Ford Motor Co. President and CEO Jim Farley on June 1 told an investment firm gathering that his team managing commercial vehicle services and distribution is blazing a trail when it comes to figuring out the market for software and subscription revenues.
Speaking at AllianceBernstein’s 38th Annual Strategic Decisions Conference, Farley spoke broadly of the introduction of advanced driver assistance systems and other technologies as “the biggest, most exciting land grab of revenue in our industry since the Model T” and compared where the auto sector is now to where mobile phone makers were about 25 years ago.
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“When I see the pricing power for ADAS—not just at Tesla but all of us—[…] it feels like that’s the first shippable software that we can send to a car that customers are really willing to pay a lot of money for,” Farley said. “We’re about to change the ride just like Apple and all the smartphone companies changed the call. And I believe, when that happens—when you can ship a lot of software to the car and you have great sensors [and you can] really change that experience and be a lot more productive—there will be a large revenue expansion.”
AllianceBernstein analyst Toni Sacconaghi asked Farley whether software services being brought to market today at a premium will have a stickiness to their revenues that previous automotive technologies such as air bags or navigation couldn’t retain. Ford’s leader said many new ADAS features—he specifically named automatically opening garage doors or turning on air conditioning before drivers get home—won’t be chargeable over time. But, he added, the Ford Pro suite of both cloud and on-the-ground services is answering some important questions.
“People are willing to pay for integrated systems of telematics, fleet management, energy management, charging for electric commercial vehicles, prognostics, and predictive failure," Farley said. “It is amazing to me to see how quickly the customers have moved from the vehicle attributes to the software. The most important stickiness is the integration. If you just come with an off-the-shelf ADAS system that you bought from Mobileye or Nvidia, it ain’t gonna be pretty.”
A number of these commercial applications should translate over to Ford’s retail business, Farley added. But the core principle of having a suite of complementary offerings is key.
“You’d better have very integrated, directed customer-facing software plus physical experience that will differentiate you in a long-lasting way,” he said. “Or else it will be a commodity. I absolutely believe that.”
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Farley’s comments built on remarks made by Ford CFO John Lawler at a similar investor event in mid-April. At that gathering hosted by Bank of America, Lawler also discussed how using software to grow Ford’s post-warranty services business will help the company grow its share of customers’ fleets. Farley echoed that sentiment at AB’s confab, saying that less than 20% of today’s buyers return to Ford for post-warranty work.
Speaking about longer-term trends around electric vehicles and shared mobility, Farley said he’ll be watching for the maturation of autonomous driving technologies. Once a number of those platforms have proven their viability and value, he said, he would not be surprised to see a cohort of large technology companies enter the commercial transportation market, which he noted is 10 times larger than personal transportation.
“When autonomy becomes democratized, […] they will use their very powerful consumer brands to integrate into their digital experience […] and we will have a new wave of competition,” he said. “If anything, that’s what keeps me up at night. How do I compete with them?”
For more perspectives on Farley’s comments at the AB conference—including his expectation of a consolidation wave among OEMs and suppliers—visit our sister brand, IndustryWeek.
Shares of Ford (Ticker: F) fell about 1% to $13.55 on June 1, in line with the broader market. Year to date, they are down about 35%, shrinking the company’s market capitalization to about $55 billion.
