When Henry Ford launched the Mannequin T in 1908, he began a producing revolution.
The shifting meeting line reduce manufacturing time on the car from 12 hours to solely 90 minutes. It slashed prices and made automobiles reasonably priced for on a regular basis Individuals.
This single innovation turned Ford into the biggest automaker on earth, and it made Detroit the economic capital of the world.
It additionally made mass manufacturing the engine of the trendy financial system.
Right now, Ford (NYSE: F) is trying one other manufacturing revolution. However this time, the stakes are even greater.
You see, Henry Ford was competing in opposition to an outdated know-how within the horse and buggy.
However the trendy Ford firm is making ready to outlive the approaching flood of low cost Chinese language EVs.
A Modular Guess
Final week, Ford revealed it has developed a brand new “common EV platform.”
This modular system might be simply as revolutionary because the meeting line was over a century in the past.
As a substitute of bolting collectively 1000’s of distinctive elements in a single steady line, Ford will construct the entrance, center and rear sections of a automobile individually, then fuse all of them collectively.
By the corporate’s personal estimates, this may reduce meeting time by 40%. It’ll additionally scale back elements by 20% and reduce fasteners by almost a 3rd.
And in an trade the place margins are razor skinny, these numbers are merely astounding.
The primary automobile to roll off this technique might be a midsize electrical pickup, slated for 2027.
And from the specs I’ve seen, it seems like a contemporary technological marvel.
The truck’s ground is a lithium-iron-phosphate battery pack that doubles because the automobile’s structural base. That design saves weight, lowers prices and opens up extra cabin area.
And similar to the Mannequin T, it is going to be reasonably priced to the employees who make it.
Proper now, its beginning worth is pegged at round $30,000, which ought to come as a shock for anybody who has priced a midsize truck these days.
Particularly because it’s an EV.
However there’s no mistaking the motivation behind Ford’s radical shift to this new modular system.
We’ve talked earlier than about BYD, China’s EV juggernaut. It’s already promoting electrical automobiles in Europe for beneath €20,000, which is lower than half the value of most U.S. EVs.
Final yr, BYD overtook Tesla because the world’s largest EV maker. However in contrast to American rivals Ford and GM, BYD’s revenue margins are unbelievable.
Some estimates put its per-car revenue in Europe at $14,000. And if these economics could make it to the U.S., Detroit might be in actual hassle.
That’s why Ford is betting on a second manufacturing revolution.
If this modular system works, it might mark the primary time an American automaker can promote an EV at a mass-market worth and nonetheless generate income on it.
In spite of everything, Ford’s EV division has been bleeding purple ink.
Final quarter alone it posted a $1.3 billion loss. That works out to roughly $22,000 misplaced on each EV the corporate offered.
Since 2023, Ford has hit $12 billion in cumulative losses.
And Wall Road is properly conscious of this. That’s why Ford’s inventory barely budged after the announcement.
Analysts are nonetheless break up on whether or not this modular pivot is a stroke of genius or a determined transfer to cease the bleeding.
In fact, Ford isn’t the one U.S. firm with the plan to go modular.
Startups like Slate — which raised $111 million from 16 buyers, together with Jeff Bezos, in its preliminary funding spherical — are pushing modular ideas of their very own.
Slate’s pitch is a bare-bones pickup within the mid-$20,000 vary, designed to be wrapped and customised like a clean canvas.
Supply: slate.auto/en
Patrons don’t get paint. They don’t even get energy home windows.
However they do get affordability and suppleness.
Then there’s REE Automotive, which is specializing in a modular chassis for business EV fleets.
And you may be certain GM and Stellantis (previously Dodge/Chrysler) are engaged on their very own scalable architectures behind the scenes.
However Ford might need the most important benefit. It simply spent $2 billion retooling its plant in Louisville to accommodate this new modular system.
Now it comes all the way down to execution.
In 1908, Ford gained an edge by constructing automobiles quicker and cheaper than anybody else.
In 2027, the trendy Ford firm might acquire an edge by having the ability to construct its EVs profitably when its U.S. rivals can’t.
That makes this story about extra than simply auto manufacturing.
I famous how Musk’s current $16.5 billion wager on chipmaking capability is a part of an American industrial reset.
Ford’s transfer is one other clear instance of this reset.
The widespread thread is that U.S. firms know they will’t cede core applied sciences to China with out risking their future.
So that they’re making huge, daring strikes to make sure that doesn’t occur.
Right here’s My Take
The fashionable Ford firm is making an attempt to do with modular EVs what Henry Ford did with the meeting line…
Use a producing innovation to alter the economics of a complete trade.
Frankly, I feel it’s a daring transfer. If this modular system truly delivers, Ford gained’t want tariffs or subsidies to compete.
It might promote a $30,000 truck in America and really flip a revenue. And that’s one thing no U.S. automaker has completed but in EVs.
Which is a part of the rationale U.S. buyers have largely written off the EV commerce.
I imagine that’s a mistake.
Our Strategic Fortunes and Excessive Fortunes mannequin portfolios maintain quite a few firms with EV publicity. These shares are buying and selling close to cycle lows, and I imagine they’ll come again into the highlight as the value of EVs continues to drop.
There’s additionally the robotics angle on every of those firms as a result of robots use comparable energy and sensing chips.
However we’ll depart that for an additional dialogue.
By 2027, we should always have a good suggestion of whether or not Ford’s gamble will repay.
If the corporate can ship a mid-size electrical truck that turns a revenue, it most likely gained’t stage the taking part in area with BYD…
Nevertheless it would possibly assist kickstart a brand new manufacturing revolution right here within the U.S.
Regards,
Ian King
Chief Strategist, Banyan Hill Publishing
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