Ford Says Tech-Bet Payoff to Take Time -- WSJ
September 15 2016 - 03:03AM
Dow Jones News
Profit to fall through 2017 on higher costs
By Christina Rogers
Ford Motor Co. made its latest plea for investors to view the
auto maker more like a Silicon Valley company, promising lofty
returns on future ventures while warning near-term profit will be
pinched by deep investment.
The Dearborn, Mich., car maker told investors that its new
business services unit eventually will deliver 20% margins,
two-and-a-half-times its core auto-making operation. It updated its
plans for venturing into robo-taxis, electric cars and other
transportation services like bike-sharing and shuttle vans.
"We've always thought about the 'thing' and how many 'things'
were sold, " Chief Executive Mark Fields told investors gathered on
Wednesday at its headquarters. "Now, we're opening up the aperture
of the lens."
Ford's share price has declined under Mr. Fields, who took over
in 2014 after former chief Alan Mulally spent nearly a decade
unwinding earlier initiatives and getting Ford back to auto-making
basics. The new chief's strategy has shifted to winning a
technology race with rivals including General Motors Co. and Toyota
Motor Corp.
The new strategy will be costly and risky. Capital spending will
rise to 5.6% of revenue in the next two years, from 4.9% in 2016,
as Ford steps up investment and acquisitions related to the new
businesses. The No. 2 U.S. car maker also said profit will shrink
in 2017 due to investments, then rebound in 2018 amid an expansion
of its car and truck lineup and $3 billion in annual cost cuts
achieved during a three-year span beginning this year.
It had warned in recent months that this year's financial
results will be hurt by a safety recall, costs related to Brexit
and a slowdown in the U.S. auto market.
Mr. Fields also is scrambling to catch up with Uber Technologies
Inc., Alphabet Inc.'s Google, Tesla Motors Inc. and other
nontraditional car companies ahead of Ford in electric-vehicle
development, autonomous-vehicle testing and services allowing
customers to share rides or cars.
The 113-year-old company this year has unveiled a flurry of
partnerships and investments, reminiscent of the company's frenzy
15 years ago during the dot-com bubble to develop new ventures and
acquire luxury brands. Those initiatives drained Ford's coffers and
few panned out.
Mr. Fields sought to reassure wary investors Wednesday the
company is in a strong position to weather a downturn and primed
for growth. "We've given you clear evidence that Ford is a solid
investment with an attractive upside," Mr. Fields said.
The stock was off nearly 2% at $12.14 at 4 pm. in trading on
Wednesday.
Ford didn't put a timetable on its lofty 20% margin target for
new initiatives, which compares with a forecast of an 8% margin in
its auto business.
The company thinks autonomous vehicles will account for up 20%
of total vehicle sales by the end of the next decade, and its first
deployments will be in urban areas, such as New York City and Metro
Detroit.
Ford plans to roll out in 2021 its fully autonomous car with no
steering wheel or pedals, selling about 100,000 a year for
commercial purposes only. A personal-use driverless car will be
available in dealerships around the middle of next decade, Mr.
Fields said.
Tests of these types of vehicles indicate auto engineers still
have a long way to go in making autonomous vehicles behave in a way
that reflects real-world driving patterns.
Ford's recent string of announcements, which include the
purchase of a van-shuttle service in San Francisco and taking a
stake in laser-sensor maker Velodyne Inc., have done little to
soften Wall Street concerns about a cool-down in the U.S. market.
Ford's stock is down 11% since the start of 2016 despite the
success of the F-150 pickup truck and the coming launch of F-series
heavy-duty trucks, which are among the most profitable vehicles
sold in the world.
Ford says its operating cash flow will remain positive through
2018 and the company expects financial results to improve in
troubled Russia and South America as restructuring efforts take
hold there.
Write to Christina Rogers at christina.rogers@wsj.com
(END) Dow Jones Newswires
September 15, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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