smaller SUV with a fully electric powertrain that offers a range of at least 300 miles. The electric SUV will be built at the Flat Rock, Michigan plant alongside the Lincoln Continental, Mustang, and a previously announced fully automated vehicle for ride-hailing that will debut in 2021. In order to support these new vehicles, Ford is investing $700 million to expand the plant, as well as adding 700 more jobs.

At the same time, Ford is canceling plans for a $1.6 billion small car plant in Mexico. During the 2016 presidential campaign, then candidate Donald Trump made a major issue of the plan to shift Focus production to Mexico from Michigan. The next Focus will instead be built at the existing Hermosillo, Mexico plant alongside the Fusion sedan. The small car market isn’t growing right now, limiting the need for companies such as Ford to expand the manufacturing of these vehicles. With sales of the Fusion slowing as well, there is plenty of capacity at Hermosillo to support both cars, plus the Lincoln MKZ.

Navigant Research’s recent Market Data: Electric Vehicle Market Forecast report projects that more than 6.8 million PEVs will be sold annually across the globe by 2025. Ford’s new electrification plan shows that the company is focused on applying the technology to vehicles where it believes it can do so profitably.

 

Mobility Services Target Driving Less (or at Least More Efficiently)

— September 1, 2016

CarsharingThe problem of urban congestion includes both too many cars simultaneously on the road and too few places to park them. New mobility services from Ford and Lyft are using data analytics and last-mile ridesharing to solve these twin challenges.

Increasing urbanization (82% of people now live in urban areas in North America, according to the United Nations) is intensifying the pressure on city streets and roadways and encouraging more urban dwellers to forego owning a car because of the expense and hassle of finding a place to park. Realizing that vehicle sales to city residents may start to flatten, automakers (including Ford) are diversifying their revenue streams with mobility services.

The recently unveiled FordPass app enables any car owner to pre-book a parking space in garages in more than 160 cities. FordPass also includes phone access to humans to help customers get around in traffic or find other mobility options, and the company also opened its first FordHub mobility storefront in San Francisco. When you also consider the company’s FordPay payment service, it’s clear that the automaker isn’t afraid to borrow from a certain Cupertino company’s playbook. (What’s next, the iFordFone?)

Autonomous Future

Ford also continues to march toward releasing a fully autonomous vehicle. The automaker recently invested in lidar manufacturer Velodyne’s autonomous sensing technology. Ford also announced its intention to produce a fully autonomous car by 2021 for use in ridesharing services. Uber, Lyft, and many other companies see taking those pesky compensation-seeking drivers out of the equation as the future of ridesharing.

Navigant Research forecasts that annual mobility services revenue will reach $4.8 billion in 2020. Automakers will play a significant role in these services, which include carsharing and ridesharing services, congestion charging programs, EV charging services, intelligent traffic management, and smart parking systems.

Smart Urban Mobility End-User Services Revenue by Region, World Markets: 2015-2024

Mobility(Source: Navigant Research)

If an autonomous vehicle is electric, it would reduce urban emissions while also addressing the problem of limited parking. If used to get people to and from mass transit stations, ridesharing programs can reduce the overall vehicle miles traveled by removing trips into the city core. Such is the case in the Denver suburb of Centennial, where light rail customers can request a free Lyft ride if they live near the Dry Creek train station. While using tax dollars to put people in private cars may seem counterintuitive, if it increases the utilization of light rail, it can be viewed as a net positive in solving the last mile challenge and reduce the cost when compared to limited-use bus services. Employees who work for XOJET, which provides luxury rides above the clouds, can also now access Lyft to get to and from their hotels and airports while they are accommodating the jet-setter crowd.

 

FordPass Points to a Future beyond Selling Cars

— June 21, 2016

CarsharingAt first glance, the FordPass smartphone app seems like an also ran, a remote control app similar to what other automakers have been making for years. However, after spending a week driving the 2017 Ford Escape and having a conversation with Don Butler, Ford’s executive director of connected vehicles and services, it’s clear that FordPass is the beginning of something potentially much larger. This is the first automaker-produced app that is specifically designed to provide services even to drivers who don’t own a vehicle from that brand.

The 2017 Escape and Fusion are the first Ford-brand models to offer SYNC Connect, the company’s new telematics service. Ever since Ford announced its SYNC mobile device connectivity system in 2007, the company has focused mainly on brought-in solutions. SYNC has used the phone to enable features like automatic emergency calls and vehicle diagnostics. Connect adds a 4G LTE data modem to the redesigned SYNC 3 that debuted in 2015. Until now, Ford had only used embedded cellular telematics on its premium Lincoln models and plug-in electric vehicles.

No Subscription Fees

The addition of a built-in data modem enables Ford to add capabilities such as remote start and lock/unlock similar to what GM’s OnStar and other telematics systems have offered for 20 years. However, unlike most other automakers, Ford has opted not to charge any subscription fees for SYNC. Basic services will be provided for 5 years at no additional charge beyond the option price of Connect. OnStar now provides 5 years of free basic services on new cars and 3 years on vehicles from 2011 on that are reactivated. Premium brands such as BMW include up to 10 years of service in the purchase price of the vehicle.

The FordPass app was developed in collaboration with San Francisco, California-based Pivotal, a cloud platform development company. Following the spring 2016 launch of FordPass, Ford also announced a $182 million investment in the company. “Ford is reorganizing into a hardware, software, and services company,” said Butler at the recent TU-Automotive Detroit conference. “We recognize that software and services cut across multiple boundaries and FordPass is a platform for delivery of some of those services.”

Shifts Are Coming

Navigant Research’s recently published white paper, Transportation Outlook: 2025 to 2050, projects shifts in the current model of vehicle ownership. As this model changes, Ford wants to be ready to manage the new relationship that people have with mobility. FordPass is a component of the automaker’s new Smart Mobility subsidiary that is structured to capitalize on business partnerships, much like Ford Credit. The full business model of FordPass is still being worked out, but one of the first elements that extends beyond vehicle control, roadside assistance, and live chat support is parking. FordPass will enable users to find, reserve, and soon even pre-pay for parking—regardless of the brand of vehicle they drive. It also will likely include some revenue-sharing component with partners in exchange for leads.

 FordPass Find Parking

FP_Find_Parking_Lumina

(Source: Ford Motor Company)

At the 2016 North American International Auto Show in Detroit, Ford used the platform to reserve parking spaces available for media. Drivers only had to show a QR code on their phones to gain access. Other potential future additions to FordPass include localized deals with other merchants, usage based insurance, or ride-hailing systems such as the Dynamic Shuttle service that Ford is currently piloting at its Dearborn, Michigan product development campus. The shuttle service was deployed prior to the release of FordPass, but it could be easily integrated in the future along with carsharing and bike-sharing, or even transit passes.

Ultimately, for Ford and every other automaker, it comes down to expanding the scope of their business from manufacturing and selling vehicles to moving people and goods from place to place efficiently.

 

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