Ford got a wake-up call yesterday morning; Tesla just passed Ford in valuation, making Tesla, on paper, with only two cars, more valuable than all of Ford with all of its truck and car lines. This is pretty amazing if you think about it because Tesla is unprofitable while Ford is having one of its most profitable years in its long history. Tesla has sold 76K cars vs. Ford’s millions of cars and trucks, and Tesla has issues selling in most states while Ford is a successful multi-national. What is really strange is Tesla basically lives on word of mouth and does very little marketing, while Ford runs expensive multi-national ad campaigns (some are damned good). I’m thinking Ford’s CMO may have some explaining to do…
However, the stock market is largely about people who invest in the future, and clearly investors think that Tesla is the car equivalent of Apple, while Ford is more like Sony (or the company that made the Flintstones car) despite Ford’s massively better sales performance. And, to be fair, Tesla was largely designed after Apple, while Ford still has its roots in an organizational structure closer to how things were in the 1940s rather than how they are now with leading tech companies today. Cars are quickly becoming rolling computers, but Ford hasn’t caught onto that yet. To address what is a massive technological and perception problem, Ford increased its engagement with Blackberry and dropped a billion dollars into Argo AI, which uses engineers from both Alphabet (Google’s less famous new name) and Uber.
Will this be enough to hold off Tesla? In a word, no. (Granted, Tesla could still self-destruct, but betting against Elon Musk has been a bad bet so far, even with the leaked set of Tesla options). It is a start, but Ford likely should be thinking about creating a Skunk Works project if it wants to hold off the inevitable because Tesla is only the tip of the iceberg with regard to what is coming.
Argo AI and Blackberry
Both Argo AI and its massively increased investment in Blackberry engineers can move the ball significantly when it comes to creating a car that is smarter. It should allow Ford to quickly move farther by adopting what both firms have already created rather than having to either reverse engineer what already exists or start from scratch. However, neither of these entities are embedded into the Ford culture, and the related engineers will likely be seen as encroaching outsiders overruled when it comes to advancing Ford’s products by those that have been with the firm longer and are more deeply entrenched in Ford’s culture.
Just learning the politics of getting a car through Ford’s development process will slow down the impact of these new groups and, worse, the external image that is driving the low valuation will be more closely tied to products that entered the design cycle a decade ago than it will be tied to products Ford will be bringing to market three to five years from now. (What is likely driving Tesla’s valuation is the Model 3, a small SUV and sports car, not its existing lines).
In short, what Ford needs is a mechanism to not only drive significant change short term but to convince investors that they’ll have something in market equal to or better than Tesla’s new products when they arrive without damaging sales of current offerings. To get there, these technology investments and related efforts have to look like they are driving change, not having to drag Ford’s culture kicking and screaming towards it.
Skunk Works was a term created to describe a unique entity created by Lockheed Martin to get around its own inability to drive rapid advancement through its existing factories. Most of the truly advanced planes out of Lockheed have come from this effort, which consists of a separate group with high autonomy, tasked with driving change and not held back by existing process or policy. Even though the efforts aren’t always called “Skunk Works,” the practice has been widely used in a variety of industries to create unique products and move aggressively on market opportunities.
There have been a wide variety of products that have come from Skunk Works-like efforts. The iPod came from outside of Apple, the original Apple Mac was a Skunk Works effort, the Sony PlayStation was done by a very independent working group, and the practice remains popular with even major retailers using this method as a way to advance their companies.
Now, Ford does have a relatively independent lab in Palo Alto working on efforts like this, but there is as of yet no indication that that this lab has the independence necessary to productize what it comes up with. Microsoft had some similar efforts, and the Xbox was created as a result of one of those efforts. However, two other efforts— one would have given Microsoft the 3D lead on the Web, and the other would have created a timely competitor to the iPad— were both killed by internal politics. And the death of the last took the related lab with it, showcasing how important it is for these teams to have the independence and authority to overcome entropy and execute.
Ford basically created the U.S. auto market with the Model-T, but its ability to innovate drifted back after a failed effort to create flying cars decades ago. Today, Ford is mostly known for leadership in pickup trucks. Even GM, a company known for being very slow moving, appears to be more cutting edge with its Bolt, and particularly its Volt offerings, and GM likely isn’t moving fast enough either. Ford’s Palo Alto Lab, Blackberry and Argo AI partnerships could make the difference, but only if it can execute like a fully capable Skunk Works project; if it doesn’t, then we’ll be talking about how the company missed the future in a few short years.
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President and Principal Analyst, Enderle Group
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