Legacy auto is failing: Ford CEO says EV transition more than switching drive trains

Ford CEO Jim Farley has admitted that legacy car makers are struggling with the transition to electric vehicles, and are too obsessesed over switching drive trains, and not their business models.

In a wide ranging conversation with Robert Llewellyn on the Fully Charged Podcast, Farley talked about the complexities that large legacy automotive companies have to deal with as they develop new designs, manufacturing process and supply chains.

“What we’ve noticed commercially is that most of the established companies are failing in the EV side,” said Farley.

“They are selling and they’re coming up with new models but when you look at how much they invested, how big the plants are and how much capital they put at risk and basically, you know what customers are doing and buying, it’s not panning out commercially.

“We decided in our second generation to do something very different than other companies. Our first three generation products we electrified our most iconic products.

“What we’ve learned about electrification is it’s actually not about the  propulsion system. It’s really about what you can do outside of the propulsion system, and also the software because it’s a digital product and our first generation EVs were analog products.”

Farley says Ford’s competition in the EV age isn’t legacy automakers but new EV entrants and that the key for legacy automakers is to seperate their ICE and EV business models.

“I’ve always said our main competition in the pure electric space is going to be BYD and Geely and Tesla. It’s not General Motors, its not going to be BMW or Volkswagen,” said Farley.

“What’s interesting is that in China, those that are successful in the EV business that had ICE products like Geely and SAIC and Chang’an, they all started new brands because they realised that these are digital products.

“And what will differentiate these products is not going to be a noise, vibration, harshness or bigger engines or smaller engines or efficiency. It’s going to be software and it’s going to be charging and it’s going to be physical experiences. So they knew that as long as they had ICE vehicles and EVS and the same brand they would fail.”

Software integration one of the big challenges for legacy auto

Farley shared how difficult it has been to develop the software system for EVs and why vertical integration is so important.

“If I explain to the listeners how crazy the software system is and why it’s so difficult for legacy car companies to get software right.“

“We farmed out the modules that control the vehicles to our suppliers because we could bid them against each other.” said Farley.

“So Bosch would do the body control module someone else to do the C control module someone else do the engine control module, and we have about 150 modules and semiconductors all through the car.”

“The problem is the software is all written by 150 different companies. They don’t talk to each other. So even though it says Ford on the front, I actually have to go to Bosch to get permission to change their C control software.”

“So even if I had a high speed modem in the vehicle and I had the ability to write the software, it’s actually their IP and I have 150 completely different software, programming languages.”

“So that’s why at Ford we’ve decided with the second generation product to completely insource electric architecture and to do that you need to write all the software yourself. But just remember car companies haven’t written software like this, ever.”

“So we’re literally writing how the vehicle operates, the software to operate the vehicle for the first time.”

EV business model is different to the traditional model

Llewellyn asked Farley if the long term goal for Ford is to build cheaper, smaller electric vehicles as well as upmarket ones.

“This is one of the biggest strategy decisions for the company,” said Farley.

“We don’t want to just make another generic, affordable EV because I think there’s gonna be plenty of those.”

“We think basically that the car would be very difficult to make money on. It would be really more the software and physical experience for the second and third owner as much as the first,” said Farley.

“The winners and losers are different. You know the Toyotas, the very high volume brands, they struggle with electric. Now this is a chance for a medium sized company like Ford globally to get back into segments that we left a long time ago.”