Ford vs. GM: The Auto Rivalry Reaches The Electric (Pickup) Age

We have written before about the exciting wave of new electric vehicles coming to the roads near you and why it is important trend for the climate and also the future of American manufacturing and industrial prowess.

In earlier editions of Pebble we have covered some of the exciting new companies such as Polestar and Rivian.

But what about the incumbents?

We have been meaning to write about Ford and GM for awhile and some recent headlines and hype give us a good excuse to look at these iconic companies. Why do these two car manufacturers embody both the promise and the potential problems of an industry shifting to an entirely new business model built around electric vehicles.

The headlines are coming fast:

  • Just this week Ford announced that they are building 3 battery factories and a new truck plant in Tennessee and Kentucky at the cost of $11.4 billion in partnership with their South Korean battery supplier.

  • Ford is putting up the majority of the cash and building one of the the few brand new auto assembly plants in the US in recent decades. In fact the $7 billion is the single largest inflation adjusted manufacturing investment in Ford's 118 year history.

  • These investments are being spent with the aim of reaching 40-50% of vehicles sold being electric by 2030 and 100% some time later that decade.

  • GM has previously promised to devote over $27 billion to electrification by 2025 and after Ford promised $30 billion this past week it magically moved to some $35 billion overnight.

To paraphrase Oprah Winfrey: You get an electric vehicle and you get an electric vehicle!

This type of one-upmanship is sort of cringe inducing on the one hand but on the other it is a welcome sign of good old fashioned competition within the auto sector.

It is also a much needed private sector investment in the American economy and energy transition as Ford' Chief Executive Jim Farley has highlighted to the WSJ:

“We’re actually spending the money, building the buildings, insourcing the batteries. That’s a significant strategic change over supply-chain management.”

It is actually a really intriguing shift. Ford (and also GM) are not just investing in their business, they are doing so differently from the dominant manufacturing paradigm of the last 40-50 years.

Many of the major car companies are:

  1. Beginning to re-shore their suppliers as well as

  2. Bringing more of their development in house and most importantly

  3. Building some of their critical components such as batteries and microchips that - even if they are still made by Asian suppliers - close to their domestic manufacturing hubs in Tennessee and Kentucky.

The Ford partnership with the South Korean battery supplier SK Innovation is emblematic. So is Tesla's long running relationship with Japan's Panasonic and GM with LG Chem.

This is not business as usual. Rather, it is a business having learned some of the powerful lessons of the financial crisis, the pandemic and the slow but steady decline in quality and market share that have plagued the US auto industry for the last two generations of consumers.

If you want to produce high quality products it helps to control more of the supply chain and work closely with suppliers on long term contracts. It also helps

Now, not all the headlines have been quite so rosy:

The biggest has been, as with other car companies, quality control problems.

GM's signature EV, the aptly named Chevy Volt has had not one, not two but three different recalls in the last year - reaching nearly 150,000 brand new electric vehicles. This is...not a good look.

Even worse, the recall issues have to do with the core technology: the battery. As we have touched on before, getting the battery right and making people confident in the technology is critical for a smooth and quick adoption of the technology.

It is also incredibly expensive to fix the core component in an electric vehicle. This isn't a defective windshield.....

This underlines perhaps the most significant risk for the Detroit giants. Not whether they will make the shift to electric vehicles but whether they will build reliable and popular vehicles. The stakes are high and the trends are not propitious.

Ford and GM combined had 70% of the US domestic auto market in the 1970s and 50% as recently as the year 2000. That percentage has now fallen to the low 30s. Quality has been a big part of that collapse.

The transition to electric is a chance at corporate renewal and a reworking of how these large and lumbering corporations build and sell their core products. As we have tried to detail, there are actually some welcome signs that they are reinvigorated by the opportunity.

If forced to pick, we remain fans of Ford ($F). As we have written about before, the F-150 Lightning has received glowing reviews and is hitting the market early next year. For electric vehicles to have a future in America, there needs to be a popular pickup truck that reaches beyond the coast to the heartland. The Lightning is a good bet to have both the brand recognition and performance as well as dealer network to convince less ambitious or adventurous buyers.

They have also launched the Mustang Mach-E SUV thereby overhauling and reviving an iconic brand and an American classic.

Ford's shares trade at roughly 9 times expected earnings compared to Tesla's 123 times. Quite a gap when the Elon Musk's company sells 500,000 vehicles a year in the US and the former does well over 2 million.

Could Tesla v Ford be a good direct indexing possibility?


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