Wall Street warms to Detroit's EV vision

Detroit’s vision for how it can compete against Silicon Valley is starting to come into focus — and Wall Street finally may be taking notice.
General Motors last week revealed plans to launch 20 new electric or fuel cell vehicles by 2023 as part of CEO Mary Barra’s push toward an autonomous, zero-emission future. Ford Motor Co. CEO Jim Hackett, meanwhile, spelled out drastic cost-cutting measures to improve the automaker’s ability to compete now and in an uncertain future for the industry.
The moves were meant to reassure skeptical investors who have kept both companies’ stock prices in neutral, instead favoring the disruptive business models and new-age technology of Tesla and Google.
They might have worked.
GM’s shares hit a new high every day last week as bullish analysts upgraded its stock, and there is growing speculation that GM could spin off its mobility business into a separate company. Ford received a small bump before its stock price leveled off, and several analysts issued reports saying the Blue Oval has the right building blocks in place for success, though it may take some time.
“At this point in the cycle [both in the U.S. and globally], it is extremely difficult to sustainably push earnings expectations to new highs,” Morgan Stanley analyst Adam Jonas said in a note to investors last week. “We are not surprised to see auto firms spend greater portions of their presentations focused on a thoughtful pivot to Auto 2.0.”
Zero-emission future
That pivot — for both Ford and GM — includes moving away from the traditional internal combustion engine to zero-emission propulsion systems.

Reuss: “Far along” in plan

“General Motors believes the future is all-electric. A world free of automotive emissions,” product chief Mark Reuss said last week. “These aren’t just words in a war of press releases. We are far along in our plan to lead the way to that future world.”

By the numbers
  • $14 billion: Amount Ford plans to reduce material and engineering costs through 2022
  • $7 billion: Product development funding Ford is reallocating from cars to light trucks
  • 20: Number of electric or fuel cell vehicles GM will bring to market by 2023
  • 100%: How much of its U.S. lineup Ford plans to make connected by end of 2019
  • 6 million-plus: Number of GM vehicles in North America now equipped with 4G LTESource: GM, FordBy the numbers

At least the first two of the 20 new vehicles will be based on the current Chevrolet Bolt EV, while future ones will feature an “all-new battery system” and architecture, GM said. The first two vehicles are expected to launch in the next 18 months.
GM declined to provide specifics about the next-generation propulsion system or what vehicles it will electrify. However, it previewed three clay models of vehicles designed for the propulsion system: a Buick crossover, a Cadillac wagon and a pod-looking vehicle with “Bolt EV” badging. Their underlying architecture can accommodate two different heights of cells for the battery pack.
Reuss promised the vehicles would be profitable, but he would not elaborate on a time frame for that or say when the automaker might offer zero-emission vehicles exclusively.
Ford also intends to operate a “sustainably profitable” battery-electric vehicle business, said Jim Farley, the company’s president of global markets.
While Ford offered even fewer details than GM, Hackett said the automaker would slash spending on internal combustion engines by nearly one-third in the next five years. The $500 million in savings will be reallocated to electric-vehicle development.
Ford is the nation’s No. 2 seller of electrified vehicles, according to the automaker, but lags in sales and development of battery-electric vehicles. It plans an EV crossover with a 300-mile range by 2020 and said last week that it would add an unspecified number of battery-electric vehicles “post 2020.” It has dedicated an internal team, dubbed Team Edison, to study and develop battery technology.
Hackett announced plans last week to build modem connectivity into Ford’s full U.S. lineup within two years.
About 55 percent of Ford’s lineup is connected today. The automaker still is exploring how it will commoditize that connectivity and what services it could offer.
“I don’t feel that where we are competitively is where we should be,” Hackett said, adding he felt that could be resolved rather quickly.
GM’s vehicles have been connected through OnStar since the subsidiary was founded in 1996. It began adding 4G LTE Internet to vehicles in 2014. More than 6 million GM vehicles are now equipped with 4G LTE in North America.
Connectivity is a key part of the development and deployment of autonomous vehicles. Different paths
GM and Ford have been testing self-driving vehicles on public roads, though the two have taken different paths.
GM is on what it calls its third generation of the self-driving Chevrolet Bolts it’s developing through Cruise Automation, which it bought in 2016. The company has roughly tripled its California test fleet of self-driving cars since July and aims to become the first automaker to deploy them for ride-sharing and ride-hailing purposes through a partnership with Lyft.
Ford, which is testing self-driving Fusion sedans, also formed a partnership with Lyft last month. It’s planning to launch a Level 4 self-driving vehicle for commercial use in 2021. Ford has said it wants high utilization rates to make it as profitable as possible.
“The best model to do that is to have a diverse group of businesses and services to utilize the vehicle all day long,” Farley said.
To prepare itself for such a future, Ford is embarking on a regimen to improve its fitness, which is a favorite term of Hackett.
The company plans to reduce the rate of growth in automotive costs by half through 2022. It’s vowing to cut $10 billion in incremental material costs and $4 billion in engineering expenses over the next five years. It hopes to achieve that through more common parts and design technology that requires building fewer prototypes.
Ford said it’s reallocating $7 billion of capital from cars to light trucks. This year, it decided to move production of the next-generation Focus from North America to China to save money. It also has been chasing GM and other rivals in hot segments such as midsize pickups and compact crossovers.
The automaker said that shift in spending on light-vehicle development would result in fewer car nameplates but did not provide specifics.
Those moves are meant to bolster profit margins, an area Hackett has admitted Ford lags GM and wants to fix.
Ford’s second-quarter profit margin of 5.9 percent was down from 7.7 percent a year ago and well below the 10 percent margin that General Motors reported for the same period. The two companies are scheduled to release third-quarter results this month.
Hackett said Ford still has a long-term goal of an 8 percent operating margin on the core automotive business as it looks to boost overall profitability.
Some analysts, though, still want Ford to provide many more details and answer more questions before buying into the company’s plans under Hackett.
“While the building blocks may be in place, it will take quite some time for benefits to be clear and likely for investors to give credit,” Barclays analyst Brian Johnson wrote in a note to investors. “Thus for the time being, investor focus on Ford will be around quarterly earnings and ’18 guidance — where we don’t see much positive surprise.”
Fuente: Auto News