Think Ford… Second? Sustainable Energy in the American Auto Market

With growing competition in the american automotive sustainable energy market, how will Ford Motor Company continue to compete as the leading sustainable manufacturer.

Fighting for American Automotive Sustainable Energy Presence

For 16 years, Ford Motor Company has published its annual sustainability report as a means to highlight efforts that position the company as the top traditional American automotive manufacturer, focused on long term sustainable energy. Ford is actively involved in a multitude of channels to improve its efforts in reducing its carbon footprint, however, how long will the company be able to maintain their position in leading these efforts? Competitors such as Tesla Motors are making significant strides in renewable energy markets and have more flexibility to react to changes in US auto regulations. Will Ford be able to maintain its competitive edge in this market by maintaining its current energy plans, or will they need to re-strategize to keep up with other emerging influences?

The “Ford First” Strategy

In 2015, Ford initiated a program wherein the company committed to focusing on “enabling better communication and full engagement on sustainability across the enterprise; achieve alignment on Ford’s Integrated Sustainability vision across business units and functional skill teams, looking for best practices and efficiencies; Inventory sustainability initiatives across business units and functional skill teams and determine where to go further; [and] establish a global integrated sustainability operating system.” [1] In lighter terms, the company plans to facilitate global conversations and skill development regarding renewable energy into 2017, at which point, they will seek to leverage existing action plans, and execute sustainability strategies through 2020. [1]

The company has already made several strides in the renewable energies market, including improved manufacturing facilities and vehicle technologies. While increasing company pre-tax profits from $8.6B in 2013, to $10.8B in 2015, the company has managed to increase average fuel efficiency among US fleet vehicles and has reduced vehicle CO2 emissions. From 2013 to 2015, average fuel efficiency increased from 29.5 to 30 miles per gallon (mpg), and reduced fleet CO2 emissions from 302 to 296 grams per mile. [2] Ford also recognized operational improvements such as reducing its worldwide facility energy consumption from 15.2 to 14.6 billion kilowatt hours, and reducing worldwide facility CO2 emissions from 4.8 to 4.7 metric tons. [2] The company achieved these metrics by offering its “EcoBoost” engine on 32 different vehicles, investing $4.5B in their electrified vehicle strategy, and developing a lead in “lightweighting” vehicles such as reducing the weight of the F-150 by c.700 pounds with their new focus on aluminum body manufacturing. [3]

New Competitors in the Market

“As of 2016, the number of American car companies that haven’t gone bankrupt is a grand total of two: Ford and Tesla,” as stated by Elon Musk, Tesla Motors’ founder and CEO. [4] Musk has identified that the purpose of Tesla Motors is to generate enough financing from sales of low, medium, and high volume vehicles to provide solar power on a national scale. [5] And in October, 2016, Tesla Motors made good on its claim by unveiling its line of solar roofing tiles, which the company claims will be as cheap as a standard roof today. [6] While detailed information on the product’s financials have not yet been made public, it is clear that this, among other renewable energy efforts released by Tesla, could derail Ford’s position as the leading American auto manufacturer for sustainable energy.

Government Regulations Impacting the Market

“Transportation is responsible for 26% of U.S. CO2 emissions, making it the second large source behind electricity (30%).” [7] With this in consideration, the US Government under the Obama Administration, imposed new legislation in 2012, requiring an average fuel economy of 54.5mpg for model year 2025 vehicles, and 35.5mpg by model year 2017. [8] At this time, the US Government was seeking to reduce fuel costs for Americans by $1.7T, or $8,000 per vehicle by 2025. [8]. However, regulations on vehicle emissions are not the only renewable energy legislation sources affecting players in this industry. “Performance standards mandating the use of more efficient, or lower-energy technologies have been put in place for vehicles, appliances, buildings systems, and other technologies,” as stated in the Financial Times. [9]

Impact to Operations

These recent challenges from competitors and renewable energy regulations, pose a threat to Ford’s current approach. With fuel efficiency only improving by .5mpg in the last two years to 30mpg, can Ford meet the 2017 35.5mpg target? Will Tesla’s move into the solar panel industry create strategic advantages that allow them to surpass Ford Motor Company’s renewable energy efforts? Significant innovations in vehicle emissions technology will be required to meet the 54.5mpg target in 2025, only 9 years away.

It seems apparent that Ford will have to innovate their current manufacturing and design strategy to develop the next revolution to American manufacturing, as it did with the introduction of the assembly line. The world will be watching to see how the company reacts to the market’s annually evolving inputs.

