Ford's Electrification Master Plan: Going Beyond GM And Tesla?

| About: Ford Motor (F)

Summary

Ford may look like a late entrant in the race to EV dominance but their strategy, although risky, may put them years ahead of both Tesla and General Motors.

Their ongoing research and development in new battery cell technology could disrupt the industry in a big way if they manage to get it to market before 2020.

It looks like Ford is positioning itself to command a large segment of the battery industry itself instead of hitting the EV market directly with existing technology.

In the race to produce affordable EV cars that appeal to the mass market, Ford (NYSE:F) has fallen way behind its peer company General Motors (NYSE:GM). Notwithstanding the wild card entry of Tesla (NASDAQ:TSLA) into the arena a few years ago, Ford still has a long way to go before it can hope to achieve any kind of recognition for its EV line-up. Fortunately, the magic year of EVs - 2020 - is still four years away.

Ford's Inadequate Offering

Ford's current electric lineup has just three cars, the all electric Ford Focus, Ford Fusion hybrid and Ford C-Max hybrid.

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The Focus Electric being the only pure EV does put Ford in the running for EV dominance, but without any significant advantage. In fact, its range of 99-110 miles doesn't take it anywhere near Tesla's 240-mile range or even GM's new Chevy Bolt's 200 miles.

Even the recent investment in EV technology is vague at best. Not to knock Ford's ability to dominate a segment of the car market like they've done in Europe with their commercial vehicles, but Ford's just moving too slow in the EV race to make any significant impact over the next few years. Unless...

Ford's Electric Bill

In a recent SA article, their planned investment of $4.5 billion in EV technology over the next 4 years was already covered. What the article did not cover - because it was published before GM's announcement of the Chevy Bolt's entry into the EV space - was that the bar has now been officially set for EV performance in terms of battery range.

With 200 miles being the new standard for all EVs of the near future, where does Ford stand at this juncture? This is what I intend to delve into.

Ford Going Into the Roots of Battery Technology

It's a known fact that Ford also uses the same battery supplier for its Focus Electric model that GM has partnered with for the Chevy Bolt. So the first question that comes up is this: why don't they have their hands yet on a 200-mile battery when they're both working with the same manufacturer? One explanation could be that GM's contract with LG Chem includes an exclusivity clause that precludes the latter from capitalizing on or even disclosing their low-cost, high-range battery technology to any other entity for a set period of time. Such a contract would make sense considering the shroud of secrecy that preceded the launch of the Chevy Bolt into the EV market.

The second explanation, and one that I think makes much more sense, is that Ford is looking way ahead of GM in terms of battery technology. They're not after existing technology; they're creating their own technology so they can dominate the space with advanced battery technology a decade or more into the future.

That would really put GM and even Tesla in a tight in-fighting position because both essentially are trying to stretch the limits of the existing Lithium-ion technology that rules the battery cell world right now. Even though Tesla has partnered with Panasonic for their battery packs, the tech is essentially very similar to what LG is producing.

This is how I see Ford coming into the EV market in a strong way - get the forward-looking technology right and then slowly create the infrastructure of car production that can feed right into that technology when both are mature enough to be release to the market.

Brilliant if it works; gutsy if it doesn't, in my opinion!

Ford's New Cell Technology

Naturally, it's hard to find information on such industry-disruptive technology before the company is ready to reveal it. The best we can do is compare what's available now with what Ford may be cooking up in their chemical plants.

Possibly one of the earliest adopters of Li-ion technology for automobiles was Nissan, which teamed up in 1992 with computer giant NEC to create Automotive Energy Supply Corporation (AESC). The 200,000 or so Nissan Leafs sold in the past five years all have this technology, which has only marginally improved in performance over that time. That could be why Nissan CEO Carlos Ghosn has recently indicated that the new generation Leaf slated for release in 2017 or 2018 could have a battery from a new manufacturer. Any guesses on who that might be?

LG Chem's and Panasonic's technologies are both based on the same essential cell chemistry, but the latter's success with much higher ranges in Tesla's Model S are more to do with mechanical elements and packaging than the battery cell technology itself.

Ford's new technology is still under research, but the University of Michigan Battery Fabrication and Characterization User Facility is already producing pilot versions of a battery using Ford's cell technology.

Investor-speak: Could Ford Soon Become the Newest Serious Contender in the EV Space?

Much of the talk about future EV dominance has been assumptions based on the battery technology that is currently available. Everyone talks about range, performance and cost per kWh, but what Ford is doing now could disrupt the entire industry in a few short years from now.

Ford is already promising a higher range of 100+ miles for their 2017 Focus Electric - compared to the current ~76 miles for the current model. How much of that has come from their new technology is anyone's guess at this point. As for me, I don't think they'd be careless enough to release industry-changing technology before it's ready to beat the 200-mile-low-cost-battery standard by a wide margin.

The way I see it, none of these companies - Tesla, GM and Ford - are going to see stock prices increase based on incremental improvements in technology. Tesla, perhaps, will start showing high gains once the Model 3 is more of a concrete reality than the pipe dream that it currently is, but GM's stock isn't going to get a big boost from selling 30,000 Bolts this year or next. For sure, Ford isn't going to get much stock price mileage on the 100-mile range of its new Focus Electric.

However, one thing is amply clear: whoever, is going to change the face of EV for the next few decades has a window of opportunity from now until 2020 to stake their claim. By then, the Gigafactory will be at near full capacity, GM will have already taken its battery technology and any upcoming supercharger network plans several levels up, and anyone with a less-than-200-mile-range car selling for anything more than $30,000 excluding rebates will only be unceremoniously sent packing to the EV graveyard.

Yes, there will still be a market for high-end EVs that cost $80,000 and over, and I call this the "PLUGXURY" segment - which, I believe, will grow in an almost parasitic fashion along with mainstream, mass-market EVs. But just like the luxury segment for ICE vehicles is an off-shoot of the core market, the "Plugxury" segment will continue to thrive because of the basic human need to be "better" than the rest.

Considering that these three companies (TSLA, GM and F) are the only ones that have shown any indication of taking the lead over the next four years, I would invest in all of them for long-term growth. As the EV market inches its way closer to the ICE market year over year, the headway that these companies have made in this technology can only help their stock when that finally does happen. In GM's and Ford's cases, it will be complemented by their performance in the ICE segment, in which they are already the two dominant players.

As for Ford, if their new battery technology is viable and production-ready in a few years, it will give them a major advantage over every other EV player in the field. If, however, their cell technology cannot deliver to the cost and range demands of the current market by a significant margin, they will have to fall back on existing technology and scramble to claim third place in this race...unless someone like Volvo or Nissan is able to beat them to it.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.