Ford bets big on software for small business
• Vehicle maker eyes $1.8bn profit in connected services
HomeTown Services, a heating and cooling repair company in Tulsa, Oklahoma, is getting ready to install driver monitoring cameras in some of its trucks and already uses streamed data to remind drivers not to sit too long in idling vehicles, wasting petrol .
“People will sit in a vehicle for an hour or two,” said Del Underwood, vice-president for purchasing and fleets for the company. Now, technicians get a text message instructing them to either turn off their trucks or move to the next assignment.
That may annoy some employees, but it is good news for Ford Motor’s commercial vehicle unit, Ford Pro, which has placed a big bet on softwarerelated services.
Ford Pro hopes that selling connected services such as driver monitoring systems to small and medium fleet operators will help generate as much as $1.8bn in annual profit within two years. Ford CEO Jim Farley has urged investors to think of Ford Pro’s bundle of software and vehicle sales, not Tesla, as the “future of the automotive industry”.
Companies including Geotab and units of Verizon dominate the market for telematics services provided to large vehicle fleets, said Mike Ramsey, vice-president at technology consultancy Gartner. But Ford “can get all the guys buying Ford Transits for their plumbing business”, Ramsey added.
Small and medium business fleets in North America and Europe constitute a big enough market that Farley has told investors Ford Pro could earn 20% of its pretax profit from selling software and services within two years.
Farley has forecast Ford Pro pretax profits at $8bn-$9bn this year. He has promised investors Pro can earn fatter margins than its consumer businesses, partly due to services and maintenance business driven by telematics connections to vehicles and data.
In 2023, Ford Pro had 500,000 paid subscriptions for software services.
“It’s up 46% and the margins are above 50%,” Farley told analysts in January. He said 12% of vehicles Ford Pro sells have software subscriptions attached and he wants to triple that.
Ford Pro CEO Ted Cannis told investors last May that software subscriptions could bring in $2,000 a vehicle in revenue per year. By adding on services such as insurance, Ford could boost that revenue per vehicle to $4,000 to $5,000.
Ford uses telematics connections to prompt commercial vehicle owners to get parts replaced before they break. Boosting the rate of service subscriptions “by one percentage point can add about $30m of incremental ebit [earnings before interest & tax] to the business,” Ford Pro CFO Navin Kumar said last month.
Ford is also selling data from its vehicles to large fleets that subscribe to rival telematics services.
‘FORD’S FERRARI’
While Farley sees big dollars, investors so far haven’t boosted Ford’s share valuation to anywhere near Tesla’s level.
The Silicon Valley electric vehicle (EV) company is worth more than 10 times Ford’s market capitalisation.
Morgan Stanley analyst Adam Jonas has described Ford Pro as “Ford’s Ferrari”. But he has also asked: “How long can Ford Pro fund losses in the vertically integrated EV strategy?”
In 2023, Ford Pro earned $7.2bn in pretax profits and had a 12.4% pretax profit margin. By comparison, Ford’s overall pretax profit margin was just 5.9%, reflecting the cost of United Auto Workers strikes at US factories and a $4.7bn pretax loss on electric-vehicle operations.
Ford Pro’s above-average profit margins have prompted rivals to counter.
Stellantis last year grouped its commercial vehicle operations under a new name: Stellantis Pro One. Beyond emulating Ford’s use of the word Pro,
Stellantis said it aims to generate €5bn annually from sales of connected services. General Motors in 2023 reorganised its North American commercial vehicle business to sharpen competition with Ford Pro.
Another challenge for Ford Pro will be to make paid subscribers out of customers who now get software and telematics services free.
FREE TRIAL
Fize Electrique, an electrical contractor in Quebec, is using Ford Pro software for a one-year free trial to monitor 12 Ford EVs it bought for battery charge levels. It is crucial because EV batteries lose driving range more quickly in Quebec’s winter weather.
“When we got the first ETransits, I was watching the numbers all the time,” said Alain Fiset, who oversees the company’s fleet. Data pulled from the vehicles “helped us understand what’s the state of the battery.”
That convinced Fize to accelerate the move to an allelectric fleet, taking advantage of Quebec’s relatively stable power rates.
Ford Pro is experimenting with new ideas for software services, and not all the projects work out, Dave Prusinski, chief revenue officer for the division’s software operations, said in an interview.
In 2021, Ford and business software company Salesforce announced plans to develop a subscription software service, VIIZR, that would automate work orders for contractors. But that project has been wound down, Prusinski said.
“Realistically it was not our core,” he said. “There were some great solutions on the market. We were seeing traction, we couldn’t catch up fast enough.”