Costs temper hype on road to autonomous vehicles
The future of the auto industry will be expensive. And the carmakers and technology companies working on the electrified autonomous vehicles of the future are steeling themselves for rising costs already being felt.
Investors and analysts are pushing companies like General Motors Co., Ford Motor Co. and Tesla Inc. for concrete evidence that they have the right bets in place. The dose of reality, coupled with looming regulatory hurdles, is tempering some of the hype surrounding the future technology and how soon it will come to a neighborhood near you.
"We all know that the road to mobility and autonomy is really expensive," said Jessica Caldwell, analyst with Edmunds. "People want to know how long of a game this is. There's never been this level of newness and innovation. It feels like there is a push to talk about more realistic, near-term goals."
The technical limitations are real. Investors are beginning to scrutinize decisions to spend billions on automated vehicles that won't be widely available for at least a decade — even if Ford, GM and others plan to launch their first iterations of autonomous vehicles within the next couple of years.
"It’s actually a lot harder than everybody thought," said Sam Abuelsamid, automotive industry and technology analyst for Chicago-based Navigant Research. "And it’s going to take considerably longer for this technology to get really widespread."
For most, that means the next couple years promise belt-tightening amid highly profitable years. Ford, GM and Fiat Chrysler Automobiles NV are paring unprofitable cars from U.S. lineups as part of an effort to fatten near-term profits to help fund long-term investments. Apple Inc.'s self-driving unit is axing 200 employees, some of whom will be moved to new assignments inside the technology giant.
Tesla said it will cut its workforce by 7 percent — and that it would close most of its showrooms, before reversing itself — as part of an effort to make money on the lower-priced Model 3. The Silicon Valley start-up is struggling to figure out how fulfilling its promise to offer a lower-priced Model 3 compact EV will help boost profits and appeal to a larger segment of the electric-vehicle market.
Ford lost $647 million last year on mobility services and autonomous vehicle development even as the Dearborn automaker pushes to cut costs in its traditional truck and SUV business by $25.5 billion and moves to winnow its global salaried workforce.
GM has said it expects to spend a total of $1 billion on GM Cruise LLC, its in-house automation arm, as the company prepares a plan to launch a driverless taxi service next year. But the Detroit automaker also is idling five North American plants as it prunes its product lineup of unprofitable vehicles and rationalizes plant capacity. It also is reducing its salaried workforce and trimming its executive ranks, even as rival Fiat Chrysler is planning to build a new Jeep assembly plant on the east side of Detroit.
And then there are partnerships. Ford has been in talks with Volkswagen AG since early last year exploring potential alliances on commercial vehicles, a Ford-built truck for VW to be sold outside North America and possibly autonomous vehicles. GM is interested in partnering on an electric pickup truck with a Michigan-based start-up company, Rivian Automotive LLC, that recently pocketed a $700 million investment led by Amazon.com Inc.
Meantime, companies like Waymo LLC, the self-driving unit of Google parent Alphabet Inc., are investing to save on logistics. The company's plans for a $13.6 million manufacturing facility in metro Detroit puts the tech company closer to its vehicle supplier, Fiat Chrysler. The companies are shifting to a more focused approach to developing the next generation of the auto industry.
Only a few years ago, investors would have tolerated automakers pinning a lofty goal — like the self-driving vehicle they plan to put in your driveway — to some far-off date, Caldwell said. But self-imposed deadlines are approaching: GM says it plans to launch its first fleet of self-driving vehicles for consumer use in 2019, while Ford aims to launch in 2021.
And that means automakers have to think critically and strategically about how they place bets on the future, what promises they make to investors, regulators and the consuming public, and whether they can deliver to meet the hype — or sacrifice their credibility.
Another recent example: Ford in January officially killed a venture that was expected to be an integral piece of its mobility offerings. The Chariot shuttle service, purchased for $65 million by Ford CEO Jim Hackett when he headed Ford's mobility arm, turned out to be a bust.
"One of the things we've recognized is that we're going to have to try a lot of things, and there's a term called 'failing fast,' which is if it's not working ... deal with reality and move on," Ford Executive Chairman Bill Ford said during the Detroit auto show. "We hope not to fail. We'd love everything to work, but that's not reality."
Ford, GM and others have also committed to adding electrified or alternative fuel vehicles to product lineups. Ford plans to spend $4 billion on autonomous vehicles through 2023. The Dearborn-automaker also plans to redeploy $11 billion to launch 40 new hybrid or battery-powered vehicles by 2022. And they've earmarked $740 million for refurbishing the historic Michigan Central Depot into the anchor of a Corktown campus where the Blue Oval would house its autonomous and electric-vehicle teams.
"These are massive numbers," Caldwell said. "They're saying 'Let's save money on things we can get our arms around.'"
The investment community might soon demand more real answers from automotive and technological leaders to justify the spending and restructuring. A major question for the leadership of the Detroit Three and its tech competitors: Can their investments turn a profit — sooner rather than later?
"They're going to have to start clarifying what their real plans are for this stuff," Abuelsamid said. "They're going to have to justify the money they're spending."