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[1] Ford Motor Company, Sustainability Report 2015/16, Integrating Sustainability, http://corporate.ford.com/microsites/sustainability-report-2015-16/sustainability-strategy-integrating.html, accessed November 2016.

[2] Ford Motor Company, Sustainability Report 2015/16, Performance and Reporting, http://corporate.ford.com/microsites/sustainability-report-2015-16/sustainability-performance.html, accessed November 2016.

[3] Ford Motor Company, Sustainability Report 2015/16, Our Goals and Progress, http://corporate.ford.com/microsites/sustainability-report-2015-16/sustainability-performance-goals.html, accessed November 2016.

[4] Ferris, Robert. “Musk sees Tesla’s future: Trucks, transit and solar in a push to sustainability.” CNBC Autos, http://www.cnbc.com/2016/07/20/tesla-motors-ceo-releases-new-master-plan.html, accessed November 2016.

[5] Musk, Elon. “Master Plan, Part Deux.” https://www.tesla.com/blog/master-plan-part-deux, accessed November 2016.

[6] DiClerico, Daniel. “Here’s How Much Tesla’s New Solar Roof Could Cost.” Consumer Reports, http://www.consumerreports.org/roofing/heres-how-much-teslas-new-solar-roof-shingles-could-cost/, accessed November 2016.

[7] “Sources of Greenhouse Gas Emissions,” United States Environmental Protection Agency website, https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions, HBS No. 2-317-032 (Boston: Harvard Business School Publishing, 2016), pg. 11.

[8] Vlasic, Bill. “U.S. Sets Higher Fuel Efficiency Standards,” The New York Times, http://www.nytimes.com/2012/08/29/business/energy-environment/obama-unveils-tighter-fuel-efficiency-standards.html, accessed November 2016.

[9] Michael Kavanagh, “A world map of subsidies for renewable energy and fossil fuels,” Financial Times, July 26, 2016, http://www.ft.com/cms/s/2/fb264f96-5088-11e6-8172-e39ecd3b86fc.html#axzz4JbSJgjPI, HBS No. 2-317-032 (Boston: Harvard Business School Publishing, 2016), pg. 10.

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2 thoughts on “Think Ford… Second? Sustainable Energy in the American Auto Market

  1. Your question “Will Tesla’s move into the solar panel industry create strategic advantages that allow them to surpass Ford Motor Company’s renewable energy efforts?” is an interesting one. The threat posed by Climate Change, and the contribution of CO2 emissions from traditional forms of transport to this is so great that I wonder whether we will see more collaboration between automakers in the future with their move to sustainable/renewable energy sources. This was the spirit in which Elon Musk declared that all of the IP relating to Tesla’s patented technology would be made publically available (https://www.tesla.com/blog/all-our-patent-are-belong-you)

    In this statement Musk notes “given that annual new vehicle production is approaching 100 million per year and the global fleet is approximately 2 billion cars, it is impossible for Tesla to build electric cars fast enough to address the carbon crisis. By the same token, it means the market is enormous. Our true competition is not the small trickle of non-Tesla electric cars being produced, but rather the enormous flood of gasoline cars pouring out of the world’s factories every day.”

    Your original question implied that there is competition between automakers as to who can produce the most sustainable energy / the most cars powered from renewables. I would like to see a move away from competition in the production of energy and the technology which enables cars to run on electricity, and rather the automotive industry collaborate on this front. Carmakers should focus on making great vehicles which customers want to buy because they drive well / are attractive from a design standpoint / have great features / are comfortable etc. Consumers should not be forced to compromise between buying a good, reasonably priced car, and a car which is good for the environment.

  2. I found the comparison between Ford and Tesla very interesting, and I never realized they were the only two American automotive companies that have not been bankrupt. I was thinking, to continue the comparison between these two companies you could discuss their focus on autonomous vehicles and how that technology can help combat climate change and eliminate carbon emissions. Ford’s CEO announced a lofty goal this year of creating an fully autonomous vehicle by 2021, and they are doubling their Silicon Valley Team, and more than doubling their Palo Alto campus [1]. Clearly these two companies are in competition with one another, and it will be interesting to see which company can create this technology the fastest. I believe autonomous vehicles can play a significant role in eliminating the total number of cars on the road through the continued popularity of ride sharing applications, and in turn this could decrease total carbon emissions. I thought this could be another way to analyze these two companies with respect to climate change.

    Source [1]: https://media.ford.com/content/fordmedia/fna/us/en/news/2016/08/16/ford-targets-fully-autonomous-vehicle-for-ride-sharing-in-2021.html

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