Model Ts and EVs

How much of a 'revolution' is Ford's new production system?

Ford Motor Co. says it has a plan to wring more efficiency out of electric vehicle assembly with what it’s calling the Universal EV Production System Nothing, it seems, will shake automakers’ fervent, dogmatic belief in the all-electric future. If only car buyers would, finally, cooperate.

The first model to roll off the Universal line, Ford says, will be a medium-sized $30,000 electric pickup seating five and hitting showrooms in 2027. A full size pickup will follow in 2028. If you’re in the market for something like this, you’ll have to convince yourself that, sight unseen, it’s worth the wait.

And, meanwhile, the global competition won’t be standing still (more below).

“We took a radical approach to a very hard challenge: Create affordable vehicles that delight customers in every way that matters – design, innovation, flexibility, space, driving pleasure, and cost of ownership – and do it with American workers,” said Ford President and CEO Jim Farley at a rollout in Louisville on Aug. 11.

The medium Ford pickup hits a price point close to the Slate, Amazon’s highly customizable DIY hobby pickup. Which, I’m betting, will beat Ford’s Universal truck to market. Neither of these “trucks” will be good for towing big RVs or lugging cinder blocks to a job site. We’re talking lifestyle vehicles — something akin to the utility of a compact crossover like the Subaru Crosstrek.

Bonfire of the Green Vanities

With the Universal program, amounting to another $5 billion in vehicle and battery investment, Ford continues down a very expensive — and uncertain — path. In just two and a half years, “Ford’s electric vehicle division has lost $12 billion, including $2.2 billion in the first half of this year. This year, sales of its electric models have stalled, falling 12 percent in the first six months.”

Ford’s not alone in shoveling bundles of dollars into the EV furnace. You wonder when shareholders will finally revolt. Here’s GM’s Mary Barra in July: “Despite slower EV industry growth, we believe the long-term future is profitable electric vehicle production, and this continues to be our north star.” In January, Generous Motors announced that its EV business was “variable profit positive” which is business school lingo for “still losing money.”

Farley claims that Ford’s Universal production system “reduces parts by 20% versus a typical vehicle, with 25% fewer fasteners, 40% fewer workstations dock-to-dock in the plant and 15% faster assembly time. Lower cost of ownership over five years than a three-year-old used Tesla Model Y”

That’s because an EV, which resembles an over-grown slot car, is a much simpler thing compared to a gas engine vehicle. That also explains why auto execs are so hot after EVs. If they can figure out how to make them profitably, profits will be fat.

In 2022, Farley warned that EV production would result in 40 percent lower labor costs. The Universal system promises to reduce labor and costs another 15 percent. In the same breath, he’s promising that the Universal production platform will create or secure “nearly 4,000 jobs across Louisville Assembly Plant and BlueOval Battery Park Michigan to deliver a new pickup and produce advanced prismatic LFP batteries.”

A neat trick. But job security hinges on vehicle sales. The sad tale of the all-electric Ford F-150 Lightning pickup is instructive here.

The Financial Times recently observed that the auto sector “has been heavily unionised for decades, paying wages that placed blue-collar workers in the middle class. The United Auto Workers union estimated in 2018 that the transition to EVs could cost 35,000 jobs out of the 400,000 workers it represents.”

Unsurprisingly, the UAW and its leader Sean Fain view the EV as an existential threat. Yet I search in vain for any comment from Fain or the union on Ford’s Universal Production System. Perhaps they’re all too busy organizing the factories of the future.

Revolution — or refinement?

What of Ford’s claim that the Universal production system takes the Model T and its mass production innovations as inspiration? That Ford has, in fact, ushered in a new “Model T moment.” Well, sure.

While Henry Ford is rightly celebrated for putting America on wheels with the mass production of the affordable Model T, he didn’t invent the assembly line. He took it to new heights. In truth, the development of the assembly line in industrial production was a process of continuous refinement going back to the 19th century.

That takes nothing away from Henry Ford’s achievements. His system became known as Fordism. On the production side, this involved the moving assembly line with standardized, repetitive tasks, mass production at high volume with a product that had few variations — the Model T. “Any color the customer wants, as long as it’s black,” Ford is quoted as saying. Easy to fix and 20 hp. Model T production was combined with the Taylorism methods of time studies and other “scientific” management techniques which were, you might say, revolutionary in its day.

Let’s look back to another, more recent rethinking of automotive mass production —the Toyota Production System. This lean production approach and its various techniques were rightly considered a huge competitive advantage for Japanese automakers. Proof was that Japanese vehicles were capturing big chunks of the U.S. market in the 1980s and 1990s. Studying and adopting the Toyota system, in part or whole, became a mania among domestic auto execs. They carried around copies of the 1991 book “The Machine that Changed the World” based on an MIT study that looked at the history of auto manufacturing but, more to the point, how the Japanese rose to dominance after WWII.

GM even forged a California joint-venture called Nummi to build cars with Toyota in hopes it could learn how the authors of lean production actually practiced it in real life.

The theme of Toyota’s system was abhorrence of waste and unnecessary cost by shunning big buffers of parts inventory, moving to just-in-time delivery of parts to assembly plants, and continuous problem solving. Try the 5 Whys technique next time you have a knotty problem.

Much of the business news these days about EVs dutifully notes that the Chinese are outpacing U.S. and other automakers. This is the fruit of state capitalism and massive subsidies. A lot of subsidies.

Currently, the electric car manufacturer BYD receives particularly high subsidies. Direct subsidies amounted to approximately EUR 220 million in 2020, rising to EUR 2.1 billion in 2022. In terms of business revenues, direct subsidies increased from 1.1 percent in 2020 to 3.5 percent in 2022. Additionally, BYD receives significantly more purchase premiums for electric cars in China compared to other domestic manufacturers like GAC or foreign companies producing locally, such as Tesla or VW's joint ventures.

U.S. automakers are now being weaned off government subsidies and that is a very good thing.

But here’s what Ford and other car companies are up against — a Chinese auto industry that has advanced by leaps and bounds and is now building world class vehicles. Today, the Chinese are barred from flooding the U.S. market with these subsidized EVs. But you have to ask yourself: Where will Chinese companies like BYD be when Ford launches its Universal vehicles in 2027-28?

And where will Tesla be a couple years from now?