After an intensive four-month review of its strategy and business operations, Ford (F 12.35) has come up with a new vision of its future. That vision includes lowering production costs, accelerating work on smart, connected vehicles, increasing its effort on producing electric vehicles, and manufacturing more SUVs and trucks.
This vision was laid out yesterday by company CEO Jim Hackett. It is a hopeful plan that has the aura of generating increased profitability.
Investors will learn more about the 2018 financial outlook in January. For now, Ford said it is reaffirming its 2017 full-year guidance and reiterating its long-term goal of an 8% automotive operating margin.
With the new strategic vision, though, Ford believes it can reduce automotive cost growth by 50% through 2022, driven in part by $10 billion in incremental material cost reductions.
The automaker is also going to make a concerted push to ramp up its SUV and truck business, saying it will reallocate $7 billion of capital from cars to SUVs and trucks. In addition, it is going to expand its electric vehicle program in a big way, noting that it will cut its internal combustible engine expenditures by one-third and redeploy that capital on top of a $4.5 billion investment it has made in electrification.
That is an important shift and really a necessary one in light of General Motors' (GM 43.45) commitment to building more electric vehicles and the newfound competition in that space that has been fueled by Tesla (TSLA 348.14).
Still, one gets the sense that Ford is playing catch up here in much the same way traditional retailers finally saw the competitive light emitted by Amazon (AMZN 957.10) and scurried to build out their e-commerce businesses in a bid to protect their market share.
Also, the emphasis on building more SUVs and trucks could create some added cyclical challenges if gas prices were to rise sharply, making it cost prohibitive for many drivers to fill up those big gas tanks.
Those points aside, Ford needed to be shaken up with a new strategy. Only time and Ford's income statement will tell if this new strategic vision works, yet Ford's stock, which is down close to 30% from its 2014 high, has made it clear the old way of doing things wasn't working.