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 vehicles inexpensive for on a regular basis Individuals.
This single innovation turned Ford into the most important automaker on earth, and it made Detroit the commercial capital of the world.
It additionally made mass manufacturing the engine of the trendy economic system.
As we speak, 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 previous expertise within the horse and buggy.
However the fashionable 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 may very well be simply as revolutionary because the meeting line was over a century in the past.
As a substitute of bolting collectively hundreds of distinctive components 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 components by 20% and reduce fasteners by almost a 3rd.
And in an business the place margins are razor skinny, these numbers are merely astounding.
The primary automobile to roll off this method will probably be a midsize electrical pickup, slated for 2027.
And from the specs I’ve seen, it appears like a contemporary technological marvel.
The truck’s flooring 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, will probably be inexpensive to the employees who make it.
Proper now, its beginning value 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 vehicles in Europe for beneath €20,000, which is lower than half the worth of most U.S. EVs.
Final 12 months, BYD overtook Tesla because the world’s largest EV maker. However in contrast to American rivals Ford and GM, BYD’s revenue margins are unimaginable.
Some estimates put its per-car revenue in Europe at $14,000. And if these economics could make it to the U.S., Detroit will probably be in actual bother.
That’s why Ford is betting on a second manufacturing revolution.
If this modular system works, it may mark the primary time an American automaker can promote an EV at a mass-market value and nonetheless earn money on it.
In spite of everything, Ford’s EV division has been bleeding crimson 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 Avenue is properly conscious of this. That’s why Ford’s inventory barely budged after the announcement.
Analysts are nonetheless cut 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 traders, 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
Consumers 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 industrial 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 largest 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 vehicles sooner and cheaper than anybody else.
In 2027, the trendy Ford firm may achieve 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 guess 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’ll’t cede core applied sciences to China with out risking their future.
So that they’re making massive, daring strikes to make sure that doesn’t occur.
Right here’s My Take
The trendy Ford firm is attempting to do with modular EVs what Henry Ford did with the meeting line…
Use a producing innovation to vary the economics of a whole business.
Frankly, I feel it’s a daring transfer. If this modular system truly delivers, Ford gained’t want tariffs or subsidies to compete.
It may promote a $30,000 truck in America and truly flip a revenue. And that’s one thing no U.S. automaker has performed but in EVs.
Which is a part of the explanation U.S. traders have largely written off the EV commerce.
I consider that’s a mistake.
Our Strategic Fortunes and Excessive Fortunes mannequin portfolios maintain various firms with EV publicity. These shares are buying and selling close to cycle lows, and I consider they’ll come again into the highlight as the worth 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 go away that for one more dialogue.
By 2027, we must 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 in all probability gained’t stage the taking part in discipline 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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