New Ford Motor Co. (NYSE:F) CEO Jim Hackett has mostly kept quiet since taking over in May. He said at the time he would spend 100 days researching the company, its markets, and plotting a way forward.
On Oct. 3, he revealed the results.
The plan is to take money out of cars and put it into trucks, to take money out of gas and put it into electrics, and to prepare Ford to tackle transportation as a service as the era of self-driving cars comes into focus. His deck of slides for investors describes Ford as a “mobility” company, rather than a manufacturer.
None of this was a surprise. Everyone wants to be Tesla Inc. (NASDAQ:TSLA) and all Ford’s moves are in that direction. Of course, cynics will argue that having just a vision is no solution, everything depends on execution. But since Hackett became CEO, Ford stock is up 13%.
It’s a start.
Welcome to the Revolution, Ford
Hackett said Ford costs have risen in line with its growth, and he wants to end that. One way to do this is to standardize models, reducing options. The current Ford Fusion, for instance, can be ordered 35,000 different ways. That’s being cut to 96.
Spending on gas engines and powertrains is being cut about 30% over the next five years, he said, with the money being put into all-electric vehicles through an internal group called Team Edison.
His section on the move toward autonomy was vague, but two partners stood out — privately held Dell Technology Inc.’s VMWare unit and Microsoft Corp. (NASDAQ:MSFT). The plan is to build artificial intelligence in the cloud that will let Ford offer fleet management services to large companies and short trips to commuters or hospital patients.
By the 2020s, Hackett said, Ford will have cut time to production by 20%, it will be preparing an all-electric car line-up, and all its vehicles will come out of the factory with internet connections built-in. Ford will also be a more American company, having passed Asian opportunities to Indian and Chinese partners.
The Reaction
The reaction to the moves was muted, with many investors remaining skeptical that Hackett can deliver.
As trading opened Ford stock was still selling for about $12.30 per share, less than 13 times its earnings. Its small dividend was still yielding 4.86% and its market cap remained $9 billion below that of Tesla.
Some reporters wrote that Ford is getting out of the car business. Others focused on the electric vehicle design shop, Team Edison, as though this were a new business unit, not just a design shop. Still others focused on the cost-cutting and the goal of getting margins up to 8%.
What’s more important to me is that Ford now has a clear plan to redeploy $113 billion of assets –$39 billion of them in cash and short-term securities. This is a company with a $48 billion market cap. It has enormous potential and, if that potential is realized, even in part, its value is certain to climb.
The problem is that the plan to become more Tesla-like must be executed against a backdrop of skepticism that is almost cynicism. As our Vince Martin wrote just before Hackett spoke, Ford has big problems now, with car demand peaking and rental agencies no longer buying as they once did. Don’t tell us how you’re going to climb the mountain, tell us how you’re going to get out of the ditch.
Investors believe in Elon Musk. They don’t yet believe in Jim Hackett. If you’re buying into Hackett today, know that you’re in for a rough ride in the near term and that big gains may be years away.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in F.
