By Tyler Durden
As Ford prepares for it's annual investor day, the company announced expectations this morning that operating income will decline in 2017 as the automaker increases investment in electric and autonomous vehicles, before rising again in 2018. This news comes after Ford just lowered it's expectations for FY 2016 EBIT to $10.2BN from $10.8BN due to increasing costs associated with an expanded recall related to faulty door latches. This latest profit warning from Ford also comes just weeks after executives, on their August sales call, provided sobering commentary on future auto sales saying they believe sales have"reached a plateau" and will be "at a lower level" in 2017. Below are some of the other key comments made on the August sales call:
"For the remainder of the year, we continue to see retail in the industry provide incentives still running at historically high levels, but down versus the record that we experienced in 2015. Looking ahead to 2017, we continue to see industry sales are strong, but at a lower level than this year.""Sales have reached a plateau."
"It's just that we're no longer in a period where we have a lot of pent-up demand coming out of the financial crisis. So that's why, I think we use the term plateau"
"Comparisons for the rest of the year are going to be really tough."
Ford will also spend a lot of time at their investor day talking about their transition to focus on "mobility" and autonomous vehicles...something we warned would likely result in some financial growing pains over the long run (see "Ford Announces Plans To Self-Destruct Starting In 2021")...but more on that later.
Ford's investor presentation now calls for Adjusted EBT to be down for 2 consecutive years before recovering in 2018. Why is the good year always a year away?
Meanwhile, Ford is apparently running "robustness" tests to analyze how the company would hold up in another "great recession" scenario.
But don't worry, Ford will make money under almost any imaginable scenario.
But, most of Ford's time today will be spent talking about their growth opportunities including "autonomous" vehicles and "mobility" or ride sharing.
The company also is aggressively growing its autonomy leadership. Building on more than a decade of development experience, Ford intends to have a high-volume, fully autonomous SAE-defined level 4-capable vehicle in commercial operation in 2021 in a ride-hailing or ride-sharing service. The vehicle is being specifically designed for commercial mobility services without a steering wheel or gas and brake pedals.
By targeting its autonomous vehicle for a ride-hailing or ride-sharing service, Ford is changing the economics of mobility. Traditionally, owning a vehicle has cost between 70 cents and $1.50 a mile. By contrast, taking a taxi is four times more, and using ride-hailing is double the cost of an owned vehicle. Ford’s autonomous vehicle with a ride-hailing or sharing could reduce the cost to about $1 per mile – on par or even less than personal ownership with a vehicle that can improve safety, convenience and congestion.
Similarly, the company’s focus on leadership in mobility starts with the view that the world has moved from just owning vehicles to owning and sharing them. To start, Ford is working with global cities, starting in San Francisco, to help solve congestion and help move people more efficiently. Ford will acquire Chariot, a crowd-sourced shuttle service, to grow Ford’s dynamic shuttle services globally. It will provide affordable transportation and expand to at least five additional cities in 18 months.
Now, while Ford sees autonomous vehicles and ride sharing as opportunities (and they may well be in the short-to-medium term) we see long-term downside for the auto industry due to the inherent increase in utilization rates which will inevitably decrease the required rolling stock of passenger vehicles on the road (something we wrote about here: "Ford Announces Plans To Self-Destruct Starting In 2021"). Here is our comment on this issue from last month:
But the best part is that capacity utilization with fully autonomous cars can skyrocket driving per unit costs even lower for passengers. For example, when you drive to work right now your car sits there all day until you drive home. In the autonomous car world, that car will drive you to work then go pick up multiple other poeple to do the same thing. Now, if capacity utilization doubles from just 3% to 6% all of sudden half the number of cars are required in the US which means annual SAAR goes from ~17mm to ~8.5mm...which means Ford and GM likely find themselves in another bailout situation.
But somehow we're not surprised that while Ford chose to talk about the benefits of lower cost of ownership associated with autonomous vehicles they left out the downside of increased capacity utilization. Nevertheless, here's what they had to say.
Ford sees autonomous vehicles representing 20% of sales by 2030...
With a roll-out schedule looking something like this...
Meanwhile, Ford points out (as we have) that the cost per mile of an autonomous vehicle is even lower than the cost of personal ownership. While this fact is great for vehicle owners...it's not so great for vehicle manufacturers.
Ford also warns that initial autonomous vehicles will be unleashed to wreak their havoc on New York and Detroit.
Ford's full investor day presentation can be viewed below: